Who Sets Your Prices?

Sep 28th

Underpricing

In the past I historically set my prices too low. Some of that was due to starting out with a low self-esteem, but just as much of it was due to not appreciating the actual value of what I was delivering. Because I could do something cheap I had no problem doing so, even if my pricing was well below the value delivered. Another thing that caused me to charge too little was a distaste for traditional salesmanship techniques (a difficult hang-up if you are a marketer!)

Where I learned how off my pricing was is when I reviewed work done by some competing firms for 5 figure sums. Some of which was of far less value than what I was offering in my $79 ebook. Well that made me feel a bit like an idiot.

When Low Prices Make Sense

I think when a person is new to a field it makes sense to set prices somewhat low so you can...

  • overcome starting friction
  • build customer experiences & interaction
  • get feedback from customers on how to improve your product or service
  • gain testimonials & social proof of value

Setting prices a bit too low helps subsidize creating other pieces of your sales strategy...whereas if you set prices way above market expectations you won't get sales or market feedback.

The Problems With Discounting

But typically discounting should be done for a short period of time, only as something that is given as a reward for being fast acting. If you frequently discount you just lower the perceived quality and value of your product. And while you think you might be giving someone a good deal by discounting you have to look at it in the broader perspective. Offer a lower price and the customer...

  • respects and values it less
  • is less likely to use it and act on it
  • is more likely to be demanding (since they don't see as much value they expect you to spend more time and effort proving it)

all the while you...

  • become over-worked and burned out
  • work over twice as many hours servicing twice as many people (and, not surprisingly, miss an email or 2 because you are constantly behind)
  • sell your time at a discount while watching your health erode

Really the whole set up to discounting is quite stupid.

What About Free?

In a world where traditional advertising is losing efficacy, offering something free that helps gain mindshare and establish a relationship is smart. But free does have limitations. One of the biggest limitations is a sense of entitlement. If a person is a non-paying customer they are not a customer. You have to assume their complaints are worth $0. You owe them nothing and they should be thankful for whatever valuable tools and services you offer for free.

Overcoming Entitlement

After you get enough momentum it makes sense to erect barriers to entry so you can gain value while giving it away. Rarely do one way exchanges build lasting value. If 1,000's of non-paying users are sending you emails asking questions then they are noise that must be filtered through ... a non-trivial cost.

The hard part is that it feeds the ego when you give stuff away and help people out. You think that you help so many people and that lots of people care for you. Put any barrier in their path and you will see how selfish and worthless many of those people are though. Every barrier brings about some level of hate from the most ignorant, greediest, and least appreciate members of the crowd. But if you get something like this you can't respect the sender:

This is crap. Every download link goes back to the same page. Like how are you suppose to download the tool if there's a download link which say #.

Instead of spending time collecting peoples emails and spamming them you should try more in giving better product and easier way to access them.

I like your tools, but it was easy last year to use them, now it's a waste of time. If this system keeps on getting more slower and I've to go through more registering then using I'm better off using something which is less good but instantaneous, which was your product, but it's not anymore.

So I hope you start easying out the process of installing your tools or you'll start loosing your customers.

So that person...

  • is not paying me
  • uses our CUSTOMER support area
  • tells me they like our tools
  • wants me to create BETTER products
  • calls me an email spammer
  • expects me to dismantle my sales funnel in return for nothing (other than random critical hate mail)
  • tells me I will lose customers if I don't make it easier for freeloaders to use my stuff
  • never intends to pay me

As far as my business interests go, that person is worth less than nothing. If they are still breathing, it is no doubt a waste of oxygen.

Would I rather spend my time helping out that ungrateful USER, or would that time be better spent spending it with someone who loves me and cares for me?

Resourcefulness

Now some people have a tough break and sometimes it is worth helping them out. But in most cases a lack of resources is simply caused by a lack of resourcefulness. And, since change comes from within, if you try to help those kinds of people out they are far more likely to pull you down than you are to lift them up.

