One of the areas of business that I enjoy the most is the game of pricing: figuring out the highest fees we can get on any given project so that the client sees the value of our work and signs the contract. Whether it is a single project in the middle of nowhere or a portfolio with all sorts of economies of scale, the game takes into account several factors such as what it will actually cost us, how much profit we want, what have we charged for similar projects for that client in the past, what is the most we can charge and still be awarded the work, what price would make us happy – just to name a few. It has been fun sharing this game with my now 13-year-old son Matthew, who is my occasional business coach, entrepreneurial consultant and sounding board.
There are times we are given direction by a new client indicating what they are used to paying or what another company was going to charge, but usually we are left to our own devices to determine the appropriate price for any given project based on our project experience and history with the client. Increase the fee too much and even your most loyal client will balk. Decrease the fee too much for a potential new client and he or she may decide that your quality must not be as good as another consultant who is charging more, a lesson Matthew re-taught me this month…
I was trying to sell an office desk we no longer needed. We’d purchased the floor model at Office Depot earlier this year for roughly $100 or so. The desk was in good shape, although it now had a few more scratches than it did when we bought it. Not wanting to spend much time on this process, I created an ad on Craigslist and listed a price of $50, thinking this was sort of a round priced-to-sell number.
I got a few emails and calls, but no one was serious enough to come take a look at the desk and it didn’t sell. The next week I re-issued the ad and dropped the price to $30 with the thought that it would then be sold quickly. Instead, there was absolutely no response at all from the desk-buying masses.
Not knowing what I should do, I asked for some advice from my son. Then of course the desk-selling project became much more enjoyable – one involving teamwork, partnership and family. I explained what had happened to Matthew and as he listened he sketched the respective prices – original cost to us, first price we tried and second price we tried – down on a piece of paper. Then he wrote down the corresponding levels of customer interest – pointing out that as the price went down the interest in purchasing the desk decreased – and suggested that the potential buyers now probably think there is something really wrong with the desk if it’s selling at such a low price. He suggested listing the desk for even more than I originally tried.
We sold the desk in less than 24 hours for $80. (And yes, Matthew received a bonus for his consultation.)
That experience had me think again about the fees we charge new clients hoping to just get our foot in the door and how some levels of fees may be perceived. It was a great lesson to take with me going into our busiest time of year where we’ll be playing the pricing game frequently.