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So Totally Business Savvy, Episode Six.
Hey, everyone! Welcome to So Totally Business Savvy. My name is Dean Soto. We are on Episode Six. Oh, wow, fantastic! This is going to be awesome. We’re going to be talking about “pricing,” a word that is almost a “dirty” word to people that are just starting a business, who are thinking of going out on their own, doing their own thing.
Pricing. How do I price myself? What is a “fair price?” Am I taking advantage of people when I’m pricing high or am I being taken advantage of when I’m pricing low? All that and more, coming up!
So once again, welcome everyone. I’m so excited. This is so cool! Episode Six. Wow! And there’s a lot more episodes coming up.
We’re going to be talking about pricing. But first, I wanted to give a couple of thanks shout-outs to some Twitter folks, actually, a lot of Twitter folks: John Lusher, Rochelle Veturis, people who are tweeting, re-tweeting my Paul Tran interview. It was just awesome! It was so cool seeing how many people really liked the interview. Paul Tran is awesome! And the love that they showed by re-tweeting my podcast. My podcast is new but it’s always nice to see when people, knowing that you’re doing something valuable and that you’re providing something valuable and obviously, Paul Tran is very valuable. He knows what he is talking about.
So if you haven’t seen Episode Four and haven’t listened to Episode Four, I highly, highly, highly recommend it. Also, I want to give a specific shout-out to Megan Enloe. She has a podcast called Podcast Junky. You can find that at Podcastjunky.com. Basically, she goes out and finds just really interesting podcasts, and she had a comment to me on Twitter, kind of a constructive criticism.
She was listening to my CRM podcast episode and that was last episode—Episode Five. I guess she was on the road or something, and she came home and went on to my show notes because she wasn’t able to write down the CRM that I had mentioned that I use and really highly recommend. She noticed that it really wasn’t on there—no links, no nothing, that it was a teaser; that on the show notes, it was more of a teaser than a kind of a summary of what I was talking about.
And kind of as a result, as much as I wanted to kind of do a marketing thing and have people listen to my podcast (honestly, there’s probably a lot of people out there, including Google that would like to just read what I’m talking about), I might transcript in the future but for right now, I just give a good show notes summary about everything that I talked about – no marketing ploys like trying to get people listen to my podcast and so on. If you want to listen to my podcast, fantastic! If you want to read what I’m talking about, that’s great, too! Either way, you know. So, thank you Megan. You can actually find her at her Twitter handle @podcastjunky on Twitter.
So shall we get into pricing? Yeah, let’s get into pricing. Pricing is still kind of hard for me. For anybody that’s in a service-oriented business, pricing is tricky. I don’t know if it’s just an American thing or what, but initially, you feel as though you are taking advantage of people.
“How can I price my services so high when it comes easy to me?”
“Someone might be able to bring up a website in three hours or so (which I can do with a certain template and so on). It’s so easy for me and I don’t really want to charge them so much because they probably are strapped for cash and I just don’t want to take advantage of such good people.”
If you have that feeling you are definitely a good person. There are a lot of swindlers out there that don’t care if they take advantage of you. They just want money and that sucks; and I hope those people fail.
But next to finding an actual market which, if your services don’t solve a problem, if your services aren’t valuable to anyone, you probably want to find a different market; you want to probably find a different service because pricing is not going to matter because no one’s going to pay you if it’s not worth it. But next to that, next to marketing, pricing is very, very important. It is the second most important. Honestly, you need to know how to price because in pricing, you actually market yourself as well and I’ll give you some examples of that and just coming up.
But why is it a “dirty” word? Why do we feel like we’re taking advantage of people? Honestly, I don’t know. It’s just an inherent feeling, but the only way to change that, the only real way to change that is to think two ways. I was going to say one way but I’m going to give you two ways.
And the first is, think about what you’re being paid now in your job. In the full time corporate world, think about what you’re getting paid at on your job. Take home, you’re probably getting maybe between $20 an hour to $40 an hour depending on really how much you are making.
You think, “Why I’m getting paid doing that?” It’s not great, but it works.
