How to price your first offer
Almost everyone prices too low, often by a factor of three or four, and the reasons are psychological rather than commercial. A useful first price makes you slightly uncomfortable to say.
Almost everybody prices their first offer too low. Not slightly. Often by a factor of three or four. It is worth understanding why, because the reasons are psychological rather than commercial, and they do not go away on their own.
You price against what you would pay, and you are not your customer. You price against the hours it takes you, and the customer is not buying hours. You price low to avoid rejection, which works: you get accepted, by the wrong people, at a rate that makes the work unsustainable.
What you are actually charging for
Not your time. Your time is how you deliver, not what they buy. They are buying the problem going away, and the value of that is set by what the problem costs them, not by how long you take.
If a slow checkout is losing a shop real revenue every month, the fix is worth a multiple of what it costs you to do it, whether it takes you two days or two weeks. Getting faster at your job should raise your effective rate, not lower your price.
How to arrive at a first number
- Work out roughly what the problem costs them per month. Ask, during those conversations. You do not need precision, just an order of magnitude.
- Price your first version somewhere around a month or two of that cost. If you cannot estimate it at all, that is a signal the problem may not be expensive enough to sell against.
- Check it against what the alternatives cost: a competitor, a freelancer, hiring someone, or doing nothing. You need to know which of those you are really competing with.
- Pick a single number. Not a range, not 'it depends'. Ranges move the decision back to the buyer and they will always choose the bottom.
The same sum, worked through
Illustrative numbers, not benchmarks. The point is the shape of the reasoning, not the figures.
A restaurant owner tells you stock ordering takes her about six hours a week and that she over-orders enough to throw away perhaps three hundred a month in waste. She values her own time at least as highly as her staff's. Call the cost of the problem somewhere between eight hundred and a thousand a month, most of it in her own hours.
A one-off setup that cuts the six hours to one and reduces the waste is worth, on that basis, several months of the problem. Pricing it at two hundred because it takes you a day and a half is pricing your time, not the outcome. Pricing it between eight hundred and fifteen hundred is defensible, and you can say why in one sentence to anyone who asks.
Notice the direction of the error. The two hundred version is not a kindness. It attracts owners who do not really believe the problem is expensive, who will be the hardest to work with and the least likely to follow through, and it leaves you unable to afford the attention the work actually needs.
Two traps at the start
- Three pricing tiers before you have one customer. Tiers are a tool for sorting buyers you already understand. With no customers you are guessing three times instead of once, and the page gets harder to read.
- Discounting to close the first sale. A first customer who only bought because it was cheap tells you nothing about whether the thing is worth paying for, and they will expect that price forever.
If you need to lower something to get a yes, lower the scope rather than the price. A smaller piece of work at the real rate keeps the signal clean and leaves somewhere to go next.
When somebody says it is too expensive
Do not defend the number and do not immediately drop it. Ask what they are comparing it to. The answer is the most useful sentence in the conversation, and it is usually one of four things.
- A cheaper supplier, in which case you now know your real competition and can decide whether to meet it or to be clearly different.
- Doing nothing, which means the cost of the problem has not landed. That is a conversation about the problem, not the price.
- Doing it themselves, which is often true and rarely happens. Ask when they would do it.
- Nothing at all. Some people say it reflexively. A pause and a question will find out which.
Only one of those four is actually about your number. Dropping the price answers the other three wrongly and permanently.
When to raise it
When nobody argues. If every person you quote says yes immediately, your price is below the point where it has to be justified, and you are leaving money behind. A healthy rate gets occasional resistance. Losing some work on price is normal and is not a sign you have gone too far.
Raising it with people who already pay you is a different problem and simpler than it feels. Tell them in advance, give a date, say the new number plainly, and do not apologise or explain at length. Existing clients who value the work almost always stay. The ones who leave were the ones the old price had selected for, which is the point.
Work to do
- Estimate what the problem costs your buyer per month, using what you heard in the conversations rather than what you assume.
- Write one number for your first offer. One, not a range.
- Write the one sentence you would say if somebody asked why it costs that. If you cannot, the number is not yet defensible.
- Say it out loud. If it was comfortable, raise it and say it again.