There are two competing camps on the internet:
- that companies charging money for things is bad;
- that the internet is still an amazing place to build a profitable company.
I get hate for talking about how marketers can make more money (in completely legal and upstanding ways, no less) on the internet by doing what they love and what their customers genuinely need.
I’m outspoken about it, because I genuinely believe this:
The best thing a company can do for their customers is charge them a fair price that allows the company to stay in business and keep growing, because then the company can provide an even better service to all of their customers.
This is true whether we are talking about selling consulting services, online plugins, or tennis shoes.
I find it fascinating that in the high-ticket service industry, clients/customers will often ask for the same work but for a lower price than what you quoted them.
Imagine this scenario:
You walk into the supermarket and see that a dozen eggs costs $2.99.
You need two dozen eggs, so you put both in your cart.
When you get to the checkout and the cashier rings them both up, you go “Hey, why are these $5.98?”
The cashier goes “Oh, my bad. What would you like to pay for them?”
Not in a million years! Now, some supermarkets that are so “customer-centric” may give you a small percentage off for asking for it (reminds me of Noah Kagan’s coffee challenge as outlined here on Pat Flynn’s Smart Passive Income podcast), but most cashiers will look at you like you have a second nose or an eyeball in the middle of your forehead. And quite possibly, like you have both.
The price is the price. You don’t get the second one for a discount because you ask for it. You get a discount when they are doing a sale and you can buy one for $2.99, but two is $4.99. (The real scam here is that if you buy just one, you usually get is for $2.49. Bulk pricing is a way to get rid of inventory and increase revenues, even if the profit percentage is smaller).
The challenge for high ticket services providers is that when you do this, you’re cheapening the value that you bring.
If you could sell it for $2,500 and the client would pay it, yet you sell it for $2,000 just because they ask, what are you saying?
Well, you’re saying two things:
- That you don’t believe that you work is worth the price that you quoted, and
- That even though you don’t believe it is worth the price, you were willing to quote it there anyways.
So really, what you’ve just said is that they shouldn’t pay what you quoted because it’s overpriced and that you’re willing to try to rip them off.
Not good, and not what you want to communicate.
This post isn’t going to be about negotiation strategies, though it well could be. I’ll save that for another post in the future (note to self: write a post about negotiation strategies when selling consulting work).
This post is going to talk about why you should charge your clients what you think is fair.
No sneakiness here. No psychological tricks of smaller fonts or different colors.
Here are the reasons I have found that you should charge more, almost always.
Bigger prices = better clients
Talk to someone who does services for clients from small to large, a range. Then ask them who takes more of their time, the large clients or the small clients?
I will bet you, with a high degree of certainty, that they will answer you that the smallest client always takes the largest amount of time.
Why is that? Because for a small client, you’re usually at the top of their budget range (no matter how low your pricing is) and they cannot afford more or afford to not spend well. Thus they’ll be higher maintenance.
For a larger client with a bigger budget, they have more wiggle room. Sometimes they even need to spend that budget to make sure they get it next year too. They’re going to be less needy simply because they are working on a different economy of scale.
With this in mind, you can see why a larger client is going to be a better client. You can:
- Do more within the budget, which gets them results faster;
- Get better results = better value for their spend even though they are spending more than a small client;
- Charge more per hour, so a $5,000 a month client doesn’t have to require 5x the hours that a $1,000/mo client requires.
So you make more money for less time and your clients are happier.
Sounds like a win.
Bigger prices = stay in business
The main reason I say that you should charge more for your services is that when you do this, you get to stay in business and be less stressed within that business.
Asking for a discount on eggs is one thing – if they give you (and all of their customers) $1 off the second dozen eggs, they’re not going to go out of business. Grocery stores don’t make their margin on eggs, they make it up in volume and sometimes having producers rent space on their shelves. Eggs are a commodity.
If you’re providing a service, the best thing you can do is not provide a commodity. If you bill well for your services, then you can more easily run a profitable business that can grow and stay around for the long term.
Charging more, and increasing your rate, is single handedly the best way to stay in business.
As Ramit Sethi says,
You can’t always cut more expenses, but you can always make more money.
And as Jonah Peretti, cofounder of Huffington Post and founder of Buzzfeed, said:
“A company that doesn’t generate money isn’t a company that gets to do very much. From a business standpoint, money is a means to an end.”
Stay in business = keep providing great value for clients
Something confounding I’ve noticed about humanity, especially in capitalist nations, is that we will often do things that run counter to our best interest. We’ll vote down any tax cut because “higher taxes”, but then we’ll complain that the roads are in bad condition. But all you had to do was pay a bit more in taxes earmarked for better roads, and you’d have better roads.
Same holds true for service businesses. Clients will attempt to negotiate down as low as they can go, even if it means you’re operating at a loss and they are literally putting you out of business.
They’ll also negotiate hard to lower the rate, even though they know (or maybe they don’t) that by doing so you are giving your services for cheap. And if you’re between the decision of keeping a client happy who is paying you more or keeping a client happy who is paying you less, the smart business move is to keep the higher paying client happy.
By not giving in and charging less than your work is worth, and less than what you need to stay in business, you are doing the best thing you can for your clients’ success.
You are staying in business.
You might hit a pricing ceiling, you might not
When your prospect asks you if you can do it for less, what they are really saying is:
I don’t value your service as high as you are quoting it, therefore I think you should charge less.
When you hit this objection, you shouldn’t just assume that you’ve hit a pricing ceiling. You may have hit it for that individual client, and if you start hearing this from all of your prospects (1 is a fluke, 2 is data points, three is a trend) then you need to ask what would convince them to pay what you are asking.
But you haven’t necessarily hit a price ceiling. I’ve seen some consultants struggle to sell a technical site audit for $500, and I’ve seen others sell a technical site audit (albeit for a bigger site and company) for $20,000.
What’s the difference? Size of client, which we covered above.
It’s not price. There are no ceilings across the map, just ceilings for individual clients and what they have told themselves they should pay.
One large reason people give me for not raising their prices is that they might hit a price ceiling.
A meteor might fall on the the earth too, but that’s not keeping me from living my life.
And after all, I’d rather know that a meteor is coming my way than not know.
Wouldn’t you rather know where the top of your pricing is for the services you currently offer, so that you can either add more value (and thus raise prices) or know that you’ll close a high percentage of deals with your pricing?
Quoting higher prices shifts your mindset
Something I’ve learned over the years as I’ve raised prices and gradually worked with bigger and bigger clients is that pricing well takes practice and is a muscle you need to work out. You need to be courageous to tell someone that the audit you are proposing for them will cost $35k (as long as you know that’s not outside their budget).
It would be much easier to quote half of that, because then you could be positive that you’ll close the deal (unless you’re now going too cheap, which I have also seen happen).
By learning to quote higher prices, you are communicating that your work is worth the price and by coming across confidently, you’ll close more work across the board whether $35k or $5k is a big number for you.
Confidence goes an incredibly long way in business. Clients want to work with those who are confident (remember, confidence is different from cockiness) that they can get the results. We are drawn to those people, who are sure of themselves after taking an honest look at themselves.
When you quote higher prices and shift your confidence and mindset towards being worth that, only good things happen in business.
What about you? Have you found the above to be true, or not? Sound off in the comments.
Great article, John!
I like to think of it like this. It’s going to take me the same amount of time and effort to land $1000 a month retainer as a $10’000 month retainer.
Also, so much more competition for those small time clients with small budgets in my experience.
and you are so right about clients that pay the least expect the most.
I’d like to see an article on how you deal with friends asking for discounts and freebies.
Yeah, that is a GREAT way to think about it!