Setting your prices too low is a rookie mistake.
Especially once you start trying to succeed in a competitive marketplace.
Unfortunately, where most freelancers (and even agencies) go wrong is their price.
And when I start telling people running similar online businesses that my rates start at $200 USD an hour, when they’re struggling to get $20, they kind of freak out.
Well it wasn’t always this way.
The rates I charge today are more than 40x what I started with.
And they’re still going up…
But there’s a reason for that.
First, cheap prices attract cheap clients, and these aren’t my ideal clients.
Second, I know the value my work creates, and the results I can generate.
It’s not a magic solution.
I simply know the value of my work, so I charge what I’m worth.
How I (wrongly) priced my services
When I opened the doors to Studio Digita, I priced my services the way I knew best.
My background was in market analysis, i.e. figure out the going rates for a product in the market, and based on your supply, adjust your prices accordingly.
So, I price matched the competition.
Trouble is, with this strategy all you have is a race to the bottom.
If your competitive edge is a cheaper product, well, it doesn’t take much to beat it.
And you can see where this is going…
A slow spiral downwards.
You drop your rates, the competition drops theirs, you drop yours further, until you’re barely even making a profit on the business you’re quoting.
The only one who wins in this situation is the client, and they know it.
They’ll happily tell you what the other agencies are quoting, so you feel obliged to match it.
My advice (in retrospect)?
Stop doing this, immediately.
The situation I found myself in
The trouble with price matching, is that you’ll win business, but it’s not always worth it.
I’m guilty of this more than anything, earning $10 and $20 a pop for articles that would take hours to write, the first website I was paid to build, I charged the client a whopping, $400.
At the time, I was over the moon,
But it took me almost two months of near full-time work to (1) figure it all out and nail down a process, and (2) actually start achieving the results the client wanted.
Hashing it out I’d say I spent 5-6 hours a day on it, roughly 30 hours a week for two months, which is about 240 hours. Maybe it was more, maybe it was less, but it was somewhere around this mark (I didn’t start time tracking till several months later).
If I write off the learning time, which, to be fair, was about two thirds of the hours I spent on this website, we’re looking at a project that took 80 hours to deliver.
Divide 400 by 80 and you get five bucks an hour.
Lose 30% for taxes and that’s $3.50 in my pocket.
I made more than this (far more) swiping groceries through a checkout as a teen.
Now in the case of this particular client, his lifetime value is through the roof, not only is he still on retainer to this day, he’s sent through referral after referral, leading to new projects and new friends, relationships worth far more than the price tag on that first website.
But he’s a diamond when it comes to clients.
And the hard truth, is that in the vast majority of cases, you’re not charging enough.
Your focus needs to be on value
But accurately pricing “value” is a hard thing to measure.
My advice, is to think about the bottom line results your services generate.
This can be tricky if you’re just getting started, but if you’ve been in business a while you should know the kind of results you can deliver. Ask yourself honestly, would you pay for your services? Is there enough meat on the bone to justify the cost?
Go grab a pen, and let’s map it out.
Say I’ve been tasked to re-work a landing page that sells a $197 product.
Currently 3.5% of ad traffic clicks through, roughly 1,000 visitors to the landing page a day with just on 1% converting at the final sale. 10 sales a day, is $1,970 in revenue.
Less say around $1000 in add spend.
It’s a profitable landing page, they’re profiting $970 a day.
But if my new sales copy pushes their conversion rate to 1.5%, they’ll be bringing in $2,954 revenue, on the same $1,000 ad spend.
That’s a little under a thousand dollars of additional profit, every day.
Of course, there’s costs to serving customers and that, but think about it over a month, that’s almost an extra $30k. If the campaign runs for three months, a little under a hundred grand, in ADDITIONAL profits, from the work I’ve done.
You may think charging $15,000 for a landing page is astronomical, but if it pays for itself in the first two weeks, (and the rest is all profit), well that’s a totally different story, right?
You need to look at the value you create, and not what the market is charging.
You need to value your intangibles
This particular one is where I still struggle today.
People will happily pay for you to simplify their life.
For you to make things easier for them.
Yes, the bottom line results matter (arguably the most), but there’s a value on your intangibles too. All the things that make you, well, you.
