“You’re charging WHAT?!?”

Shocked and surprised childYou’ve probably had this happen to you at least once… You have what seems like a perfectly normal conversation with a prospective client, you send what you think is a perfectly reasonable proposal, and your client responds with shock at how expensive you are.

It’s easy to react badly in this kind of situation; you know how much value you bring to any project and you know you’re worth what you are charging. (If you’re not sure that you’re worth that, go read the Harvard Business Review article, “Why You Should Charge Clients More Than You Think You’re Worth,” and Mary Ellen’s Amazing Hourly Rate Calculator.)

At the beginning of my career as an solopreneur, I took this kind of response badly; I assumed that either I had vastly overrated myself and my value or I had utterly failed because no one saw what I had to offer.

Fortunately, I’ve adjusted my attitude and now have a more positive approach. When I’m told that I am too expensive, I run the Internal Entrepreneurial Translator™ in my brain and hear them saying that they simply don’t currently have the budget or need for my expertise and level of service. I also remind myself that, while they aren’t hiring me now, situations change. People change jobs, and talk with their peers. Organizations suddenly find available funds. Priorities shift. All of these are reasons to treat any rejected proposal as simply not a good match at this time, for this client, in this situation. The bottom line may just be that their organization has different priorities for their resources at this time. That’s OK; the interaction can be respectful and positive. They’re just not at a place where they need your level of service.

And I use these experiences as opportunities to look at how I’m presenting myself and my skills. I ask myself if I’m focused entirely on outcome or if I’m talking about activity. Am I focused on what my client values the most and how I can help them achieve that goal, or am I talking about what I’ll do and what my hourly rate is.

I make sure I’m not talking about how I “need” to be paid $X because I have a mortgage/rent and other expenses to pay. Because, frankly, clients don’t care about what our expenses are. All they are about is receiving high-quality services that address their needs. I focus on making sure that my price reflects the outcome my clients will see.

How to talk about price

man recoils in horrorOne of the scariest things a solopreneur has to do is start the discussion of how much a project will cost. You might be having a great conversation with your client, in which you learn everything your client needs and you figure out how you can delight your client with your deliverable. Then comes the big moment where one of you has to start talking about cost….

Do you choke?

I used to. I would stutter and ramble and eventually get around to saying “Well, I guess we had better talk about how much this is going to cost.” It would feel awkward, especially when the client would turn around and say “What do you think it should cost?” and I would have no idea what to say next.

Now, I have a better way to handle the discussion of price – I own it. During my conversation with a client, I focus on what her goals are and how she is going to measure success in this project. I listen for opportunities to offer something she didn’t think to ask for that would really enhance the outcome. I focus entirely on what my client is trying to accomplish, not on what specifically I’ll do. (The description of the deliverable will be in my proposal.) After I have a really good sense of my client’s biggest needs in this situation and how I can amaze her with what I provide, then I just ask the next question.

“So, what kind of budget do you have in mind for this?”

Just like that. Then I shut up. Virtually every time, clients share with me what they expect to spend for this project; one recent client told me his entire marketing budget for the year and said he just wanted to have a little left over after my engagement for one other expense.

If a client hesitates, my response is along the lines of “Knowing how much priority this has in your overall budget helps me understand what level and depth of work is appropriate. Rather than my trying to guess a number and then design a deliverable around it, I can know exactly what this is worth to you and I’ll show you how much value I can pack into that budget.”

In my experience, after I have proven that my focus is on my client’s best interest and not just my own bottom line, clients are more than willing to share with me what they plan on spending. Every once in a while, they truly have no idea what a project will cost. In those cases, I am happy to spend the time required to scope out several options. But in most cases, when I write up a proposal, I already know how much my client values the solution to this problem and I can design something that they can’t turn down.

The 7 Deadly Sins of Pricing

fire illustrationAre you happy with how much your clients are paying you? If not, perhaps you have been committing one of the Seven Deadly Sins of Pricing:

1. Pricing low because you’re just starting out. Just because you’re new doesn’t mean you’re not worth as much as others in your field. You are in business because you have a unique set of skills, passions and expertise. You are offering high value to your clients right now.

2. Offering discounts to first-time clients. You want to attract clients who are not price-sensitive, who are motivated to hire you because they value your services. As much as you describe the first-time discount, your clients will experience your regular fee as an unexpected price hike.

3. Offering discounts to encourage repeat business. You may get a prospective client ask you for a discount “because I’ll send you lots of work.” Rather than offer a discount in anticipation of work, only discount your fee to clients who have a proven track record of repeat business.

4. Basing your rate on others’ rates. Solopreneurs who are charging on the higher end of the scale don’t advertise their rates; solopreneurs who are charging far too little do tend to advertise their rates. And, in any event, no one offers quite the combination of insight and expertise that you do. Charge what you are worth, not what other people think they are worth.

5. Telling clients your hourly rate. Most successful solopreneurs charge over $100/hour, and that can sound frighteningly high to prospective clients who don’t know what you can do in an hour. When a prospect asks for your hourly rate, what they really want to know is what a typical project will cost.

6. Focusing on finding retainer clients. While they sound like a nice thing, retainer clients hold you back by focusing on one aspect of what you do. They usually pay you for hours worked rather than results generated, so you are not able to price according to your value.

