Sales Psychology: Why People Won’t Pay Your Rates

by Peter Shallard

Sales Psychology: Justify your Pricing

Today’s post is short and sweet. Time and time again, I meet entrepreneurs struggling to figure out what price to charge for their products and services. And when entrepreneurs are engaged in direct selling and price is pretty much up to them…. it’s worse than ever.

Why? Because if you’re like many entrepreneurs, setting your price is the psychological equivalent of setting the value of YOU. Your life, your work, that thing you’ve poured your energy and soul into. What’s that worth?

Tough question.

After agonizing over what to charge, you reach a decision and start selling. Finally. It’s a relief. Until a prospect utters these words, which feel like an ice-pick to your heart:

“Gee… that’s expensive!”

When I began my therapy practice years ago, I charged $50 an hour. It was my first business, and people told me I was too expensive.

Wow. That really surprised me. Thankfully, I was equipped to deal with it – it’s one of the perks of being a therapist.  I knew that psychology was at play and that there was something bizarre going on with these people saying I charged too much.

When someone says “that’s too expensive”, they’re verbally acknowledging an unconscious comparison. A comparison they don’t even realize they are making. They’re measuring your price against something else, and you don’t even know what that something else is.

Want to know how to stop this thought process in its tracks?  When you hear, “That’s too expensive,” ask this:

“Compared to what?”

The first time I asked a potential client this question, I got an answer that sounded like this: The person paused for a while, almost in stunned silence, and then said “…. piano lessons!”

This person had been wanting to rid an addiction of anti-depressants and the only mental reference for price comparison was piano lessons for their child. This was the comparison their unconscious mind was making. This was the comparison that left them feeling the rate for therapy was too expensive.

Piano versus Peter.

But it doesn’t make sense to compare music lessons to therapy sessions that resolve addictions. They’re not the same, and there are no similarities that can be drawn.

The unconscious comparisons people make regarding price are largely BS, and they rarely hold up to closer scrutiny.

I raised my rates. I continued increasing them as my business became busier and my time more in demand. When I left the private therapy practice and moved into my current business psychology consultancy, my rates were $325 per hour.

And business has never been better.

Perceived value increases dramatically when you have higher rates (if your skills and experience justify them, of course). I used to joke that if you wanted to help someone quit smoking, just charge them $2500 for the consultation! They’d take it so damn seriously that they couldn’t help but quit!

This is just a joke, but it does demonstrate the principal that clients paying more are almost always more rewarding and responsive clients.

Here’s a list of the most important questions you’ll ever ask yourself about pricing. The answers may not all come to you today, but just start to think about them. That thought process is critical.

- What do your clients compare your price to?

- What are you comparing your price to?

- What would you like your clients to compare your price to? (They’ll always compare it to something!)

How do you feel about rate setting? Do you know the answers to these questions? Let me know in the comment section.

{ 176 comments… read them below or add one }

Barbara Ling, Virtual Coach September 9, 2010 at 11:51 pm

Utterly brilliant (asking “compared to what?”). Sharing this with my network, thanks!

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Peter Shallard September 10, 2010 at 8:31 am

Thanks for stopping by Barbara. It’s amazing how one question can make such a huge impact!

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Ivette Muller September 10, 2010 at 12:21 am

Love this! I never thought of asking the question like that and it should serve me pretty well because potential copywriting clients who say I’m too expensive are usually price shoppers who aren’t looking for my expertise.

While I know their answer will likely be another copywriter’s name, I can then let them know they’re not comparing apples to oranges.

Thanks again!

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Peter Shallard September 10, 2010 at 12:33 pm

Hey Ivette! It’s all about finding the actual criteria they’re comparing…. and that doesn’t actually HAVE anything to do with price.

If you want to close the deal, you’ve got to compare the BENEFITS. Then price becomes less of an issue.

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Marian Schembari September 10, 2010 at 12:38 am

This is freaking AWESOME – I love that answer to the comparison question. However, no one has ever asked me that.

Question for you – I know I’m expensive. If you compare me to other social media consultants I pretty much charge what they charge. However, when a client asks for my rates and I give them a breakdown of what I cost, what I provide, etc etc…. I never hear back. They don’t haggle or say “that’s expensive”, they just don’t respond at all. I’m assuming that means they don’t want to pay the money, but I can’t even seem to get a dialogue started. Now maybe that means there’s something wrong with my pitch, but the most common answer I get (before I even give my rates) is “Oh, I can’t afford a social media consultant right now…” blah blah blah. Now THAT’S frustrating!

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James Chartrand - Men with Pens September 10, 2010 at 3:11 am

Benefits, benefits, benefits. Without having seen the pitch, I could bet that it doesn’t paint a picture of what their life might be like AFTER working with you. Breaking down the cost is okay… telling them WHY they need this and how their life will change might be better!

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Martin Stellar September 10, 2010 at 3:37 am

That’s just what I was thinking before I read your reply. Stay out of my brain from now on, will you James?

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Marian Schembari September 10, 2010 at 4:21 am

Nice one! I’ve been trying to do that more now but looking back on old emails I definitely have sucked hard at that in the past. Thanks for the kick in the pants!

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Marcy Gerena September 11, 2010 at 6:13 pm

Good point! I need to do this for my business.

“WHY they need this and how their life will change might be better!”

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Peter Shallard September 10, 2010 at 12:40 pm

Two ways I could answer this – 1st is to look at the psychological tricks that could instantly improve conversions … 2nd is to look at the bigger picture. I pick number 2 :P (for now)

To be honest, you’re experiencing the pitfall of email. As a 4hourworkweek tool, email simply rocks…. as a medium for selling, it sucks. Using email is also a delicious trap that introvert non-salesy types fall into. They do this precisely for the same reason it sucks for sales – it’s difficult to create any sense of “pressure”.

My big picture advice (which may be a bit on the overwhelming side, in terms of action-ability) is to introduce the magic phone.

I worked with an organisation recently that had a B2B sales model (they were selling crazy IT stuff to other companies). They did a LOT of email selling. I changed that – they now only do email “quoting”.

They were able to increase conversions by 30%, literally overnight. All I changed was a tiny sentence at the end of their standard quoting email that said “I will call you in 5 working days to discuss this proposal.”

Radical change. Lot’s of psychology at play. Simple to implement. Scary for blogger types? You tell me :P

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GaryK September 10, 2010 at 3:32 pm

Peter,

I really like that and looking back, agree with the action taking place after the message sent. It makes a time table for some type of response and gives you another reason to talk to them and find out if you’ve answered all that needs to be answered for a decision.

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Peter Shallard September 10, 2010 at 7:16 pm

yep, that’s exactly why direct response copywriters love “scarcity” and “limited time offers”

That stuff gets RESULTS.

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James Chartrand - Men with Pens September 10, 2010 at 10:24 pm

I want a list of all those psychological tricks that could instantly improve conversions :D

Also, I have to disagree with you about email being a poor medium for sales and difficult to create pressure (and probably regret it when you jump on me and pummel me to the ground). When you know what you’re doing and have the proper copywriting, you can effectively create some pretty serious email copy.

It’s the same as a sales page on the web, only being sent via email.