Recently a person asked me via a blog comment what they should do if they are smart but can't afford a conference ticket and know nobody. The frame of that question is one which is lacking in resourcefulness. When I was new to the SEO industry part of why I got known was because I syndicated content to other sites, participated in some online forums, moderated some online forums, and blogged day in and day out. I further spent tons of money giving away free software, which some people appreciate ;)

And even when I was less known, had no money, knew nobody, etc. I did not see those as obstacles. They were opportunities. Since I lacked capital I could leverage my time as an undervalued resource until the market started to value it more. I got a job to create cashflow, spent everything I could on learning + networking, helped organize a conference in exchange for a free pass to go to it, and out of the process the only thing I regret is that I didn't savor obscurity as much as I should have. :D

Published: September 28, 2009

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Comments

September 29, 2009 - 10:47am

I have a history of setting my rates too low as well, although I'm getting past that finally. Keep up the great work.

-kpaul

September 29, 2009 - 11:44am

Thanks for this post! On of the best pieces of advice I ever recvd is "The world will pay you what it thinks you are worth." Thanks for sharing your experiences starting out. I agree...if you can create and demonstrate the value, you'll be paid well.

I would add that if one is going to discount there needs to be a valid reason that makes sense to the customer. And that reason probably shouldn't be "I'm giving a discount because I need two more clients!" This implies that there isn't enough people who value your service at a specific price point.

Here is a possible example (although I'm sure there are better ones!) If you're approaching a local business..."I typically work with local construction businesses and here are my fees. But I'm currently looking for a client in your industry (realtor, insurance, landscape, architect, dentist, etc) that provides service in the Seattle metro area (or other relevant city). I'm offering a discount for the first three months on my services for the first client in this industry. I'd be happy to review your current website to see if I can even help you out...when should we meet?

September 29, 2009 - 12:15pm

Thanks for sharing your thoughts on pricing, Aaron.

I especially like the end of the post when you discuss your resourcefulness when just starting out. I'm going to use some of your tips about discount pricing initially. I appreciate your willingness to share them for users like me. ;-)

Your stories are always inspiring.

September 29, 2009 - 1:00pm

Bonjour,

You must have been secretly spying on me as this post is about me to the "T" :)

One can fully subscribe to the "Good, cheap, fast ... pick two" methodology and even use no-spec.com as one's mantra, but it is SO easy, for me anyway, to "fall off the wagon" :) This post has gotten me "back on" ... for good!

Thanks so much, Aaron!

Cheers!
Lyle

September 29, 2009 - 2:11pm

Resourcefulness is key, and so is having personality. Some people can't get past the "social" aspect of networking. If you can't speak with people, and you cant portray yourself as a likable person they are less likely to hire or notice you.

I always had the opposite problem. People would give me opportunity and I would deny it, not wanting to get deep into the tech field because of personal reasons; it was only in the past few years that I decided to take that opportunity and since my journey has begun I have been doing great and absorbing information like a sponge and creating contacts and positive rapport with everyone I meet.

Being in the position when you are building up what I call "faction" with various people and organizations, you often feel down and out, under-appreciated, etc. Just remember that what you are doing you are doing not just for the moment and to meet ends meet, but to build a secure future. You are trying to build a network of friends, , clients, associates and colleagues that will bring you through the toughest times and hopefully springboard you toward social and financial success.

September 29, 2009 - 7:03pm

Aaron,

I would just LOVE to see a collection of the "best" e-mails you get in a week or a month. or maybe all of them and having them scrolling down automatically/slowly, so I can have some food and drink something while watching it lol.

September 29, 2009 - 7:20pm

I get something like the above almost every single day. some days 3 or 4!

October 1, 2009 - 5:08pm

lol..I was already guessing something like that!

September 30, 2009 - 1:04am

Your comment about the priority of resourcefulness is so important. I conduct workshops for math teachers, and I recommend they implement graphing calculators in the classroom. Some people immediately react and say, "but we don't have the money for this."

I tell them that their biggest barrier is not finding money. The biggest barrier is being convinced of the value.

Once you are convinced of the value of something, you will do what is necessary to make it happen.

P.s. I can't believe how much quality, free content is on this site. Amazing.

September 30, 2009 - 2:43am

Totally agree. :)

Nietzsche stated "he who has a why to live for can bear with almost any how."

September 30, 2009 - 4:30pm

I am just starting out as a marketing consultant and what you said about gaining confidence describes me very well. I set my prices low right now because I have not really proven anything yet. However, I am at the point now where I believe I can begin increasing rates. Thanks for the post as it confirmed some of my thoughts.

October 4, 2009 - 3:31pm

I only can agree on every point you made up there. Keep up your great work.

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