I was recently asked to be a guest on an AMA (Ask Me Anything) day over at ManageWP and my friend Dan dropped in and asked some great questions about pricing mindset.
Here are his questions and my answers.
Q: How do you introduce a different pricing model to a prospective client? At what point in the process do you start to talk about it?
A: I talk about pricing before I meet with a client on my website enquiry form. That way they know how I charge and there are no surprises.
Q: How do you introduce it to a legacy client who only knows your hour / day based pricing?
A: The same way WooThemes changed their pricing model. Be transparent about needing to be sustainable and profitable – because running a profitable business means you can continue to serve your clients – and then be prepared to take some heat. You'll find out who values you and who doesn't.
Q: What do you base value based pricing on? Increased turnover, increased profit?
A: Whatever is important to the client. I've priced projects before on helping a business owner get back overseas to visit his family, reduce staff hours on the phone answering FAQ's (no kidding) and of course, increased leads and sales.
Q:. What percentages would you say are reasonable to start off with?
A: I'm not sure I understand the percentage question. I don't charge a percentage of the value the client is going to receive. I charge what I need to be profitable and I explore the value with the client to make sure it is clear they are getting a return on their investment.
Q: Lots of WordPress businesses can move towards more discovery to open up more about what the business needs, but then the traditional mindset is still locked in (brainwashed) to time based pricing. What are the first steps to reversing that brainwashing process?
A: I once had a large enterprise client ask me what my hourly rate is and after repeatedly stating I didn't have an hourly rate, he admitted that he needed to put an hourly rate in his proposal to his boss to get approval. So I said “Okay, my hourly rate is $150. My developer is $120. My designer is $90 and my project manager is $75. So if you hire me and my team for an hour you'll be paying $435.” He then asked, “well if I'm paying your designer and developer and project manager, why do I need to pay you as well?”, and I answered “because you can't access them without me, that's the value I bring to the project. I've spent years finding good people and building good processes and streamlining our workflows and researching technology so you get a great result first time.”
I hope you find this helpful and I'd love to hear your questions or suggestions in the comments.
I love this answer, really makes me understand how to charge better. I am a small design agency. So i wear many hats. I also don’t prefer to charge by hour. But i could say to a client you are paying me $200 per hour… $50 for my marketing knowledge + $50 for my skills as a graphic designer, $50 as a web developer and $50 for my SEO and social media skills. Since all 4 areas are utilized with every project we take on.
Exactly Geoffrey. Thanks for stopping by.
Pricing is Many of the biggest challenges for sales persons. Great explanation Troy !
Great explination. Most of is struggle explain the cost.
Great explanation!
Great post, so informative and the way you explain things is so clear. Pricing is indeed a very challenging thing for a sales person or agent. Thanks for this awesome post!
Love your last Q&A. Great blog, thank you 🙂