Play the pricing game

Project Daisy: Part III.

Quoting for a small freelance project.

Pricing a project is a task haunted by dilemmas.

Every single line on an invoice must make sense to the client, meaning: add obvious and direct value for the money. So the hourly rate needs to factor in time and expenses that won’t be charged directly. On the other hand, small home-based businesses are easy to scare off with fees.

This post continues from First client meeting and its time management dilemma, and addresses the pricing aspect of managing a meeting with a new client*.

 

Artified hat with flowers

 
Downscaled project brief

The preliminary quote I brought for the first client meeting I wrote about in my last post was soon rendered irrelevant, because the client (Daisy*) used my inputs as an opportunity to revisit her options and decide what to do.

She realised that it would cover her need to revamp the content of her existing website and add ecommerce functionality with PayPal Website Payment Standard buttons, rather than switch to an ecommerce platform.

The new down-scaled project brief requires the following tasks done:

Rewrite the website text, replace photos, make sure it all looks pretty, and add PayPal buttons for all the products so the clients can buy them online… with shipping cost to be added during check-out and so on.

Daisy had already added a few PayPal buttons as a test herself. They didn’t work but show that she has got a ‘hands on’ attitude and is somewhat web savvy. She might even feel that she can do the work herself if she has to, which is not good for my bargaining power.

 
The hourly rate question … a trap?

Project pricing took place after the meeting in the form of my proposal where I specified what I will do (summary of the new brief) and how long time I think it will take (a so called qualified guess).

However, Daisy asked me in the meeting what I charge per hour. I said ‘it depends on the task’. She said ‘How much did you charge Max*?’ I said that what I charged Max was part of a commission-based arrangement, so it isn’t comparable. Daisy asked again for an approximate figure.

I suggested a rate a bit over the one I had based my preliminary quote on since the brief has changed and it is now for fewer hours. I immediately regret. The rate is still low. What signal does that send – that my service is low value? Have I locked myself in on a low level?

 
The pricing strategy game

My husband told me to be sure to be under the client’s psychological upper price limit (also a qualified guess) if the work is worth doing at all. A small business’ psychological limit for a web service job like this one is typically around the $1,000 mark, he said. The price limit is a symbol for the client. Any price above the mark is perceived as too high.

So this is the best way to address the pricing dilemma:

First add up the hours you think the job will take and multiply with the hourly rate to get the ‘principal total’. Then add a ‘goodwill discount’ to bring the price down to just under the client’s presumed psychological price limit. That way it won’t be perceived as a price increase if you charge full price next time, and the client perceives the proposal as a good offer.

Never underestimate the required work hours and/or set a low hourly rate – it is the wrong way to bring the price down. It’ll make the client underestimate the value and amount of work that needs to be done, and will make it harder to charge more next time. Even if the final price is similar to the price with the discount.

Excellent learning! My proposal also turned out well and was received well, so now the key challenge is to focus on the job and do it well and soon.

 
 
 

*As usual all names are changed, and details are heavily camouflaged.

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6 thoughts on “Play the pricing game

  1. shobavish

    Two good posts on the topic of figuring our a prospective project, Mados. There’s such a learning curve for each consultant and it is good to see you analyze it. I like the fact that you brought up the detail that the client could potentially do some of it herself. I think this is at variance from pricing things as a plumber or electrician, and one of the challenges of being a freelance writer or website designer.

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    1. Mados

      Thank you Shoba.

      Yes I agree. The service is primarily to save time and hassle for the client, and isn’t indispensable… That can make pricing extra tricky.

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  2. Lori D.

    It is helpful to record and share your process. I like your methodology. I think pricing a project is very tricky–primarily for psychological reasons. Your approach is very fair. When a plan benefits both parties equally, it will be successful!

    Good luck!

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    1. Mados

      Thank you Lori! Yes I agree… pricing is tricky, mainly for psychological reasons. and slightly nerve-wrecking… Somewhat in the same category as one’s annual review in a workplace, negotiating for salary.

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  3. Shelley

    Pricing always leaves me second guessing myself. As a new freelancer, I want to be fair; but, I also want to earn some money. I agree with Shobavish about the whole learning curve thing. Adding a goodwill discount makes a lot of sense, especially with a first time client. Thanks for sharing the details of your experience with this client.

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  4. Mados

    Thanks for your comment Shelley. Yes, pricing is strange… to find the right balance between competitiveness, being paid reasonably for one’s effort and sending the right quality signal. With the last one, that’s where the goodwill discount is good. It allows to be price competitive without sending a ‘discount’ signal that may be hard to reverse.

    Thanks for sharing your experiences too:-) on your blog.

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