“How can I possibly charge $80 an hour, $100 an hour, $150 an hour for something that right now I’m getting paid just about $20 dollars an hour?”
And that’s kind of wrong thinking because people that know what they’re doing, finances, people that know finances especially in the corporate world know that you have to account for health insurance, you have to account for any type of benefits, educational benefits, have to account for the overhead cost of you.
In large businesses, you cost a lot more than you think. So for me, in the aerospace industry, I make considerably less than what I cost the entire company. There’s a whole thing concerning rates and so on, I don’t know. I’m not going to get into it, but I cost my company about $150 an hour. I wish I made that much of my company, the aerospace company. I wish I made that much. I definitely do make that much on my side job but I definitely do not make that much at my company. And so when you take that into consideration, I think it’s easier to price.
But the second thing is even more powerful. Think like a consultant. Consultants value more not necessarily the amount that they get paid, but the amount that they improve their client’s business. They look at how much they’re improving their client’s business. And so if you look at it that way, it makes it a whole lot easier to price yourself.
So, say you have a service, and we’ll just say it’s a sales service. You have a certain way of doing sales that increases companies’ lead generation and revenue and so on by at least 50%. Say, you price yourself at $10,000 just for one training session, or $20,000 for one training session. If that company makes $600,000 more annually or a million dollars more annually, or even $50,000 annually, you have improved their situation. They would not be making that had you not been there. And so no matter what you charge as long as there is an improvement, then it has to be substantial or it’s not. If you charge $10,000 and they make $11,000 more annually, they’re probably not going to call you back. But if you are really, really, really improving a situation for your client, there’s no reason why you cannot charge what you’re worth.
So if you go in there, say, “I’ll do this for $20 an hour”, you spend eight hours on it, and they start making $1M more a year. That is insane! They paid you a $160 dollars and they’re making how much more? Yeah, a whole lot more. Do you think that’s fair? Probably not because of your knowledge, your know-how, you should be charging $10,000, $50,000, or more in that situation. And so, your value determines what you price.
Now, I’m going to give you an example from me, from my life, from my experience. Recently, I was asked to do a design. Actually it wasn’t to do a design but just to bring up a website for someone. It was for a company that was being hired by another company to deliver products but they had no way of doing it.
And the larger company basically said, “We need this by next week.”
So, the smaller company called me up and said, “Hey, can you do this for us?”
And I said, “Yeah, no problem.” And I quoted them a couple of thousand dollars.
How much time did I spend on that site? Probably, no more than eight hours. So, let’s say, at least $2,000 for eight hours of work. Do you think that was wrong? No, because they’re now, I guess in the first couple of months, are making $15,000 more than they were making before—at least that’s what they said. And this larger company is going to throw more work at them and more and more and more and more and more. So they’re going to make a tremendous amount of money off of my eight hours of work that I charged a couple of thousand dollars for.
It’s possible to use the knowledge that you have to make that much money in a short period of time. Now it doesn’t always happen that way, don’t get me wrong. But if you look at it as you are improving your client’s situation and you really, really are, then pricing yourself in a way that is fair for you and for your knowledge and the stuff that you have spent your entire life collecting, and practicing, and implementing, there’s nothing wrong with doing that. Nothing.
But I know you’re asking yourself, “But how do I know if I’m over-pricing? How do I know if I’m charging too much?”
First off, I’m going to talk a little bit about the types of pricing and obviously, you kind of get the idea of what type of pricing that I go for. You obviously have your hourly rate. Now I hate working by the hour but it’s the easiest. Honestly, it’s the easiest. If you spend three hours and you charge $80 an hour, you know how much you’re going to make, you can easily track time and give it to your client. But you’re trapped in that three hours. You are basing your value on the time that you spent on something, which if you spend an hour on something and you’re able to generate thousands of dollars for your customer and you charged $100 an hour, do you think that’s fair? Probably not. Trust me, it’s easy? Don’t get me wrong. It’s easy but if you’re going to be a service-oriented person, I don’t recommend hourly. But it’s a lot easier to do. So even with the hourly, we’ll talk about how you can overprice or under price yourself and so on or why you want to be cognizant of what you’re doing, be cognizant that you’re not under pricing. We’re going to go into this and how to build credibility or lose credibility with pricing yourself.
