You are what you charge

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.