On the phone thing – most people don’t give you their phone number via email. Corporate types do, but online? Very few. So would you ask? “I’ll give you a call in five days (which is forever online) to discuss this proposal… what’s your number?”

Peter Shallard September 11, 2010 at 12:58 am

Look, I don’t disagree… But you’re thinking like an online person here ;)

Email IS the same as a sales page on the web, but it ain’t the same as face to face or phone. Nothing beats face to face sales – it’s hands down the best direct sales tactic with the highest conversion. It ain’t always scalable or appropriate… But if you can make it work, you’ll reap the reward.

That’s why 95% of my income is generated offline, selling to corporates. I’ve done face to face meetings (highly pre-qualified) with a 100% close rate for the past four years. Totally bragging here :P
I know that it’s not realistic for am lot of online entrepreneurs to get phone numbers. Thats why my advice might come across as idealistic. That said, I know for a FACT that plenty of online businesses have prospects begging for a quick clarity-inducing call… But won’t offer. Why they won’t is a whole other kettle of fish.

So yeah, sure email works. But it’s nothing compared to more direct contact, if you can make it happen.

Marcy Gerena September 11, 2010 at 6:54 pm

Peter

What’s the psychology behind changing the sentence?

I can see it now causes the company to have to think of what they will say when the company calls in 5 days rather than just deleting the email.

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Elizabeth Doherty Thomas October 22, 2010 at 6:37 am

So I was JUST looking at how YOU only work via email. You totally validated my need for email based on the million things I’m doing and how precious my time is especially as I’m relaunching a new paradigm for what I do and offer.

I love how you defend email because it’s true for a lot of marketing type coaching help… I know the clients I email say, “wow, lots to think about” when I ask questions in an email. And I know their answers are far better when they have a few days to think and email me back. And then my strategic advice is better because of that.

Now you say phone? Help me out! =)

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Dov Gordon | Alchemist Entrepreneur October 4, 2010 at 3:00 am

Hi Marian,

I’d guess that you’re discussing price before clarifying the RESULTS they want.

When a prospect asks “How much?” or says “Send me a proposal” refuse to answer unless they ALREADY perceive you as THE answer to everything they want.

Instead, say something like: “You know, I really don’t know what it will cost because we haven’t discussed the changes you’d like to see as a result of our work together. But if I can ask you a few questions first…”

Once you help them paint the picture of the CHANGES they want, and the IMPACT those changes will have on their lives and then you offer 2 or 3 OPTIONS for how to go forward at different price point, you’ll get much more interest.

Dov Gordon

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Peter Shallard October 4, 2010 at 5:17 pm

This is something I get aaaaall the time, especially in the corporate arena. Busy decision makers asking for a quote before they fully understand the details, benefits and features (yes, features ARE important here) of what I’m pitching.

It’s always best to sidestep the request to lay your cards on the table, because if you answer you’re pretty much inviting a meaningless (or useless) cost comparison.

Thanks for your valuable input Dov! Awesome stuff :)

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Dr. Robert B. Hernandez October 23, 2010 at 2:38 am

I think its excellent to side step the usual “What are your fees?” Would you say more on guiding me to help potential clients paint a picture of the changes they want to make, and how my services as a psychologist will get them there before I give my rates, since this is what I have always done?

Thanks
Robert
PS. How do I get my pic up here?

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Peter Shallard October 23, 2010 at 1:31 pm

Hi Robert,

That’s certainly how I’ve always pitched my consulting to one-on-one clients. The idea is to have them ultimate perceive your service as a “can’t-do-without”.

(You can get a photo up on your comments by visiting http://gravatar.com and signing up for an account – it’s quick and easy)

GaryK October 15, 2010 at 2:46 am

Hi Dov,
I like that answer for cold calling, never thought of that because I was always in different scenario.
Thank you,
Gary

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James Chartrand - Men with Pens September 10, 2010 at 12:40 am

This was a sweet post.

We have big-ticket services, so we hear, “That’s expensive!” fairly often. It’s easy for me to respond to that in a way that conveys why we are, and why it’s the best choice for people to work with us: we’re expensive because we’re top of the line, and we bring big results to our clients.

But it never – ever! – occured to me to ask, “As compared to what?” I assume (most likely wrongly) that people are comparing us to other web design and copywriting services that just aren’t in our league of quality – it seemed the logical assumption to make.

Now I’m thinking that’s quite possibly very wrong, and that by asking the comparison question, I might be able to better respond to my clients’ concerns in a way that gets them buying in 150%.

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Martin Stellar September 10, 2010 at 3:39 am

Honestly… piano lessons? What’s next… a loaf of bread?

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Peter Shallard September 10, 2010 at 12:42 pm

I KNOW Martin! I’ve got to admit, when I heard that on the other end of the phone I did have to stop a second to let my mind boggle.

People! Can’t live with ‘em…. can’t legally strangle ‘em….. ;)

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Peter Shallard September 10, 2010 at 12:41 pm

It feels good to teach you a thing or two :P

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Harrisonamy September 10, 2010 at 1:58 am

I’m with you on people taking your service seriously by charging more. When I first started, my rates were low to get people in the door. It took me longer than it should to have increased them.

When I did raise my rates, it was like going topless at the beach for the first time (stay with me on this one).

You panic and think everyone is going to turn, stare, and then run away.

But no-one bats an eyelid – and it makes you wonder if you should have been more outrageous!

That analogy seemed right in my head at the time. :-)

Well, short side of the story is that by valuing my own services more, clients do as well and I’m working with some top notch business owners who are a delight to work with. Raising your rates doesn’t just bring with it better financial rewards, it also brings better quality projects and clients your way.

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Peter Shallard September 10, 2010 at 12:45 pm

LOL! You win the prize for best comment today!

….. soooo…. what beach do you go to? :P

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Harrisonamy September 11, 2010 at 2:33 am

Ha ha – oh, they stopped letting me on beaches long ago… something to do with being too outrageous… :-)

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Bhaskar September 10, 2010 at 2:45 am

I think I have been learning something from you, Peter, because the first words that popped in my head when you asked the question were- Compared to what?Swear.

I imagine clients would compare me to similar service providers, at which point I am going to adopt the same track as that suggested by the other commenters,

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Peter Shallard September 10, 2010 at 12:49 pm

Yep, but keep in mind (as I was telling another commmentor) that even though people may consciously compare competitors, YOU need to take responsibility for opening their mind to a comparison of benefits.

That’s what good sales is all about :)

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John Gilger September 10, 2010 at 3:18 am

Hmm…

You got the cogs turning. I need to ask the “Compared to What?” question and keep track of the responses so I can incorporate that into my copy establishing the value of my services.

Or just do a survey…

Might be a good question to include in meetings with clients, also. Something like “Who (or what) do your prospects compare your product or service with?”

The cogitation continues…

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Peter Shallard September 10, 2010 at 12:50 pm

Let me know how you go with this John. I predict that it’d be a useful exercise… but also that you’ll get different responses from a survey than you would get from asking the question to reluctant prospects on the spot.

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Mallory September 10, 2010 at 3:27 am

I sell handmade products by a variety of artists, and compared to similar products you might find in big-box stores, these products are usually slightly more expensive, even though the quality and craftsmanship is usually much better. Plus it’s made by an individual artist and not some kid in China. But sometimes I have people ask me why these products cost what they do, and I try to explain the time, materials and craftsmanship that goes into these goods, and they still don’t get it.

