Putting a Price on What You Do
By: Belle Liu
Tags: Value Based Pricing, Agencylife, Consulting, Business

Photo by Morgan Housel on Unsplash

In my last article, Your Clients Will Thank You for Charging More, I talked about creative professionals who price work based on their “costs” to produce it, not on their value, which leads to underpricing and a ton of problems. But what is the right price to charge? How do you figure out your value?

Let me tell you a story.

When I started out as a freelance web designer in Hong Kong, I charged as little as HK$3,000 (~CA$500) to build a website. How did I come up with that number? Well, that was basically my monthly cost of living. I didn’t think much about charging more because I was just glad to be getting paid to do something I enjoyed.

So a few years later when I sent a HK$60,000 quote for a project that should only take my newly incorporated company a month to complete, I was pretty sure I charged enough — I worried the client might even think we were too expensive!

What happened next really shocked me. The client asked, “Belle, is this HKD or USD?”

US$60,000 would equal HK$465,000!!!

A sum that would keep our two-person team afloat for 31 months!

The fact that the client would ponder I made a mistake with the currency symbol made me realize: they were expecting to be charged WAY more, like 7 times more! And why didn’t I see that in the first place?!

I did not have any revelations about pricing overnight, but over the next 16 years I learned a few things:

Always Ask

The best way to find out what the client is willing to pay is to ask them. Seriously, the earlier the better. There’s no need to dance around the money talk when it comes to doing business.

They may not give you an answer, but initiating that discussion shows that you mean business. And it can save tons of time up front if that number is too far below your minimum charge.

When, Not How

Those who value the engagement highly care about when you can get it done, not how you get it done.

If something can be done “whenever”, how important could it be? I love hearing clients say “ASAP” or even “Yesterday!” when I ask, “Ideally when do you want this done?” That doesn’t mean I have to bend over backwards to deliver in an impossible timeline. It is just a way of gauging how valuable they find this project.

Who Are You Talking To

Are you talking to the CEO/owner, middle management or a junior staff member? Generally speaking, the higher-up the person doing the vetting, the more valuable the project is to the company. In my $60K fail story, I was actually talking to the second in command at a fairly big company. Do you think someone in that position would spend his time on the vetting process if it was not very important? Consider this and charge accordingly for the expertise you bring to such a valuable engagement.

Got Time?

Were you asked to turn around an estimate quickly, without sufficient time to ask questions or engage in some back-and-forth? If a client does not want to spend time with you, it is unlikely they think what you offer is valuable. They just want to know the price so they can compare it to other options. A low value engagement does not warrant time or attention — either you are offering something they treat as commoditized or you have a positioning issue. Usually it’s a bit of both.

Investment Mindset

Do they look at the engagement as an investment or an expense? In other words, are they convinced that what you deliver would help them make a lot more money?

Try asking, “How would you measure the success of this project?” You want to hear some business-oriented or customer experience-oriented metrics. If they have no idea, educate them based on your experience from a past project. The more you can “talk business”, the more valuable they will realize you are.

Risk Mitigation

Is this client asking you to do something “similar to what you did for your other client”? If so, your relevant experience is worth a premium — it buys them peace of mind. They are confident you are the right fit and they would not object to paying more.

Similarly, did they find you through a strong referral? Have you been doing this for a long time? All these play into the client’s decision making. The less risk they have to take, the more they are willing to pay.

The Formula

There is no magic formula to pricing. Step one is to stop pricing based on your costs. Stop inviting clients to think about your effort by saying things like, “This requires X hours to produce, so I’m charging you Y”, or doing things like providing a pricing breakdown.

Step two is to establish a minimum engagement price, communicate it, stick with it, and keep raising it. A good minimum engagement price allows you to provide a VIP level of service and quality, without worrying about closely managing scope.

The best time to figure out your new, higher price is to pick a project you’re on the fence about. Quote it 3X higher and see what happens. Or forget the 3X rule and simply heed Cassidy Williams’ advice and just ask for “obscene” amounts of money when you’re unsure you want to engage at all. That’s how I gradually increased our price from $3,000 to $300,000 over a decade.

If you start hearing, “I’d love to work with you but we cannot afford this price,” you are on the right track. You will start taking on fewer projects, getting better clients, and making a profit.

Discounts

When can you charge less than your minimum engagement price? Discounts should always be treated as exceptions, but these are the situations that I would consider applying a discount:

Freedom to experiment — a chance to do something experimental with a client we worked with before and who trusts us.

Case study potential — a chance to build a case study around the project that we can use in our own marketing and positioning efforts.

Revenue potential — the project could easily lead to more high-value engagements from the same organization or through referrals.

Final Takeaway

You have to decide where you like to compete, the kinds of problems you want to solve, and then price yourself accordingly. Think like a business and act like a business, whether you are a designer, developer, writer or photographer.

Your value is what your clients are willing to pay you to solve their problems, not your costs. If you never raise your price, you would never know your potential. It may feel counterintuitive at first, but charging what you’re worth really is a self-fulfilling prophecy.