True story: I was doing a newsletter for a large company, and doing it well, meeting metrics and getting a lot of kudos from the target readers. I lost the contract to a competitor bidding three times more than what I was charging.
I was a one-man band. The competitor had fancy offices and associates, and an account manager.
My client, the manager in the large company responsible for the region, apologized. “Everybody really involved knows that you’ve been doing a great job,” he told me. “But upstairs, the marketing people wanted to put more money into marketing in the region. They charge more, so that’s how it went.”
“It sucks, but it happens a lot,” he said. “They don’t have time to look at the detail. They assume the more expensive bid is better quality work.”
Another true story: I shared the podium several times with a channel development expert who had a one-man business doing seminars, consulting and some specialized loose-leaf binder products. He would talk about channel development. I’d talk about business planning.
He billed $10,000 per seminar day.
I watched him turn down an offer of five straight days for $25,000 plus expenses. I was amazed.
“Tim, watch me do it and learn,” he said.
Pricing is your buyer’s best indication of your value. I can’t say that I didn’t stare into the face of self-doubt many times during the years I survived as a one-man planning business. And I won’t say that I didn’t back down on pricing many times. But my friend had it right. In the professional services business and the expert business, low price isn’t often a good indicator. People buy on confidence, reliability, name and assurance, not on price.
The stories are here today, I suppose, because I just read an excellent, thorough, detailed piece on pricing of professional servicesposted today by Pamela Slim of the blog “Escape from Cubicle Nation.” She says:
By professional services I mean things like coaching, consulting, financial advising, writing and Web design. Basically, any gig where you sell your knowledge for a fee.
If that’s you or your business, you’ll find her post very useful.
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{ 2 comments… read them below or add one }
I completely agree. My company charges more than some people would expect to pay for a similiar service, but I am not out to compete on price. You can either be the high cost, high quality option. Or you can be the low cost, low quality option, but you cannot be both.
You should charge what the market will bear. The key is to ensure that he service that you provide is on point with the price. If not, then customers will feel that they got substandard service for what they paid.
Thanks for the mention Tim!
I love your story of being ousted by a more expensive vendor. Contrary to what most believe about contracts going to the lowest bidder, people tend to believe that you “get what you pay for.”
But knowing this does not make asking for the big bucks any easier for most entrepreneurs. I figure once I have been in business for another decade or two, it will get easier.
All the best,
-Pam