I guess what I’m getting at is, does the “Compared to what?” question work as well when you have a tangible product and there actually IS something most people are familiar with and can compare it to? Some people will never get the value of buying handmade, and some people immediately do, but for the people caught somewhere in between, I’m still trying to figure out a way to better explain to them why it’s worth it to pay a little bit more.

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Melinda | SuperWAHM September 10, 2010 at 8:48 am

- The people who hand make your products aren’t sitting in a sweatshop in China working for $2 an hour.
-They’re using quality materials, rather than what’s cheapest.
-They’ve spent years perfecting their skills and investing in learning.
- They have expenses in their equipment that they’ve had to purchase, electricity, shipping etc
- They’re comparing a Renoir with with a child’s painting

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James Chartrand - Men with Pens September 10, 2010 at 9:07 am

Also… they get the ooh-la-la factor. They can smirk they’re elite. It’s something special and unique that no one else has. It makes a great gift. It’s made with care versus machines.

Think about it: Ask someone who likes jewelery whether they’d prefer a handmade original piece or a piece off the production line… :)

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James Chartrand - Men with Pens September 10, 2010 at 9:07 am

(Bah, see? Now it’s me making typos and grumbling. *jewelry)

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Bhaskar September 10, 2010 at 11:31 pm

So,do we see some sort of delay feature in the commenting system? :)

Karilee September 11, 2010 at 12:52 pm

There’s a punctuation typo too… is this really James?

I read almost everything you write with awe at your skill, so it’s irresistible to poke a bit of fun.

Mallory September 10, 2010 at 12:33 pm

James, I think you’re definitely right. It’s the same as with people who will pay $2,000 for a leather handbag because of the label on it, even though it looks the same as a $200 handbag.

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Mallory September 10, 2010 at 12:31 pm

Thanks Melinda, I appreciate your response – I usually try to explain all of this to potential customers, and most people understand and value the products. Obviously anyone who doesn’t get it is just never going to be my target customer.

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Kirsty Hall September 11, 2010 at 12:48 am

Mallory, have you seen this?

http://thisishandmade.tumblr.com/

It’s a bunch of artists making five minute videos of their process to show just how much work goes into things.

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Mallory September 11, 2010 at 12:59 am

Kirsty, no, I hadn’t seen that yet, thanks for sharing! That site is a great idea (and I love the caption at the top too).

All of this has given me a lot to think about – I’ve got lot of ideas on how I can start improving my site and creating more perceived value for my products. Thanks everyon!

Peter Shallard September 11, 2010 at 1:04 am

Mallory, thanks for the discussion! The value that’s been added to the original post through this dialogue is just exceptional… So thanks for kicking it off.

I’m glad you got some practical ideas from it all. Now, go action them and show us all the results! :)

John Barton June 3, 2011 at 9:07 pm

I have mixed feelings on the how-its-made type videos. I think that people don’t necessarily want or need to know the “magic” behind the process and nor do I think that the amount of work can be condensed meaningfully into a five minute video. I think that such videos oversimplify the process and make it seem easier than it is. Our cases take about 18 hours on average to make and I don’t want to reduce that to five minutes. But I can see where a video done right can evoke the desired response.

It seems to me that the key is proper presentation. My competitors achieve higher prices for inferior goods seemingly based on their artistically presented photos which tend to make the item seem very high class and well done. So the easiest way to get more money is to learn to do artistic photos rather than informative ones. Once again psychology trumps facts. People only briefly glance at facts, they want what makes them feel good.

I have a formula that I use to price my goods. It factors in my costs and the minimum amount I want to earn. This stops me from charging what the market will bear and insures that my products always provide more value than my competitors as it’s very difficult for them to put more into the product and charge less unless they are willing to work for less than I charge. So far no one has been able to really touch my pricing for what we offer (bragging here as well) and the result is that we don’t get disappointed customers who feel the price was too high.

Am I leaving money on the table? Yes I am. I could charge more and get more but I honestly don’t believe in charging what the market will bear. I see that as a path to trouble when the economy turns. I really believe that my business remains solid through any economy because of the value ratio provided. And I have no problem justifying my prices nor do I very often get people telling me that my price is too high. More often I am told it’s too low, at which point I let the customer know they are welcome to pay more. :-)

The difference between a $2000 handbag made by Fendi and a $200 one made by Joe’s Leatherworks is marketing. One may be truly way better than the other but Joe’s Leatherworks could also jsut as easily be a brand called JLW and be selling bags for $2000 while the Jane Fendi can’t get $200 for her unique handmade bags. It really has nothing to do with HOW the bag is made and everything to do with how the customer feels when they get it in their hands and how they feel when other people see them with it. People who buy and understand the culture of Fendi don’t have to justify or sell others on why they bought a Fendi.

That’s my take on pricing. I fully agree about small business folks equating pricing with their own self-worth. I have been guilty of that. Now I simply think to myself would I buy that if I were the consumer. That pretty much sums up whether I feel any price I have is in-line or not. And I realize that there is a lot of mushy self-worth stuff wrapped up there too.

:-) Isn’t life fun?

Peter Shallard June 5, 2011 at 1:54 pm

Hey John! Thanks for stopping by.

You’ve made some valid comments here, but I have to respectfully disagree with a lot of what you’ve said. I think your strategy for pricing ISNT recession proof at all – that a shift for the worst in the economy could definitely mess things up for you, even if you’re price low. Why? Because even if you’re priced perfectly…. you’re still trading in a luxury/boutique market!

At least you’ve got the self awareness to recognize that your beliefs here are “self worth” driven :)

Peter Shallard September 10, 2010 at 12:59 pm

Hey Mallory,

Great answers from these two wizards. I thought I’d just add some psychological insight:

For tangible goods, if the prospect is giving you “that’s too expensive” feedback then that’s pretty much a direct signal that you’re not communicating your points of differentiation across clearly enough.

One of the “secret formulas” for winning with physical goods is to innovate/market to the extent that your thing is SO differentiated that most consumers struggle to (even unconsciously) make a comparison … of any kind.

When you can achieve that, your products take on a mystical aura of “must-have-ness”…. something companies like Apple have done very, very well.

This falls under the category of “very difficult – be more awesome” advice… but if you can, focus on creating category busting products that people compare with anything!

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Melinda | SuperWAHM September 10, 2010 at 1:26 pm

Mallory, can you do some blog posts on what it takes to produce these items? – interviews with your sellers? What does it take to create piece xyz? Photo’s of the process? The process from thought to design to reality? The issues of cheap asian knock-offs?

There’ll be more on your site about why they’re priced so highly, without it being a hard sell. It’s interesting from the human interest perspective, you can link pieces to the blog posts, gives readers and visitors background information so when they’re looking at the jewellery they have at least a basic understanding of it.

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Peter Shallard September 10, 2010 at 1:33 pm

One of the age-old examples of this type of marketing/selling is when beer companies shifted from marketing on taste/lifestyle. That was the coca-cola marketing strategy.

Then, some clever person thought of telling the story of the beer’s creation. For generations, brewers had been sourcing pure mineral water and selectively choosing varieties of malt/hops etc etc…. all just to make the best tasting beer.