7. Arguing with clients about your fee. If a client isn’t willing to pay your regular fee and you are unwilling to offer a discount, walk away. Focus on identifying and then reaching out to a new set of clients who are not price-sensitive.

Want to learn more about pricing yourself so you can make a profit? Check out my webinar and online course on successful pricing for solopreneurs!

Adding a zero to your budget

As I mentioned earlier, I was recently in the market for a graphic designer to create a new template for my online courses. (Watch this space for the first course on pricing strategies.)

Adding a zero I could go to Elance or Fiverr and find someone who could probably deliver a perfectly serviceable template for a very modest fee. In fact, Fiverr specializes in jobs that will cost no more than $5. (Why would anyone work for or hire someone for $5/job? I have used Fiverr to get a 3-D image of an ebook; it probably took the designer 15 seconds and it would have taken me more than $5 worth of my time to do it myself.)

But this template really matters to me, and I knew that I would get a lot of use out of a well-designed template. I would rather pay more and get something of much higher value. And I wanted someone who would engage me in a conversation, who would take the time to listen to some of my presentations to get a sense of how I project myself. I wanted someone who really wanted my business, and who makes a living through maintaining a sterling reputation and generating word-of-mouth referrals, not someone whose main selling point is that he is cheap.

So, I had a choice of several price points for my custom template:

  • Over 200 people on Fiverr offering to design a PowerPoint template for $5
  • Over 3,000 people on Elance designing PowerPoint templates for under $15/hour
  • 1 person I found through a referral who charges around $500 to design a PowerPoint template

I was happy spending 100 times as much as I would have had I hired a Fiverr for this job, and I am probably at least 100 times happier with the results. Why? Because I wasn’t just shopping for a PowerPoint template. I was looking for someone who was willing to invest time in learning about who I am and who could create something unique that will reflect me best.

As you think about the services or products you provide, consider what you could do that would add a zero to your value to your clients. What can you do that will push you outside your comfort zone and into your Zone of Inspiration? What can you create that no one else has thought of in quite the same way? What can you do that is unlike anything else?

Mary Ellen’s Amazing Hourly-Rate Calculator

My coaching clients often ask me for advice and help with setting an hourly rate. While I encourage them to use per-project rather than hourly pricing when talking about budgets with their clients, it’s helpful to have some hourly rate in mind on which to base that project price.

Here is my calculator, in all its math-nerd glory. And remember, this is your minimum hourly rate; your actual rate will be increased based on the value that you provide and the difference you make to your client.

Download Mary Ellen’s Amazing Hourly-Rate Calculator(XLS) or (PDF)

Here’s what it looks like:

Minimum Hourly Rate Calculator

Non-reimbursable expenses & overhead NOTES
Association membership $ Association membership: AIIP and your clients’ key association
Conferences $ Conferences: cost to attend two professional conferences – AIIP and your clients’ key event (registration, travel, hotel, meals)
Insurance $ Insurance: health, general liability, disability
Magazine subs, books $ Magazine subscriptions, books: 1 business paper and your clients’ key sources
Office equipment $ Office equipment: assume new laptop every 3-4 years, plus ~$500/year for software
Office supplies/expenses $ Office supplies/expenses: telephone, ISP, web hosting, email list hosting, premium social media accounts, etc.
Online subscriptions $ Online subscriptions: annual fees, any non-transactional expenses you can’t bill back
Professional fees $ Professional fees: CPA, bookkeeper, attorney, coaching, etc.
Rent $ Rent: Can base it on % of floor space if you work from home
Retirement fund contributions $ Retirement fund contributions
Salary $ Salary: what you want to pay yourself
Profit $ Profit: 10% of your salary (this is what funds growth and risk-taking!)
Taxes $ Taxes: set aside at least 35% of anticipated salary
Other expenses $ Other expenses specific to your situation
Total expenses, salary, overhead $
# of hours/week you work
# of billable hours/year (half your working hours/week multiplied by 45 weeks)
Total expenses / # of billable hours/year $ Your MINIMUM hourly rate, before value-pricing

 

 

Talking about prices with clients

Red Cash TagI am a big proponent of pricing by the project rather than by the hour; to me, it’s a no-brainer that both my client and I are better off if we focus on outcome rather than the amount of activity required. But what do you do if a prospective client insists on talking about your hourly rate at the beginning of a conversation?

Here’s where I pause and take a deeeeep breath. I never want to talk about the price of anything until I have already demonstrated in my conversation that my goal is to enable my client to accomplish his/her goal. If I lead with a money discussion, I will always be thought of in terms of expense rather than value.If, instead, I guide the conversation back to what my client’s ultimate goals are, then I am seen as an ally who is focused on outcome.

When I get a persistent prospect who wants to talk about prices right away, my response directs the conversation back to the client: “My rule is to never talk about a budget until I understand what your end goal is. Can you tell me a little more about this project?” And if I’m really pushed, I will fall back on “My projects range in price from $500 to $50,000; where do most of your similar projects fall in that spectrum?”

Note that it’s very difficult to have this kind of conversation in email and I recommend against it, even if that means waking up at 3am to call a client half way around the world so that you can talk live. You cannot have a conversation that demonstrates your commitment to your client’s outcome if (1) you can’t make yourself available at your client’s convenience or (2) your client is not willing to engage you in a conversation.

When your clients see you as their partner rather than just an invoice waiting to happen, you are able to explore how you can solve your clients’ problems even more fully, creatively and effectively.