So the next thing is fixed price. Fixed price. You might have a template price for a web design or you might have a template price for a certain thing, and that’s good. You have it on your site that say, a Static Web Page is $800. This other service is $900 always. That’s fine because sometimes, you might spend less hours, or you might spend more hours you never know. It’s harder to determine, it’s harder to guess, but what it does is it helps your customer to know how much exactly they’re going to be paying and so on and gives them a good, warm, fuzzy that no matter what happens, this is how much they’re going to pay.
But if you’re going to be a consultant, this includes people on social media, people doing copywriting and so on. I highly recommend looking at a value-based consulting type of pricing. What is your value? What are you giving your customer? What are you giving your clients? If you are saving, and I mean saving in the sense of like rescuing their entire corporation, their entire company from disaster, that could be potentially millions of dollars in losses and are you going to do that for $20 bucks? $80 bucks? Probably not!
You’re going to, very professionally, show your client that “Hey, you are going to lose millions and millions of dollars, all your employees are going to lose their jobs, they need to go find jobs and basically, you guys are going to be a black stain on everyone’s mind.”
“Now, I have the solution that’s going to change all that. Let me tell you how I’m going to do that. I’m going to give you a bunch of options about how we’re going to go about doing it and here are the different pricings for those options.”
Do you think the client’s going to go, “Oh, you know our problem, you know the solution to our problem and we can see exactly how you’re going to go about doing it.”
Do you really think they’re going to go, “Uhmm, let’s see, you’re going to cost $10,000; you’re not really spending much time on this.”
“You’re going to cost $10,000 and we’re going to save basically our company? I don’t know, that’s $10,000! That’s pretty expensive!”
No, of course not!
They’re going to be like “Oh, without a doubt, which option do I take?”
”We’re going to hire you; obviously, we didn’t see this coming, we knew, we kind of knew it was there but you obviously have the solution. Help us! Help us, help us, help us, help us!”
And that’s what happened with my client. “We need a website; we know you can do it quickly. This is going to bring in a lot of money. Please help us.”
And I shot them back a nice little proposal that went basically a little bit something like this: “You don’t have a website that’s going to allow you to generate this income. You’re not going to be able to support this huge customer that’s got to make you thousands and thousands and thousands of dollars richer. I have the solution for that. Here are a couple of options that I have. Which option do you want to do?”
And they chose the most expensive option because it had the most support and they knew how valuable this client was. Do you think for a second that they shot back at me? They didn’t even ask twice. Within a day I had their website up and running. That’s it!
So value price is what you want to go for. How much is too much? It is too much when whatever you’re trying to do to improve is not generating more than you cost. So, obviously, if you’re saying, “I charge $10,000” and the customer gets $9,000 in return annually or something like that, then you’re not worth it! Honestly, that’s about it. It is very, very hard to overprice. It is extremely difficult to overprice.
But let me tell you why you want to overprice, not necessarily overprice for your customer but why you want to go high in whatever offer that you give or whatever proposal that you give. Go high because it gives you room to negotiate.
Now, there’s a really good book out there called The Secrets of Power Negotiating and they go through this. This is the first gambit that they talked about. But you want to create a win-win situation, if (and it sounds really, really weird when you think about it) you want to price correctly, if you want to create a win-win situation, price yourself high. Reason being is that you can’t negotiate up (I’ll give you an example). You can negotiate down. And when you negotiate down, it’s a win for both of you.
So, for one of my first customers, one of the first clients that I had, I expected to have a monthly retainer. And they’re probably hearing this, I don’t care because I know the value of my price. I know how much value that I’ve given them already. They’re actually getting me for less than they should. My initial goal, my baseline goal was a thousand dollars a month retainer for business and technology consulting. What I did was, I shot a proposal after we built a relationship, after I told them what I’m going to be doing for them.
And I said, “$2,000 a month.”
