What the Market Will Bear
November 1st, 2006 by Bob Bly
In the old Peanuts comic strip, Lucy had a lemonade stand.
But instead of selling lemonade, she offered psychotherapy.
The sign over the stand read “The Psychiatrist is In — 5 Cents Please.”
“Why do you charge five cents?” Charlie Brown asked her one day.
“It’s what the market will bear,” Lucy replied.
But is “what the market will bear” the right way to price professional, technical, trade, and creative services?
Should we charge as much as we can get, wringing every last dollar out of our customers?
Or should we be more empathetic, balancing our greed and hunger for money with the customer’s financial situation when setting our fees?
Which pricing strategy do you use? And why?
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November 1st, 2006 at 9:55 am
Bob – Sounds like a loaded question to me
MY rule of them is this: I charge more than most can afford so I do not need to work (as a writer) ALL the time. I back up my pricing by my experience and the *extra* services I provide (an editor, marketing advice). This helps weed out the lookers and lets me focus on my ideal prospects.
I know some of my customers could pay more, but I have not changed my rates in about 7 years.
Mike
November 1st, 2006 at 11:01 am
A distinction that is, often times, glossed over is the fact that the we are part of that market. “The market” isn’t out there. It starts within each and every product and service provider.
I think we also get caught up in price being a factor of cost. Conversations turn to, “it doesn’t cost that much to make or do.” Price is not a factor of cost. Price is a factor of value. Value is a factor of the context in which we are discussing my services.
If a prospect has invested years and millions in a business that is failing, what should I charge him to save his butt with my knowledge? A lot is my answer.
If I write the word “STOP” and it saves you from killing yourself by walking in front of a train, that is worth a lot more than seconds it took me to write it. It is worth the years you gain in the “STOPPING.”
A lot of people tell me they sell a commodity. To me, that is lazy thinking.
Ted Levitt once said, “There is no such thing as a commodity. All goods and services are differentiable.”
Differentiation is the marketer’s job.
November 1st, 2006 at 11:09 am
Must the desire to have a nice income be “Greed and a Hunger for Money?” – if I take that presupposition out of your question, then I can answer your inquiry behind it – which could perhaps be, “How can we create as much wealth as possible for both ourselves and our clients?”
I am an NLP Coach and I do work with clients at various abilities to pay, yet market myself to my perfect client, who has enough money to pay my regular fees. Whatever their level of income, I do ensure that what they pay is a ‘stretch’. (And I only take on a limited amount of lower-fee clients).
I believe that in a business relationship, the level of investment in the process is directly related to the level of investment in the results. “Investment” being more loosely defined here – as in money, time, work, etc.
So, the more clients put into something, the more they get out of it. (OK, let me just clarify that quickly that this really only works with ethical companies and professionals – I’m not referring to those who are out to simply to take a ton of money and add little value).
Thanks for the thought-provoking post!
November 1st, 2006 at 11:37 am
Excellent comment, Wendy.
I wholeheartedly agree with your reframe of the presupposition here. The presuppositions we begin with determine the direction we travel.
November 1st, 2006 at 3:49 pm
I’ll charge what I think I can. If the client can’t afford my price but may give me referrals or is nice to work with – they get a break. If they’re a pain, the price goes up.
November 1st, 2006 at 4:47 pm
Bob–What’s the “price” of anything? Is there a real “price” on a house, a car… or a plumber? Price is determined partially by “what the market will bear.” But it’s also determined by inflation: the cost of living and the cost of doing business. You can’t charge today what people got paid in the 50′s.
But that cuts both ways. Many people are getting paid less today than they did in the 90′s. So the cartoon is cute, but not relevant.
November 3rd, 2006 at 11:10 am
Price is exceptionally elastic. Take copywriting, for instance. I imagine you could get a client to pay for your services at almost any price. Why? Because at some point, the client is no longer paying for the copy you write… or the results it achieves; he is buying exclusivity and bragging rights.
Isn’t this why some folks pay multiple millions of dollars for rare pieces of artwork? It’s not so much for the piece of artwork as it is the bragging rights…
November 4th, 2006 at 2:18 pm
My idea is that price is determined by the value the client perceives in my help, support and guidance to achieve specific objectives. So, my job is to guide the client through a process in which he can articulate the value of my help.
When a commercial pilot needs shoulder surgery or loses the use of his arm and his $150,000 a year job (20 years to go to retirement, thus $ 3 million to be lost), he is likely to find $100,000 for surgery even if he has to sell his home and temporarily move into a basement suite.
If the client needs a new landing page for his website and says: I get 1,000 unique visitors per day. Right now I get 10 (1% conversion) subscribes to my free newsletter (warm prospecting ground). If the website converted at level 5 on a scale of 1 to 10, that would lead to, let’s say, 50 subscribers per day, that is an extra 40 subscribers. The lifetime value of one average client is $10,000. For the 40 subscribers it’s a potential $400,000 opportunity per day. For a year this is a potential of some $144 million.
Let’s say we succeed at only 10% of this. That is still $14 million.
So, if I charge $20,000 for that landing page, that’s a pretty good ROI for the client. That’s a great win-win. Is the client wiling to invest $20,000 in a $14 million opportunity?
I’m not wringing money out of the client per se. I give him options, and the client can choose. Different options offer different level of probability to achieve specific objectives.
Basically, they say what they want and what they are willing to invest to achieve it. For a lower investment the client gets a doghouse. For a higher investment he gets a mansion. For an even higher investment he gets a palace.
So, the fee is always in the client’s control.
November 4th, 2006 at 5:37 pm
Bob, my wife is a copywriter with many non-profit organizations as clients (a lot of them “faith-based”). While she does have her “standard” fee structure, she will occasionally charge something different if the client is a particularly desirable one from a business standpoint, or if that organization’s mission trips one of her passions. In those cases, using her words, “the psychic income – the fulfillment of supporting that mission – can outweigh the financial income”.
November 5th, 2006 at 11:00 pm
Tom, I’m not sure your logic holds up. Yes, the fee is a bargain IF you get those results. But you don’t KNOW you will get them. Is your fee based on performance? percentage of sales? Also, I charge less than HALF of 20K for a landing page, and I am pretty hard to beat. If your page does not outpull money, do you give your client his money back?
November 7th, 2006 at 9:52 am
“Which pricing strategy do you use? And why?”
I don’t wring every last dollar out of my customers. But on the other hand, I don’t ask my clients for their tax returns when quoting them a price. If people can’t pay my rates, there are plenty of people out there that will charge less.
Sometimes, though, I will charge much less than my “normal rate”. For example, when I edit a book, I quote a rate that is commensurate with the amount of skill, time, and effort it will take to complete the project. I may also take into account that person’s potential to drive future business my way.
Sometimes I offer a low rate that they know is “just” for them, in exchange for them becoming my “evangelists” IF they’re happy with my work. So far, it’s working. My influential clients are happy, they refer others to me, and I get a nice income. Everyone wins.
November 15th, 2006 at 4:21 pm
Of course you charge what the market will bear!
Last I checked, I believe our current system is based on that concept called “capitalism”, or letting the price fluxuate based on competition and the value of the goods or services.
If you have a quality product, why shouldn’t you command a higher price for it? If someone doesn’t value quality and wants the lowest possible price, then they must assume that there will be a sacrifice associated with that decision.
After all wouldn’t we all like to have a BMW for a Yugo price? To expect as much, is just unrealistic.
November 27th, 2006 at 1:19 pm
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July 31st, 2007 at 9:50 pm
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