Join Lauren Bacon for an in-depth discussion in this video Q&A: Competitive pricing, part of Web Career Clinic Weekly.
- [Lauren] Hi, I'm Lauren Bacon, and welcome to this week's edition of the Web Career Clinic where I explore how to build a career you love, making good stuff on the web. It's time for another member question. Today's question is: how should I set my pricing in a competitive local market? Now, because you specified that your market is local, I'm going to assume that you are primarily working with clients who are local too. So that's my first piece of advice. If you want to increase your prices, you may need to expand beyond your local market.
In the meantime though, there are a few considerations you'll need to make in setting your pricing in any context. The first, of course, is how much you need to make to cover your expenses and pay yourself a living wage. That's job number one, because if you can't do that, your business isn't going to be sustainable in the longterm. So crunch those numbers, and figure out what kinds of fees you need to charge in order to make a go of it. The other question you have to consider is how much your competitors are charging, and how you want to position yourself in relationship to them.
This doesn't mean that you have to price your services at the same level your competitors do though, that's a mistake I see a lot of people make, because they assume that their competitors have set an upper limit on what clients are willing to pay. You need to start by doing your own research on who the local market is, what they value, and what their budgets are. You can do this by simply having conversations with people who work for the kinds of organizations you want to work with. Ask them about the kind of services their businesses need, and what they typically budget for those services.
You'll get a couple of important things through these conversations, and pricing information is only one of them. The deeper insight you'll gain by talking to perspective customers is what's going on inside their business, and what kind of help they need. If you listen closely to what they tell you, and look for patterns among the different conversations you have, you might discover that there are needs they have that aren't being met by your competition. This requires careful attention and real curiosity. Ask open-ended questions, like what are the greatest challenges your organization is facing right now? Or, what's the best investment you've made in the last 12 months and why? The answers to these questions will help you understand your target market better, and might inspire you to design new service offerings, or a simply market them using language that speaks to your customer's real needs.
Once you have done your research and thought carefully about how to package your services in a way that serves real needs, then you'll be in a position to make decisions about pricing. I would caution you against paying too much attention to the competition, because while you probably won't get away with charging 10 times what the competition charges, you need to make sure that you're comparing apples to apples. That is, are you truly offering the same exact service as your competitor, or can you make the case that what you provide has more value to the customer? Because if you can deliver more value, that's a very compelling reason to charge more for it.
So that's another thing to consider in setting your prices, the value proposition. Now so far we've talked about budget considerations, covering your costs and paying yourself a living wage, market research, understanding your customer needs and budgets, and the value proposition. What value are you delivering? There's one more angle I recommend considering here, and that's positioning. How do you want to be perceived in relation to your competitors? The metaphor I like to use here is a restaurant.
Are you a fast food joint that pumps out cookie cutter options at a low price? Are you foodie heaven, like The French Laundry, where the entire experience is elegant, customized and impeccable? Or are you somewhere in between? Maybe a really great neighborhood cafe where they know your name and always have fresh sandwiches. Just as the prices for these different restaurants vary according to the quality and style of their offerings, so should yours. And your positioning is one of the most important considerations to make when you're figuring out your pricing.
It has to do with the types of clients you want to work with, your work style, and how much time you like to spend with each project, as well as the depth of your expertise and experience. Because of course, you can't just call yourself an elite agency if you don't have the portfolio to back it up. So, those are the four pillars of pricing yourself effectively. Now, I want to take a minute to speak to the approach I don't recommend, which is underpricing yourself to try to get an edge on the competition. When I hear people talk about competitive markets, often there's a fear underlying their words.
They're worried that there isn't enough work to go around, and that pricing themselves lower is the only way to build up a client base. The trouble with that approach is that your prices establish an important set of expectations. They tell your clients and prospects how much you think your work is worth. And it's way harder to negotiate your price upwards than it is to negotiate it down. In other words, if you start out telling people that you're willing to work for 25 dollars an hour, and then a few months down the road, you figure out that you actually can't afford to keep charging that little, you're likely going to have to go out and find a new set of clients who are willing to pay you more, because most of the clients you have at that price point, are going to do their best to find somebody else who's willing to work for that little.
On the other hand, if you set your price at 75 or 100 dollars an hour, and once in a while you want to offer a discount to a repeat customer, or a non-profit organization, then you're in a much better position to do that because your clients are still going to value your work at a higher level. When you price yourself too low, you undervalue your own work and the competitions, and you create a race to the bottom where no one wins. So, I encourage you to focus instead on pricing your work fairly, and in a way that can sustain you and your business over the longterm.
That's how you develop respectful relationships with your clients, and with the competition, for that matter. That's it for this week's Web Career Clinic. Do you have questions about your web career? If so, I'd love to hear them. Drop me a line on Twitter at @laurenbacon, using the hashtag ProWebClinic. Tune in next time as I explore another topic for web professionals. See you next week.
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