I once read a story about a young developer doing work through an agency for a client. They went to meet the client and were surprised to find another outside consultant in the room for the meeting as well. As the meeting went on, they found that the business owner listened to the consultant more than the agency employees. Later on the agency employees found out that the business was paying the consultant $500 an hour, while only paying the agency $50 an hour.
The agency employees laughed. The owner is such an idiot, can’t he see that he’s being taken for a ride by this consultant?”
Later on they were again surprised when the owner took the consultant’s advice instead of theirs.
Table of Contents
Why the consultant was listened to instead of the agency
Why was the consultant getting paid $500 an hour when the development agency is getting paid $50 an hour? Because they asked for it for the level of service and guidance they were providing.
And who would you listen to, if you are the one hiring the agency and solo consultant? I personally listen to those I am paying more because their advice is costing me more. It’s the same reason why you listen to an executive in a large meeting and they are given the floor, yet the junior account representative can’t get a word in (nor do they really try). People respect those with authority who command it by asking for what they want.
Nothing hurts my professional heart more than getting an email from someone saying something like this:
We agreed to work together after I substantially came down on my rates.
I’ve put together a free audit for them and then I’m going to pitch them on doing more work.
Wait say what? Why would they pay you what you are worth if they’ve already seen that you’re not willing to say what you are worth and charge that?
You’re doing work for free!
I want you to think on these two quotes:
“Opportunity doesn’t pay the bills.” – Jeff Goins
“[Sometimes we do things for free and] think it’s going to lead to something but we are not quite sure why we are doing it.” – Jeff Goins
If you are working for no hard money, then you need to get something – audio/video, an interview, a tiny amount of money. There is always room for negotiation even if people say they have no budget.
You don’t make money off free audits
Businesses don’t make payroll and you don’t make your salary off of free audits.
If you’re doing a free audit and taking your own time that you could otherwise be billing to a paying client for someone who gave you some sob story about their business hurting, then you’re a good person with a good heart who might not be able to pay their bills this month.
That person is never ever going to turn into a paying client.
Their business is hurting for a reason. That reason might not be apparent yet, but unless you are in the business of rescuing other businesses (and that probably means you’re putting capital into them and then basically an employee or an owner) then it’s going to become painfully obvious at some point and you’re going to be left with nothing to show for your work other than frustration.
I’m here to give the hard truths, not sugarcoat.
Deciding what you’re worth
You need to state what you are worth. If you are constantly pitching clients that cannot pay what you need to live, then you need to get different clients. You probably see this as a chicken and egg problem, which it is. But at the end of the day, does it really matter if the chicken or the egg came first? One of them did, and the point of the chicken or egg question is usually not to keep you from doing anything.
The point is that one of them came first, it doesn’t matter which one you choose, and you need to get started.
Clients will very rarely pay you more if you start off low. If you quote them $1,000 per month and then write in that you’re going to renegotiate the contract in three months time once they’ve seen a return from your work, then one of the following will happen:
- You’ll be too scared to follow up and “risk the relationship”, even though it’s an inequitable relationship;
- They’ll say that they’re happy, and you’ll say ok;
- They’ll say that in order to pay you more, they need to get more from you.
The first two come down to sales and knowing your worth. If you anchor them low by charging them a little for work, then they’ll know that they can get your work for that and that’s your price, like it or not. You may say your prices are higher, but in reality your prices are exactly what you are being paid.
The third one is interesting. You may still have a chance to charge what you are worth, but only if there are a few factors at play. I’ll cover that in the future.
Artists shouldn’t starve. You just need to learn how to sell. And you need to ask for things that seem crazy, but in reality aren’t.
A low-risk sales challenge for you
Here’s a low-risk activity for you to do. I want you to go shopping for a new watch. It doesn’t have to be an expensive watch, but a watch. A $20 Casio at Nordstrom’s is just fine.
Go try on watches and find one that you like. Then when you’re considering the buy, you’ll likely be approached by the salesperson to ask if you want to buy it. Remember – you can afford to buy this watch. If it’s a $1,000 watch that you can’t afford, this exercise will fail.
When they ask, I want you to do something that will feel brave. I want you to ask them this:
I really like this watch, but was curious if you have any of last year’s model hanging around. I really liked (make up something you liked, like the interchangeable bands or something).
They’ll likely tell you no and you’ll go ahead and pay the $20 and walk away feeling great, because you didn’t just buy because they pressured you to. You asked for last year’s model, which would be cheaper.
The other challenge you can do is go online to a place like Backcountry.com where you know there will be a customer support person waiting to answer your questions. Do some looking around and find something you want to buy. Then chat the customer support person and see if they have either a) a discount code you can use or b) last year’s model that is on sale. This challenge is even lower risk than the watch scenario, because you’re not face to face yet. Use that to your advantage if you’re scared.
Most people teaching sales will tell you that you should ask for 10% off your coffee order or something like that. I think that’s too high of a barrier to entry. If you pass the online store test and the watch test then you can try that, but give yourself a win first.
People respect those who charge more
One of the most challenging decisions freelancers, solopreneurs, and independent consultants face is how much to charge for their time and expertise. What if people complain that you’re overpriced — or, even worse, walk away from a deal with you entirely? But the answer isn’t swinging to the other extreme and asking a fee so modest you’ll ultimately resent it.
That’s from this HBR article.
If you are seen as an expert and then give a very low quote for work, people will wonder if you are actually an expert.
When I had my hourly rate on Clarity at about $200/hr, which is around the median for that site in the spaces I play in, I did not get very many calls.
However, I recently raised my hourly rate on there substantially and consequentially I have received more call requests and also made more money from it!
How I decided my hourly rate
To decide on my hourly rate, I looked at all the things I have on my plate these days with work. I worked out what hourly rate was higher than what I normally charge and would not feel like I was distracting myself from other things that mattered.
A word of caution here though – at one point a few years ago I put my hourly rate about 50% higher than it is now and I received very few call requests. Part of that was purposeful, but I do want people within my target market to be able to afford my time.
It is indeed possible to charge too much, which is why you do not simply raise rates all at once without doing any testing to test price sensitivity in your market. Instead, try raising rates slowly as you get new potential clients coming across your business.
Remember: new clients do not know what your other clients paying.
Simply keep raising your rates until you start getting hard pushback. I imagine many of you reading this will be surprised how high you can go until this happens, though. And you’ll be amazed at the problems higher prices solve as well.
So please, don’t do work for free. You cheapen your own brand, hurt yourself in the process, and create a rush-to-the-bottom culture in your industry. And that’s no good for anyone, including you.