One thing I do is a ridiculous response time.
If I get an email, we promise to answer it in 24 hours, but if I see it ping in, I’ll reply instantly. Just to let the client know we’ve got it, it’s being worked on, and when they can expect an update. It’s a small thing, but I’ve been told a number of times how reassuring this is.
Your intangibles are valuable.
If your clients love working with you, this is an intangible they will pay for.
If your clients feel a connection with you unlike any other service provider, this is valuable.
If you make it so damn easy to work with you and your agency, they’ll never look elsewhere.
Of course, there needs to be an ROI on the work you do, but remember, we’re all people, and the intangibles do make a difference when it comes to selecting one service provider over another.
You need to up your prices today
I’ll say that again.
Today is the day you start increasing your rates.
In fact, you could probably even double or triple your current rates without any major pain.
You may lose some customers sure, but there will be those who choose to stay, because they see the value in your offer, and they’re willing to pay for it.
You’re working hard, at $40 an hour you’ve probably got about 30 billable hours in a week, the rest goes to admin, prospecting, sales calls and the like.
So, you’re pulling just under $5k a month.
Not bad, but not all that great either (this is where I was initially stuck in my business).
Now, think about what would happen if you tripled your rates.
You’ll need to give your clients notice of course, perhaps grandfathering in a couple who matter most, but I recommend being brutal, and prepare to dish out some tough love.
At $120 an hour, you could lose two thirds of your clients, and still bring in the same amount of cash at the end of the month. And better yet, billing only 10 hours a week instead of 30. With all that extra time, what could you do?
Well, my advice would be to go find more clients, willing to pay your new rates.
Clients wonder why you don’t charge more
Even since I upped my rates, I’m still coming across situations where I’ve still been underpriced against my peers.
I’ve pitched some rather large contracts in my time (full-scale web applications to developing apps for government-regulated industries – you can imagine how much work went into that 380 page RFP document), and I can honestly, tell you this.
You are undercharging.
I’ve sent six-figure quotes on websites only to discover later I was one of the lowest bids.
You read that right.
I lost out on bids because I didn’t quote high enough.
My potential clients took me out of the running because I was priced so cheap they didn’t think I had it in me to get the job done. Not to the standards they were after anyway.
And that’s the kicker.
We would have knocked that project out of the park, but because I wasn’t priced high enough I wasn’t even in the running. Being the cheapest option isn’t a good thing.
Clients will push back on premium rates
The trick, is to find ways to communicate the value you can create, that justifies the prices you are charging. And this is a DELICATE balance.
- Send your rates too early, and good clients may get scared away.
- Send your rates too late, and you may waste time on clients who will never pay for you.
I’ve been told $1,500 to re-work the copy on a landing page is too expensive.
Clients have walked away.
Sure, there’s plenty of website developers out there offering to slap together a website for $500. But you get what you pay for, especially when it comes to services.
Your focus needs to be on ROI, and if you’re talking to a serious client, theirs should be too.
Instead of looking at what something “costs,” smart business owners care about the return.
Spend $500 on a terrible landing page that creates zero sales?
That’s a $500 loss right there, not to mention the time and energy wasted on the project.
Spend $15,000 on a premium landing page, filled with highly engaging sales copy that draws a prospects interest, get them to make a small commitment and into a set of warm-up email and follow up sequences that produces $50,000 in new sales on the back of a $10k ad spend?
Well, you’ve just doubled your money.
That $25k spend becomes $50k revenue…
It’s like a machine, for every dollar you put in, it spits out two.
Which do you think a business owner would prefer?
Your job, is to highlight the value you create through case studies, build authority in your particular niche, and showcase all of your expertise, so your prospects trust there’s a real value in your products.
Get it right, and the right clients will have no problems paying a premium price.
That’s how you’ll get your agency to the next level.
Ultimately, I can’t tell you what is the “right price to charge,” but I do know this. You need to be prepared to push the needle. If you’re focused on becoming an expert, a leader of the pack, the best in class at whatever it is you are doing, and can demonstrate a real ROI on the services you offer, you can charge whatever the hell you want.
Keep up the great work,