… but they’d never bothered to TELL anyone. When they did, everything changed. The concept of being a beer connoisseur was born. The brewing business transformed and ultimately, consumers won simply because the quality and choice of beers increased.

It all comes down to educating the prospect and giving them other comparative criteria. When you know that some beers are made with mineral water and others use tap…. the choice becomes a no-brainer.

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Mallory September 10, 2010 at 2:33 pm

Melinda, Peter, I think these are great ideas – I do try to give background information on who the artist is and how things are made but I think I could definitely be doing a better job of it and creating more personality and interest. Thank you so much!

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Conor Neill July 25, 2011 at 11:17 am

People buy because of benefits to them, not because of features. This is a big failing of software engineers – happy to explain that their new application has 37 interface dongles, is built in the latest Ruby, with open blah blah… The customer needs to feel how their life will be better with this solution. I buy the more expensive solution because it feels better. What is the feeling of having a Renoir on your wall? What is the feeling of owning an original Beetles signed album?

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Natalia M. Sylvester September 10, 2010 at 4:14 am

That is such a great question, especially since in my case, the people who say “that’s too expensive” have usually never worked with a copywriter before. So what they’re comparing my rates to becomes a very interesting point. Are they comparing rates to other creatives, such as designers? Or maybe to something unrelated, like their IT person’s rates?

I suspect that many people, if they don’t even know how much a particular service costs, will just come up with a figure on their own. For example, I recently shopped around for a custom Wordpress template for my blog. Since I didn’t know what went into it (I was taking into account the design but not the complexity of the coding) I originally started out with a ballpark of how much I wanted to spend, largely based on how much disposable income I had at the time and my perceived value of the service.

As I researched and realized what went into it (and how expensive it could get) my budget went up. I was no longer comparing based on just price, but also on the quality of the work. I was actually skeptical of those offering their services at my original price, and ended up going with someone who was in-between: more than my original budget, but not as high as the highest. Sure, the guys I went with were expensive compared to other designers, but those other designers didn’t seem as knowledgeable. I’m always willing to pay more to get it right the first time.

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Peter Shallard September 10, 2010 at 1:02 pm

Great observations Natalia. My point is that even when a consumer *thinks* they’re shopping on price, or as you said, on a percentage of their income/spending money….. there is always some form of mental comparison being made.

You had a direct experience of having your comparison reframed as you grew more educated about the purchase you needed to make. Your job as a salesperson is to educate your prospect in the same way.

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Martin Stellar September 10, 2010 at 6:35 pm

Educating your customers is the key. Before you sell to them you have to make them understand what you will bring to them. Then you make them want it, which is the selling part.

It ties in with the comment above about handmade goods. I have some experience with that (*cough* – hush, James) and I can tell you that it makes a vast difference if they understand what all goes into the process. It demonstrates the value.

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GaryK October 8, 2010 at 7:44 am

Hi Natalia,

I’d have to agree with you on your post and have found myself in the same situation just most recently.

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GaryK October 8, 2010 at 8:51 am

Hi Natalia,
I like your second paragraph, recently experienced that scenario and totally agree with your observation. Good one!

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Marcy Gerena September 10, 2010 at 4:34 am

“Compared to what?” Love it!

It’s good to let the client (customer) talk while listening to how I can connect what I do to what they need.

I need find out how clients are comparing my prices.

Since my niche is targeting a regulated industry, I am comparing my prices to hiring a certified professional with experience in the industry.

Whether a client is within my niche or not, I would like my price to be compared to purchasing a unique, creative piece of artwork that will emotionally engage potential customers and make a connection.

The Internet is crowded with words (information overload), but if a company is looking for unique, I believe it is creating art specifically for my client to standout among its competitiors.

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Marcy Gerena September 10, 2010 at 9:48 am

I’m following Mens of Pens … I was looking for the spelling correction button *competitors* and I’m missing the word to between need and find. Okay .. now I feel better.

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Peter Shallard September 10, 2010 at 1:05 pm

Hey Marcy,

If I were you, I’d compare my prices to the value and return on investment my clients make. Just sayin’ :P

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Marcy Gerena September 11, 2010 at 7:13 pm

You’re right, Peter. Thanks for the feedback.

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Henri Junttila September 10, 2010 at 6:16 am

I have very little skills in this department, so this post really rocked. I’ve been shopping for consultants lately, so I’ve noticed myself doing these kind of comparisons.

But when it comes to something like an ebook, does the comparison change if you make it into a whole course and add interviews, workbooks and other goodies? That must change the comparison to something else.

I personally feel it’s tough when starting out, because people don’t really know you, so you have to start at a low price (not cheap, but lower), and work your way up as your reputation builds, yea?

Cool stuff!

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James Chartrand - Men with Pens September 10, 2010 at 9:10 am

Not necessarily. Peter’s relatively unknown on the internet – but he stepped out with his usual offline rates because that’s what he knows his skills and results are worth.

And even as an unknown, people automatically think, “Must be good to cost that much.” (They may also think, “That’s expensive!” but that’s a different story.)

Peter made his reputation. He didn’t wait for other people to make it for him.

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Martin Stellar September 10, 2010 at 6:26 pm

From the amount of comments, it would seem Peter is known plenty well on the internet.

And you’re right: if it’s expensive it must be good, or inversely: you get what you pay for so cheap stuff is, well, cheap stuff. That’s how people think and it often works out that way.

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Peter Shallard September 10, 2010 at 7:12 pm

Martin, my site went live only six weeks ago. If you think I’m “known” then blame James. S’all her fault ;)

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Martin Stellar September 10, 2010 at 8:03 pm

Yeah, she’s a nasty piece of work isn’t she.

Henri Junttila September 11, 2010 at 12:54 am

Awesome stuff.

James, you are completely right. Peter has the experience to back it up. I’m in the boat where I’m pretty awesome at something, but don’t have the experience yet.

Action and persistence shall lead the way!

Peter Shallard September 10, 2010 at 7:11 pm

*puffs out chest* that’s right!! :)

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Bhaskar September 10, 2010 at 11:40 pm

Also, if you are good, brilliant like Peter, with what you do you can charge high rates even if you are just starting out on the Internet. And the Internet rewards quality. Six weeks, and a whole lot of comments and followers is a pretty good vindication of my statement, me thinks

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Peter Shallard September 10, 2010 at 1:27 pm

Henri,

You raise a very very interesting point here. I think, in the world of info-marketing, we’ve seen format used as a tool to shift perception and comparison. When the same information is sold in ebook format versus e-course…. is there any change in real value?

Maybe. But there is a huge change in price. Definitely something worth pondering if you’re an online entrepreneur .

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Ren Atkins September 10, 2010 at 7:37 am

This is brilliant, Peter. It’s never occurred to me to ask this question, so I’m not sure whether potential clients are comparing my rates to a competitor’s, a kilo of tomatoes or a magical imaginary price in their head.

I’ll be sure to ask this question next time, rather than letting the panicky voice in my head think: “Oh crumbs, what if they’re right? Who the hell do you think you are to charge these rates?!”

