Ultimately, a business is defined by that for which it collects revenue, and it collects revenue only for that which it decides to charge.
In “The Experience Economy”, Joseph Pine II and James H. Gilmore describe simply the place of price. They remind us that deciding what to charge for and how much to charge for it is part of business strategy, not simply a function of a cost.
You’ve probably come across a book, blog post or talk where you’re told, for example, that movie theatres don’t sell tickets, they sell an escape from reality! Or self-help books don’t sell advice, they sell a better life! On the surface, this sounds like trite bullshit. But it’s actually more accurate than you might realise.
A person’s willingness to pay for something is directly related to the value they see in it. And like it or not, that value may be as fluffy as “a better life”. Or it may be something quite straight-forward that you just don’t realise. Either way, if you don’t charge correctly for that value, you lose.
Very often, business people in the web industry charge for a service too far down the value chain. For example, the majority of agencies for a given project will charge for, say, 30 days of their senior designer. This might cost €30,000. But their customer might really be buying a whole new business. They may have a large amount of capital ready to put to work to break into a very competitive but lucrative market, where the user experience of the app will make or break the business. They may value a killer, ground-breaking user experience at €50,000. At the very least! So the agency charging for a much-lower-value service—that of a bunch of days of a designer and whatever he comes up with in that time—has just left €20,000 on the table.
This works the other way too: frequently freelancers and young agencies in the web industry lose business because they over-value their work. Be honest, how often have you cursed the other guys that won the job on price? The cowboys. The jokers that couldn’t mark up a holding page. Idiots. Their own site doesn’t even validate! But all that happened was that you tried to sell your expertise to someone that just didn’t value it. And can you blame them? Maybe their site needs to describe their business and provide contact details, but doesn’t need the latest, greatest HTML 5 tricks? They don’t give a damn about “perfect” markup and neither do their customers. So why would they pay for it? Would you pay €20 for a pint if the barman told you he’s serving it in his favourite glass, made by a famous, naked, dancing, glass-blowing tribe from Brazil?
So think about what you really are and what you should be charging for—make sure to purposefully price your service.
Freelancers: nine times out of ten, your clients value only your availability, flexibility and malleability, not your sweet Javascript skills. Price downwards accordingly.
Established agencies: nine times out of ten, your clients value your professionalism, reliability and prestige, not just the hours you bill. Price upwards accordingly.
14 Comments
I think you are absolutely right.
But there is another key thing hidden in what you are saying: if you don’t make an effort to show what value what you are doing has, don’t expect people will pay you more than 10 projects ago because you don’t look any better now to them.
Managing your reputation is a main component of pricing.
Posted by Marc-André at 1:29 am on 25 February, 2010.
“Would you pay €20 for a pint if the barman told you he’s serving it in his favourite glass, made by a famous, naked, dancing, glass-blowing tribe from Brazil?”
Ummm, yes?
In all seriousness though, good post. At Ordered List, we are big on charging based on value, not hours. Also, we like to joke that sometimes we bill by the pain.
Posted by John Nunemaker at 5:26 am on 25 February, 2010.
Great article. Together with “WE NEED IT YESTERDAY” this is great advice for the sales operations of any design/development agency. It’s a struggle but an immediate goal is to avoid charging for sites, pages, etc. and reinforce the value of your work to your client’s bottom line.
Posted by Edgardo at 6:29 pm on 25 February, 2010.
An insightful post. I’ve been feverishly working on a new pricing format for approval by my bosses and have read so many posts and articles on the subject at this stage that I’m surprised there’s still more to say!
A big thing I’ve been trying to push is getting the client to see the value in their website and charging accordingly. Sometimes small businesses don’t even know what they need their website to do or what it’s for, they just want to have a website with their name on it because they think that makes them current. The way I see it it we can knock up a site like that in a handful of hours so we may as well take that guys money as let him go elsewhere.
On the other hand the guys that know what they want, or are willing to listen to how a website will bring value to their business, well those are the guys (and gals) that get a more value based quote.
Great post though, thanks for sharing.
Posted by Gareth Watson at 2:26 pm on 3 March, 2010.
Really glad I stumbled upon this post today - currently trying to figure out what I’m worth to a new client! Also some interesting points in the comments: it’s a discussion well worth having, and one anyone working in this field should be aware of.
Posted by Aideen at 2:20 am on 9 March, 2010.
Some interesting points, always a balancing act!
Posted by Web Design Maidstone at 12:54 am on 20 April, 2010.
But well, that pint example brings me something… Would a client pay 2€ for a €5 pint, if it comes not fresh and in a used glass?
I think there are standards that (too many) freelancers and agencies disrespect and still manage to get jobs by tricking their clients with that price fight, no?