And they kind of shot back and said, “No, we can’t do $2,000 a month. But we do like $1,200 a month.”
And I went right back and I said, “Absolutely not, the only way that I go lower is… I’ll go to $1,700 that’s as low as I possibly go, I will go lower if you agree contractually to refer me to three other people if I do an amazing job which I do.”
And you know what happened?
They said, “Great! We’ll have you on board.”
Was I sad that I was at $1,700? No, because my initial baseline I’m not going to go under this, was $1,000 a month. And were they sad because they aren’t paying $2,000? No, they’re elated because that’s $300 dollars a month that they don’t have to pay anymore.
And so it’s a win-win situation. Always go high. Imagine if I did it the other way. Imagine if I started off with $1,000.
And they say, “Okay, well, yeah, oh, no, maybe we’ll do $700 every month. How does that sound?”
And I said no, “How about $17,000 a month? That’s what I’m kind of looking at.”
They would think I’m an idiot. Honestly, they would think I’m dumb, and you would think I’m dumb. You don’t ever negotiate higher. It just doesn’t work, it doesn’t feel right. It makes you almost feel like sleazy, but the other way is always a win-win situation; so always go high. It creates a win-win situation, gives you more negotiating room but the most important aspect of it, the most important is that it gives you credibility. More than anything relates your value to your client. More than anything.
Imagine you’re hiring someone to do your website and they’re young and you say, “Hey, I heard that you develop websites.”
”Oh, yeah, I do, I definitely do.”
”Oh, so, how much do you cost? I really like one. I’m looking to get one for my business. How much do you charge?”
“Oh, you know, my last customer….well, you know, for you, I can do it for $40, maybe $35 you know, honestly, how about $35?
“Oh, $35, that sounds good. Can you do it for $25?”
“Oh, yeah, yeah, let’s do it for $25. $25 is good. Oh, yeah, yeah. Let’s do $25.”
”Well, I’ll think about it. I’ll think about it, okay?
Okay, yeah, totally. Honestly, I’ll do it for $20 as well, you know, if you’re really, really hard up or strapped for cash I’ll do it for $20.”
Would you really go with that person? Would you trust them with your website? No way! Not in the slightest! No, no, no, no! You’d be like, “This guy’s an amateur. Obviously, he has no other clients and maybe he just graduated or something.” But, no! You don’t have confidence in that guy.
But if someone comes up to you and if you go up to someone do the same thing and say, “How much will you do my website for?”
And they come back and they say, “Well, it depends on what type of website that you want.”
“Oh, well, you know it’s for my business I kind of want something that I can keep up to date.”
“Oh, you mean like a blog?”
“Oh yeah, exactly! A blog.”
“Oh, good, yeah, because I highly recommend that you have a blog, anyone who has a business because it definitely generates a lot more revenue because of the increased traffic that you get over time and you know, I’ve developed a lot of those things. Why don’t we talk about it first? Let’s talk about your goals, let’s talk about what you exactly want to do with the site, what your conversion goals and so on are. Typically I’ll do a site for $4,000 and with that you’re going to have probably about a 15-20% increase in sales.”
Honestly, wouldn’t you hire that person? I mean, they’re very confident, they’re talking about sales, they’re talking about revenue, they’re talking about things that are going to matter to your business! You know, if it’s me? Sometimes, the only people that I will ever tell how much my services are, right off the bat, are friends, that’s it. I always save my cost to the very end.
So like I said, like the kind of an example I gave – talk about what they want. Talk about what they need. Talk about what’s going to make them money and so on. It builds trust, it builds credibility, it builds relationship. Wouldn’t you want to hire that person compared to “ah, uhmn, I don’t know, yeah, $20? No. $15?” No!
The person is boom, boom, boom!
“What do you want it for?”
“What are your goals?”
“What is your strategy?”
“Is it for your business, is it for this?”
Yeah. Totally building that credibility, totally building that trust and at the end, when the price comes it’s just a formality, honestly. You’re already going to hire this guy because he’s going to make you money more than the site’s going to cost, anyway. It’s just a formality.