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Peter Shallard September 10, 2010 at 1:34 pm

Hi Ren, thanks for joining the discussion. Sounds to me like you need to first answer the question *yourself* :)

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Ren Atkins September 10, 2010 at 10:47 pm

Ha! OK, you make an excellent point. Seems like I found some homework for the weekend. :)

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Melinda | SuperWAHM September 10, 2010 at 8:41 am

There’s also the issue though that you have to price within your market. My market is unlikely to pay very high prices because it’s not a niche that tends to make a lot of money. Pricing myself at US$147 for a 45 minute session is a stretch for most WAHMs. Yet I was offered a job recently that would be paying around $400 per hour – I’m still discussing that one. :-)

I love your question “Compared to what?” Hopefully in Peter vs Piano you were the winner.

On a side topic, last year I did a trial of value-based coaching fees and wrote about it http://superwahm.com/value-based-coaching-fees/ and http://coachingcommons.org/featured/value-based-fees-what-happens-when-clients-choose-the-value-of-their-coaching/ It was not a particular success, wasn’t bad and I did get paid, but certainly not something I wanted to continue. I think the comparison issue could well be one of the reasons it created confusion – by making it value-based I removed all basis for comparison! Interesting.

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James Chartrand - Men with Pens September 10, 2010 at 9:13 am

In regards to your first paragraph, Mel, is it the niche that doesn’t make much money or the current audience you’re targeting?

And also, is it about whether it’s a stretch for them to pay your rates or about what results they can achieve after paying your rates?

(You know, I’m spending more time over here than in my own comment section! Ha!)

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Melinda | SuperWAHM September 10, 2010 at 9:49 am

Based on a survey that I did in 2007, around 20% of WAHMs earn less than $5000 p/a, 70% earn up to $20,000 (turnover, not profit). There’s a big gap, and the last 10% earns $60,000 plus.

The survey had 155 wahms from Aust, US, UK, it wasn’t the most in-depth survey ever but the figures I got were very surprising.

Peter’s published more posts (say that three times fast!) this week than you have, so it’s not surprising there’s more comments…. ;-)

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Peter Shallard September 10, 2010 at 9:53 am

Hey Melinda,

You’re right about pricing appropriately for the market. As I put my prices up (even before moving into the B2B market) I naturally started to both attack and repel different demographics. As a therapist, this was kinda tough as I started out with all the cliched “help everyone” beliefs. That started to change when I figured out that most folks were much more driven to change when they made a committed investment.

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Dov Gordon | The Alchemist Entrepreneur October 8, 2010 at 9:58 pm

Hi Mel,

Value based fees are about establishing a fee UPFRONT based on the value of achieving clearly spelled out objectives. (And getting paid 50% – 100% before you start work.)

It’s not about letting your client pay what they feel it was worth. That’s more like a tip. ;-)

Value based fees can’t really be mixed with the hourly model, at least not the way Alan Weiss presents it in his many excellent books.

The best coaching programs, both for the client and the coach, are packaged in a way that helps the client get a specific result over a period of time and is not connected to a specific number of hours of coaching. So the client can look at the RESULT they’ll get, understand the value (or impact, as I prefer) on their business and life and see that the fee is 1/10th or less of the value. It then looks like a good deal.

Instead of comparing you to others, they’re then comparing your fee to the value and a 10-1 return looks good to just about anyone.

A few years ago I compiled a collection of value based fee proposals that won business from other top consultants in Alan’s community. The final book of about 100 proposals from about 80 consultants, is available to members of his Mentor Program and Alan’s Forums.

Working with people who have very little money makes this model tricky, but packages – and options – should still do you better than hours.

Dov Gordon

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Melinda | SuperWAHM October 10, 2010 at 10:22 am

Packages and hours work a lot better Dov. I did the value based fees as an experiment and learned a lot from it, which was the whole point. :-)

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Peter Shallard October 10, 2010 at 11:25 pm

I’m with Melinda on this – I always, always bill by the hour. As a consultant, you need your client to believe that just spending time in the same room as you is valuable.

tick, tick, tick….

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Dov Gordon | The Alchemist Entrepreneur October 11, 2010 at 2:11 am

Peter,

What would you say are the downsides or limitations of hourly billing?

Dov

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Peter Shallard October 11, 2010 at 2:15 am

Scalability – every time.

It’s an issue that every consultants business model struggles with – when you’re selling your expertise by the clock, you’re limited. Want to make more? Put your rates up or work more hours. Putting rates up is great, but there is always a limit to how far you can go with that.

That’s the trap and the only solution is to do other things besides being a consultant :)

Dov Gordon | The Alchemist Entrepreneur October 11, 2010 at 2:29 am

I’m replying to your reply below – we seem to have hit the nested thread limit. ;-)

When you consult for a value based fee scalability becomes far less of an issue. I’ve had projects where the time I invested was ultimately very little – but the impact for my client was very huge. Had I quoted my client an hourly rate before we started, instead of focusing our discussions on objectives, metrics and the value of achieving those objectives, either I would have been woefully underpaid, or my prospect would have lost his lunch and thrown me out of the office at the ridiculous per hour quote because I surely surpassed the “limit to how far you can go with that.”

But once they saw a clear expected result, and valued it appropriately, they didn’t care how long it took me.

Forgive me for arguing with you on your blog, but just spending time in the same room with me, isn’t valuable to my clients. Getting results is valuable and if I can get valuable results in a bit of time, I deserve a high, value based fee. As do you and everyone else here.

Research shows that clients who pay more, ultimately are more satisfied and get better results.

Dov

Peter Shallard October 11, 2010 at 2:42 am

I guess the difference is: I don’t “produce results” for my clients, I show them how to produce their own results.

If I was chasing the results themselves, then I’d be a consultant no longer. ;) In that case, the appropriate fee is nothing short of equity in the business… for me…. and there’s only been one instance in my career (so far) where that has happened.

At the end of the day, if your model *works* for you… stick to it! :)

Martin Stellar September 10, 2010 at 10:07 am

This I think is the best point of the whole post and conversation combined. I’ve spent years giving solid business advice. And you know what? It wasn’t until I started asking money for it, that people started taking it seriously.

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Peter Shallard September 10, 2010 at 1:50 pm

Damn right Martin. DAMN right.

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Martin Stellar September 10, 2010 at 6:30 pm

Ooo, thank you :)

Incidentally, anyone wanting to work with me better call fast. My rates are about to go up. :D

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Peter Shallard September 10, 2010 at 7:11 pm

hehehe love it!

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Justin Mares September 10, 2010 at 10:39 am

Great stuff today Peter, thanks so much. I think my clients are comparing my price to what it would cost to do nothing, but I am honestly not sure. I will definitely be asking this question to the next customer I talk to!

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Peter Shallard September 10, 2010 at 1:52 pm

LOL This comment is my favourite. Brilliant, brilliant problem to have. You’ll find out the answers on the post I publish on emotional sales techniques. Stay tuned.

(btw, coaches who are reading this, you have this problem too)

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Bhaskar September 10, 2010 at 11:53 pm

On this subject Seth had a brilliant post the other day about apathy. His point was, in many cases most entrepreneurs don’t have to fight against competition. They have to fight against their prospects’ mentality that everything is well even if it’s not .The solution to this is, I guess, educating the prospects and illustrating the before using your service and after using your service scenarios in terms of benefits and tangible ROI .

It also helps if the prospect’s competition is using similar services that you are offering.