When finding clients that got tricked, i am more than happy to explain them why their sites are not worth it, and that sorry, you shouldn’t have trusted the cousin of your aunts step-sister that discovered flash 5 and frontpage, because he was half price compared to a web professionnal.
I totally agree on the €20 pint, but then assuming the 5€ is worth it!
Posted by thai at 12:55 am on 20 April, 2010.
Great little article here, very solid point about justifying why you charge what you charge. I often struggle with telling clients what something will cost because it’s solely based on actual man-hours it will take.. being able to explain the non-tangible deliverables they’ll be getting along with that cost is something I’ve been trying to do more often - it’s not just a logo, it’s the face of your business, another business solution that will help attract and retain customers for you - that sort of thing. Makes a big difference being able to show clients the long-term value that comes with design work!
Posted by Daniel at 1:23 am on 20 April, 2010.
Very good article! Pricing is one of the hardest things to figure out. I remember reading and article over at Smashing Magazine awhile ago talking about “Quality Price Ratio” and it really got into it. There are so many factors involved, and so many bases to cover, when it comes to pricing. You learn quickly though, I know I have after certain jobs, haha!
Posted by Ryan at 10:43 pm on 21 April, 2010.
For us, it’s a mix of pricing on the value of the product and service we bring to our clients, as well as our client’s economic reality; this is especially true when you have a long-term relationship with a client, or with many clients within a specific sector. Do we upcharge based on the value our experience brings to the piece, and based on the mileage the client gets out of the work? Yep. But do we cut our clients a break in harder times, or to help them out occasionally when they really need it? You bet. This flexibility is part of the value we bring to our clients, which, in turn, helps to justify our monetary value to them.
Posted by Alan Bucknam at 10:47 pm on 21 April, 2010.
Excellent read, some really great points
Posted by Ciara at 11:00 pm on 21 April, 2010.
This is infact a great article, pricing indeed is a
very complicated art, as daniel stated, what’s a good price
For customer “A” is a wrong price for customer “B”
Tho indeed customers pay for the value they see on
The required service, we need to learn not only to
Code/design, but also to sale, one thing is selling a
Website, another totally different thing is offering the
Customer the ability to keep their offices open and available
For their customers 24/7.
I usually play a joke to my clients, you can choose 2 out
Of these 3 options:
G: great
C:cheap
F:fast
G+C= very very delayed deadline
C+F= not a great job
F+G= not a cheap job.
After I spend some hours explaining the customer
The implications of a poor site, and how IT WILL affect
Their business, most of them want G+F.
Well my 2cents
Posted by Jose Luis Chafardet at 2:35 am on 22 April, 2010.
“your clients value only your availability, flexibility and malleability, not your sweet Javascript skills”
You are absolutely right, but that really takes the wind out of your title. Being a freelance designer, I mainly sell solutions, not products. I take my designs seriously and write meticulous code; hey, that’s who I am. Can’t change your fundamental nature. But I realize that I deal with small operations, so while I hit the technical details, I also sell my expertise in problem solving and having the keen eye to find viable and affordable solutions to all the little problems that invariably crop up in a project. I make our dealings effortless for them and I think ultimately that’s what most people want. We have enough headaches in our daily lives, do we not?
I’m sure I get taken on a project-basis, but if it’s a matter of making $1,000 or nothing at all, well, that’s not all that hard of a choice. But I’ll never sacrifice quality on anything that has my name on it.
I read tons of these articles and I understand the dangers of undercharging on the industry, but I’d say those that oversell and overcharge are far more dangerous. Just the other day I spoke to a friend who was unfortunately sold an enterprise network when a simple Best Buy router would have done the trick. And I hear the same from my clients. Past designers that have bilked them for thousands and delivered nothing. Claiming to be ninja code writers but a trip to their own website shows no validation and even templates downloaded from those free online code repositories. Like, are you kidding me? It’s those people that are the true cancer in the industry.
Posted by WSz at 6:25 am on 22 April, 2010.
I disagree with your assertion that a freelancer shouldn’t charge for their expertise because they could be undercut by someone that doesn’t care about standards, etc . . . A client MAY choose to go with them, but a good freelancer will also be a good sales person and explain why things like standards, html5, strong javascript coding matters. Unfortunately, many people get into freelance precisely because they don’t want to deal with people, and that makes them poor freelancers. If you can’t articulate how your quality of work is better, then the cheap guy is going to win out.
What needs to be explained to the client is why these things matter - standards compliant code means long term maintenance costs go down. Semantic code means better search engine optimization. Strong javascript skills will get the interactivity and user experience the client is looking for. HTML5 means better mobile experience, better semantics, and a certain amount of future proofing.
And if all that doesn’t matter to a client, and all they want is a cheap website, that should be apparent before you even do a quote. And if that’s not the sites you work on, then don’t waste your time writing a quote.
Posted by Tami at 2:13 pm on 22 April, 2010.
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