So, price to build credibility. Price to give value to your clients. That’s how much you should price. Now, you’re probably still saying, “Well, but how do you know? How do you know how much you need to price?”
One way, in this kind of what Neal Schaffer does (I don’t know if you know Neal Schaffer but I’ll up on him on the show notes as well) but he does it this way. I’d kind of do it the opposite way. Okay, how much do I need to survive? Is it $150,000? Is it $80,000? I want to at least meet that. So if I meet that, if it’s $100,000, I want to have six clients always and I would need to charge them a retainer of I don’t know, $2,000 a month, I’m not good at quick math. But for me, I know how much I’d charge so this is going to be easy. I do with the opposite. I don’t go with how much I need to make a minimum. I want to go for how much do I want to make to feel comfortable, to have a good quality of life. And for me, right now, that’s $200,000 on my side business alone, just on my side business. And I don’t want more than six clients at a time, and I want to be on retainer. So, my goal is to have six clients at $3,000 a month retainer. Now that can change, that can be six clients with two of my clients having a $10,000 project each or $20,000 project each or whatever. Obviously, you can shift things around but that’s the goal. That’s the goal: $3,000 retainer per each client because I want to make $100,000. Now I could scale that in any way that I want. I can add more clients and lower my retainers or hire more people and spread out that way, I don’t know. Or I can say I want three clients at $6,000 a month retainers. Either way, I can scale. I know how much I need to make and I know how much to price.
So, I mean, it’s not hard to figure out how much to price. The hardest part is really telling your client how much it’s going to cost. But build a relationship first. I think I’m going to do this, too, on how to write a proposal, how to write a good proposal that will never, ever, ever get turned away, actually, it’s probably a 90% chance. It’s not my idea, definitely not my proposal style that I originally had but is by Alan, from Alan Weiss, good book, “Million Dollar Consulting,” highly recommended. Oh, the book changed my life.
But yeah, build your relationship first. Listen to your customer. Listen. Shut up and listen. Listen to their problems. Find out how much that problem is going to cost them or how much you can make more money for them and then price yourself accordingly.
If you give them figures, if you say, “You know what, you’ll be making a million dollars more; you’re going to be making a million dollars more annually therefore, my fee is going to be $50,000.”
They’re going to laugh and say, “Oh, that’s nothing! That’s nothing compared to a million dollars!”
But if you just come out and say, “My fee is $50,000.” That’s a little high, don’t you think?
But if you know, if you know how much value you are going to give them, and you relay that to them, then you are going to succeed in pricing yourself in a fair manner of what you’re worth, because if you’re making someone a million dollars, you’re worth a lot more than $50,000, you’re worth a heck of a lot more than $50,000. So don’t think that’s expensive. Pricing is not a bad, dirty, dirty word. Okay?
I know it really is tough to price. No, don’t get me wrong. I know I can preach it, but I feel the same anxiety when I’m going to clients and I’m talking to them. But as long as you build that relationship first, it’s a lot easier. Trust me. And it’s a good experience as well in relaying your value and your credibility. Trust me. Price high and people will respond favorably.
Now I just gave all my secrets away and so anyone who wants to hire me for some business and technology consulting, just ignore this episode if you please, and yeah, I don’t know. [laughter] Just kidding!
All right! I always appreciate your feedback whether it’s on Twitter, whether it’s via email, or better yet, best yet, I appreciate your feedback on voice. So if you want to leave me a voicemail, question, feedback, constructive criticism, anything, 714-643-5301 and just leave me a question. I would love to answer any questions that you have, especially about pricing. It’s so tough, it’s a mental, emotional thing and I totally understand this is all theory that I’m giving but it works, honestly, put it into practice, it works.
So send me some feedback, some questions and I would greatly appreciate it. If you have any tips too, as well on how to do anything that we talked about in the past, it would be awesome as well. But with that, I haven’t decided exactly what we’re going to be talking about in the next episode. But you know, if you have questions, I’ll bring them up. Thank you, once again for listening to So Totally Business Savvy. My name’s Dean Soto and it’s been a blast. I will see you all in the next episode. Have a good one and God bless!