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Peter Shallard September 11, 2010 at 12:30 am

I think it was in that post that he mentioned creating a comparison between competitors too. Very, very good tips – especially for B2B businesses.

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John Hoff September 11, 2010 at 12:53 am

“Compared to what”….. oh I L.O.V.E. that!

I know a *little* of the answers to those questions, meaning it’s an ongoing learning process.

What do I want them to compare it to?

Well my book is about preventing intruders from hijacking your blog and possibly destroying it. So I’d like them to compare it to

A) What it would cost monetarily to “fix” their blog by hiring someone out for $50/hr or more and…

B) What it would cost them emotionally if they were to lose their entire blog and database because the hacker ruined it.

Seems to most people that’s not worth $39 LOL until *after* the fact.

The “after” people are easy to sell and many times are willing to pay a rush fee to fix everything; it’s the “before” people who haven’t had the problem yet which it is hard to convince. Humans, unfortunately, need to be taught lessons.

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Peter Shallard September 11, 2010 at 1:16 am

Here’s where I see the problem: these kind of mental comparison that I’m describing are almost always 100% unconscious and intuitive.

That means that people are instinctively comparing to things they KNOW… Even if the comparison is inappropriate. Hence the piano lessons.

The challenge with your product is that most people don’t have any experience of buying a security guide for their blog. There is nothing for them to compare it to, easily.

The comparison HAS to be made. You just need to direct them to making a useful one – one that results in them buying.

E.g. How much would you pay to alarm your home? How much you’d you pay for contents insurance? Car insurance?

Would you pay for travel insurance to avoid the risk of your cash and documents being boosted?

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John Hoff September 11, 2010 at 1:26 am

Peter, that is awesome. Thank you. I will toss that into my brain!

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Christopher Tomasulo September 11, 2010 at 1:35 am

I agree that you need to create comparisons in someone’s mind. However, If you get “It’s too expensive” as an objection it is because you have failed to do just that. Too many people give in and give someone a price before they build value in the customer’s mind. If a price is given before value is built then you are letting the customer make their own comparisons and most often that won’t be good. Besides building favorable comparisons (which is a sales skill) the use of anchoring is often useful early in the sales process (Note: NOT NLP anchoring).

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Christopher Tomasulo September 11, 2010 at 1:39 am

Forgot to paste the last part…

So my point in the above comment is that it would be useful to ask the “compared to what?” question to *yourself* and then formulate your sales talk to create the proper mental comparisons – and then you won’t have to ask the client.

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Peter Shallard September 11, 2010 at 3:18 pm

Hi Christopher, I think you’re spot on here. Absolutely the saleperson or entrepreneur themselves needs to have their OWN positive comparison in their head…. They’d be kinda screwed without it!

PS Whats wrong with NLP anchoring? ;)

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Jared Kimball September 11, 2010 at 2:29 am

This is a great post. Clients always stop dead in their tracks when I quote them a price. I’m going to try this out next time.

Thanks

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Karilee September 11, 2010 at 1:04 pm

I like Christopher’s idea of asking yourself the “Compared to what?” question, before you ever encounter a client objecting to price. I think that some of those objections can be countered by his suggestion to structure your sales talk to give value-building mental comparisons. Of course, some people don’t read, so being ready with the “Compared to what?” question is very valuable. The example of piano lessons made me giggle, a bit sadly.

The other advice on this topic that I’ve found really helpful is to always consider adding value before dropping price. People like bundles and bonuses, and the right “irresistible offer” isn’t necessarily about price.

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Peter Shallard September 11, 2010 at 3:23 pm

I love the tip Karilee – throwing in bonus extras is a tactic I often use in the corporate world too. It ups the value of the comparison… Like offering the piano lesson, plus a workbook, plus a free piano keychain, plus the set of kitchen knives! ;)

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Dave Parker September 11, 2010 at 4:57 pm

I don’t think there can be a better comeback than this “Compared to what?”. Brilliant stuff. It has never occurred to me to ask this question when someone is talking about my prices, but the funny thing is I consciously compare prices all the time. IE: I’ll be at the grocery store that has a Subway connected to it (Not sure if they have Subway on your side of the world, but basically a sandwhich place) and in my head I will think, I can get 1 sub for ~$10 or I can buy ingredients to make multiple subs myself for that ~$10. I know the example about me saving money doesn’t really apply, but I think the comparing of prices does. You could also get from this example that like you said, bundles are more attractive :).

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Peter Shallard September 12, 2010 at 1:44 pm

I felt this exact same way last time I went TV shopping. I actually didn’t end up buying anything because I stood in the store, listening to the salesperson…. and I made a wonderful comparison:

A $3000 Plasma TV could be flights to Whistler AND a season ski pass. As soon as I made that comparison, I knew I wasn’t going to buy a TV at all!

… the poor sales guy was very, very confused lol

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Karilee September 29, 2010 at 9:13 pm

Make sure you come visit on the way to Whistler, Peter! I can take you out for some amazing Dim Sum!

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Molly O. September 12, 2010 at 10:35 am

Great tips in this post and in the comments! I’m prepping to start a non-profit consulting business and I’ll be keeping all of this in mind when finalizing my price structure.

One thing I’d like to read more about is how to formulate an ROI on consulting or coaching services. How do you truly monetize and evaluate the after-effect of your work?

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Peter Shallard September 12, 2010 at 1:46 pm

Big, big topic that one…. and definitely something I’m passionate about – I think coaching without measurable ROI is a crock of S***.

Molly – hit me up with an email sometime and we’ll talk about it. Too much detail for the comment section.

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Molly O. September 13, 2010 at 3:47 am

Definitely will do. Or we can talk about it when I win the contest! :)

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Richard Evans-Lacey September 13, 2010 at 5:41 am

Nice looking blog.

One question: Did the piano story really happen or is it regurgitated?

The reason I ask is that when I was doing my first NLP training in 2002 my trainer David Shephard told a story that included the exact same comparison. I believe that many of David’s stories were re-told from his trainer Tad James.

I left my first NLP course believing that I could charge £200 per hour for skills that had taken me just a couple of weeks to develop. I was wrong. I did get a few clients but they quite rightly expected a level of service that I simply wasn’t able to deliver due to my lack of personal development and experience. I am not sure if the course installed this delusion of grander or just exposed it. I do know that I’m not the only person from the course who left feeling very confident and bullish and then had that crushed by ‘failure’ … that is to say ‘feedback’ from the market at large.

I personally think that the ‘piano lessons’ comparison is quite valid: both piano teacher and coach have (hopefully) had an extensive training and an ability to transform your ability to do something. Perhaps the next question could be “What kind of piano teacher?” The best piano teachers will be able to command the highest fees.

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Martin Stellar September 13, 2010 at 6:00 am

Actually, if it were a story that has been told before, that would only mean it’s all the more powerful. But that is probably a few million miles away from normal psychology.

Your re-question is great though! The client in the original student was thinking of a regular piano teacher who yawns and drags himself through days of unmotivated kids and untalented dilettantes who think that they are going to be the hot new thing in piano-land while he takes home a regular salary. Hopefully.

If Peter would have asked YOUR question, he would actually have caused the client to compare him with high level music teachers. Like, a master class with Vladimir Horowitz. (Ego shining nicely, Peter?)

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Peter Shallard September 13, 2010 at 1:40 pm

Hey Richard,

This one really happened and it doesn’t surprise me that you heard the same comparison used. I had a friend who started a biz using NLP to assist children with dyslexia and they heard this excuse (plus other types of music lesson) hundreds of times!

While I was in practice with “civilians” I also heard such doozies as:
“… compared to a Personal Trainer”
“… compared to a doctor’s visit.” <— (15mins of chit chat & a prescription)
“… compared to a my rent!” <—- (I kid you not)

I’m not a supporter of the NLP or personal coaching industry because many so called “training companies” encourage lay practitioners to charge vast sums for their services.

At best, they’re setting their students up for failure… at worse, they’re putting people in need of help in the hands of dangerously inexperienced coaches.

So yeah, I can absolutely see how that experience would have left a foul taste in your mouth. It does sound like you came away with some useful learnings about yourself though.

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Carl Natale September 16, 2010 at 4:48 am

This is a great post and collection of comments. I have a question about the three questions that you pose at the end about comparisons. Can you use the answers to create an anchor?

It seems to me that you want to provide the comparisons for your prospects. Like the restaurants that put a $50 burger on the menu, shouldn’t you offer a $500 an hour service?

Who would buy that? Probably no one. But then your less than $500 rate would look much more affordable by comparison.

Also, I’m thinking this comparison shopping is a vital part of the rationale you blogged about earlier. Customers need to compare to justify their purchase. So we need to help them out by providing the comparison?

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David Bier September 28, 2010 at 4:02 am

This is incredible. I’m going through these posts back to back and getting blown away. I can really see how you could help me arm myself with confidence that will be completely infectious. My niche is a luxury purchase – photography – so possibly there isn’t a valid price comparison beyond keeping the money in their pockets.

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Gabrielle September 29, 2010 at 2:32 am

Well, I’m just getting started so I was thinking of charging as little as $60 an hour. I think that’s cheap compared to established coaches and certified practitioners. I just opened up my contact form to offer free advice to get websites started or for people wanting to know about writing content for their blog. When I get my certification though, I’m upping the rate to $125 or more.

I had an author contact me asking for help. He’s from the university scholarly sector. I wrote him a pretty good “how-to” for launching his platform. He said in the initial email “if he could afford me, he’d like to have me as a consultant.” I think when I email him back with the “how-to,” I’ll include this information about comparison.

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Peter Shallard October 5, 2010 at 10:44 am

Play it right, Gabrielle, and he’ll end up believing that he can’t *not* afford you.

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Doug Kessler – B2B Velocity October 5, 2010 at 6:05 am

Nice one! We often say to clients, “Price is positioning.” You’ve shown why.

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Michelle October 5, 2010 at 6:40 am

Brilliant! Thank you for validating thoughts I’d always had… Your blog is so informative and fascinating to boot!

Signed,
Another appreciative fan

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Peter Shallard October 5, 2010 at 10:41 am

Thanks for stopping by Michelle! :)

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rms. x. October 5, 2010 at 7:05 am

“….but it does demonstrate the principal that clients paying more are almost always more rewarding and responsive clients.”

you mean “principle.” Principle = a value or ethic. Principal = primary person or thing.

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Peter Shallard October 5, 2010 at 10:41 am

Thanks for this valuable feedback Mr RMS. X. In principle, correct spelling should be the principal focus on this blog!

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James Chartrand - Men with Pens October 5, 2010 at 10:50 am

Actually, I thought the principle focus of this blog was psychology… I seriously doubt that a typo would keep someone up at night, but I suppose we all have our quirks, eh?

My bugaboo is ‘occaisional’. I get that one wrong 7/10. Or writing ‘write’ when I want to write ‘right’. Always.

Anyways. Keep up the good psych-work, Peter. Leave the proper spelling to me, mm?

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JoVE October 5, 2010 at 7:09 am

Excellent point. (Funny thing is, my kid’s piano lessons do cost $50 an hour.)

“expensive” is a relative term. And money is a way to mark value.

If a potential client doesn’t value your service, they won’t want to pay for it. If they do value it, they will find a way to cut out less valuable things from their life to find the money.

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Peter Shallard October 5, 2010 at 10:42 am

Spot on JoVE. That’s what it’s all about.

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Doug Greathouse October 5, 2010 at 7:46 am

This post was just what I was looking for. Thank you. As a web professional I see a great degree of variance in the rates that people charge. As my business has grown so have my rates. I do find myself second guessing each time I raise my rates as to whether it is too much or too little. Your post has helped me understand what is happening on the other side of the equation.

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Peter Shallard October 5, 2010 at 10:43 am

Hy Doug! Thanks for stopping by. Whenever you wonder “it is too much or too little” …. it’s always time to ask YOURSELF: “… compared to what?”

Just sayin’ :)

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Victoria Player October 5, 2010 at 10:51 am

You are absolutely right Peter.
I have found that the more I raise my rates the better my clients get. Those that are willing to invest in themselves or their business are more likely to produce their desired outcome than those that bulk at the investment.
Besides, I work with business owners to help them grow their business and I recommend that they begin to delegate the minutia asap and take on a Virtual Assistant. How can a anyone possibly do that and grow their business if they’re charging pennies for their services? It results in them staying stuck and working ‘in’ their business rather than ‘on’ it!
Thanks for sharing these wonderful pearls of wisdom. :)

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Peter Shallard October 5, 2010 at 1:52 pm

Hi Victoria! Thanks for the comment.

A virtual assistant you say? I probably need one of those. Glad you enjoyed this post.

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Shayna Walker October 5, 2010 at 11:37 am

The comment history on this post is almost as incredible as the post itself. Really good stuff, and so, poignantly applicable to the wedding industry. I could only get through 1/2 of the comments in the time I have tonight, but will bookmark and finish as well as share. What a “debut”! Congratulations.

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Peter Shallard October 5, 2010 at 1:54 pm

Hey Shayna. I can see how this one would be a huge issue for people in the wedding industry – so many new expenses which consumers have never had a chance to “compare” before!

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Shayna October 5, 2010 at 2:08 pm

It really is a huge issue. Not only do we have an undereducated consumer, but we have a media base (the folks who get brides’ attention first) who are vested in telling them what they want to hear: “you can get the wedding of your dreams cheap”, “hire your uncle to do everything”, etc. Finally, we are somewhat uniquely plagued by absolutely no barrier to entry – brides go through withdrawal the day after they get married and decide to go into business without any research or education.

Real pros have to constantly fight both media misinformation and amateur “competitors” which makes appropriate pricing a real struggle. And once we’ve got an educated consumer…they’re married and move on.

That’s why your piano anecdote strikes a chord – our consumer has nothing to compare to, so we have to educate, entice and defend all at once. Benefits…it’s all in the benefits.

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Peter Shallard October 5, 2010 at 2:18 pm

It’s a brave market to be in, that’s for sure – you can’t exactly hope for repeat business, can you? ;)

But seriously: Low cost of entry can be a big problem. If it were me, I’d seek to differentiate myself by charging through the roof (if I believed I had the skills to back up the fee)… and then start attracting the type of client who wouldn’t dream of paying less than for a wedding planner.

Leave the bottom end of the market to the amateurs. Pigs, mud, they enjoy it etc etc

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Shayna October 5, 2010 at 2:28 pm

Thanks Peter. That’s been my approach (I take great pride in being the most expensive wedding planner in my immediate market). It’s just hard as you watch people reject you over and over again on price – at least it occasionally makes me insecure. But the reality of working less and reaping more reward from well-matched clients definitely helps! You could do a whole series just for wedding planners you know!

Peter Shallard October 5, 2010 at 2:35 pm

@Shayna:

That’s the grim reality of sales – you’ve got to have the thick skin that allows you to push through the 80% of cold prospects to reach your 20% of hot customers.

I think *you* should write the wedding planner series – I’m always available for advice ;)

GaryK October 5, 2010 at 3:48 pm

Thanks Peter,
I like your last observation. Makes the most sense and easily justified with real numbers.
Thank you!

Gordon Edmund October 8, 2010 at 6:44 am

great great post. The comments are coming in are equally valuable. I am in the entertainment industry. I am a hypnotist and magician. People always think my rates are expensive. Actually I don’t know what they base these “compared to what” rates on. After reading all of the comments I tried to self compare. I came up with ideas like comparisons to bands, artists and other entertainers. I also tried to imagine what ROI I was giving? I found myself thinking of Russel Crowe in the movie Gladiator, “Are you not entertained!!!”… The usual justifications I give for my rates are years of experience, time learning my craft, investment in tools of the trade. If after they heard my sell they did not want my show (service) I chalked it up to Some Will, Some Wont, So What… After reading the post and comments, I think I may have passed up some potentially good buyers. I guess the question I have is what comparisons should I be making? Any advice would be greatly appreciated.—Cheers, Gordon

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Dov Gordon | The Alchemist Entrepreneur October 8, 2010 at 6:55 am

Hi Gordon,

The key point is that your show is a means to an end for most people. And that end, can be valued, either precisely, or roughly.

If you’re performing for a corporate audience, for example, why are all the people gathered? What does the company hope to achieve via the conference? They want their employees to feel a certain way? To encourage certain actions or behavior afterwards? What’s the impact on the company of achieving those results? And now how can you help achieve them through your show, perhaps with a bit of customization?

At a trade show where you’re there to draw people to the booth, this would be even easier.

For a private party, what is most important to the host / hostess? Why are they having a party? What do they want their guests to say to each other when they leave? To them? How can you contribute to that? Magnify it? Make it more likely?

In short: Expand the ‘circle’ of what you pay attention to. Look beyond your show and ask questions to understand what they REALLY want and then talk about how your show can help them get it.

Just this questioning and really listening will differentiate you from 98% of the other “compared to what’s” and make your fee seem completely worth it.

Dov Gordon

PS – At age 16 I had a job doing table magic for adults at an indoor kids amusement park. I still remember 2 tricks. ;-) Keep thinking I should go back and relearn a few.

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Gordon Edmund October 8, 2010 at 7:25 am

Thanks Dov, That really is a good way of looking at things and will help me out immensely. You should go back and learn some magic tricks, but be warned it is fun and can be rather addicting, causing you to want to learn more and more.
Best,
– Gordon

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Dov Gordon | The Alchemist Entrepreneur October 8, 2010 at 7:42 am

Really glad it helped, Gordon. Peter attracts a quality crowd here.

The one trick I can still do very well is the “Crazy Man’s Handcuffs” from The Magic of Michael Ammar. I’m thinking of starting to learn a few so I can teach them to my kids.

Dov

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Peter Shallard October 10, 2010 at 11:17 pm

Hey Gordon! Thanks for joining the discussion :)

If I were you, I’d want to have the prospect holding the thought of an *unforgettable night* in their minds. If they’re the host, they have all kinds of social motivational leverage pushing them to impress their friends and guests… so play on that.

The question would be: “… Well that depends how much an unforgettable night is worth to you?”

So long as you’re confident that you are genuinely delivering something remarkable, you’ll be laughing all the way to the bank!

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hyperlexic October 11, 2010 at 12:56 pm

+100 for the Gladiator reference. I used to have this picture behind my desk of Maximus yelling at the crowd with ARE YOU NOT ENTERTAINED emblazoned across the top. :)

in my experience, when i find myself needing to spend any effort at all to get people to “see” the value i’m offering, i know it’s time to rethink the business model. the field is so wide open right now for new ideas – real money making ideas – that actually benefit all parties. i don’t find myself competing with anyone really, i can work with just about anyone. people who are overly cautious or stuck in ‘wartime’ mode don’t jibe well – but that’s cool too. also, anyone trying to scam me stick out from miles away – 10 years in silicon valley will introduce you in a very violent manner to the heavyweight champions of scam artists – and wow they are good at what they do. but i see many of those idiots now floundering, because obviously nobody will work with them – the internet is a small place and startup-junkies LOVE to yenta it up and gossip about who did what to which company and how.

provide a valuable service / product. be pleasant to be around. talk to people. it’s so much easier than i thought it was. i was that “mr. belligerent, bottom-line only, not always fun to be around person” when i thought that’s how the game was played. and in some areas, yes it is. but i’ve found it so much easier and lucrative to do the opposite. i help other companies now where before i would try and bury them. and i’m way more successful now to the point where it’s sort of scary.

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dieguinski October 10, 2010 at 7:25 am

At our business with educational software we have seen indredible things. We had our best programs for an “honor pay”, whatever the visitor wanted to pay. We did not make a dime. Now we have the same programs at $25, $30… and we are selling them like there is no tomorrow.

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Peter Shallard October 10, 2010 at 11:17 pm

The ol’ Honesty Box only works for selling apples off the side of the road… ;)

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John Barton June 3, 2011 at 9:24 pm

I respectfully disagree. I have used a lot of software that was free with a “pay if you think it’s worth it” pitch. I have gone back and paid for a lot of software that has become indispensable tools. One of them went on to be acquired for a couple hundred million dollars after starting out with the “pay if you like us” model.

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Peter Shallard June 5, 2011 at 1:54 pm

Good point John – I forgot that this model works occasionally online as well.

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Fables@e-Fables.com October 10, 2010 at 9:00 am

“Compared to what?” I have to remember this comeback whenever someone complains about the price of something. Very clever. I’m sure this will leave the complainer speechless. You mention about if people have to pay too much money consultancy, they can’t help but to take the session seriously. I remember there is a site called Stikk.com (you can google it, I think that’s how it spells). This site applies this concept of making the stake so high that people have to push themselves to achieve whatever they set out to do. If they don’t they have to pay the money to a charity of their choice or a friend who acts a referee. It may not work for everyone but apparently losing money is much more painful to many people.

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Peter Shallard October 10, 2010 at 11:20 pm

That’s a cool concept, and it might work… although personally I believe that creating motivational leverage through dangling carrots is always better than slapping with a stick ;)

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Darin October 11, 2010 at 12:30 pm

Thanks for the suggestions and insight Peter!

I’ve been trying to determine logical starting rates for classes that I offer to other venues who bring in guest chefs and have debated between low-balling to get the business or going more for what I think the current going rate is. Thanks for arming me to battle potential opposition!

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hyperlexic October 11, 2010 at 12:39 pm

Man I’m so glad I made the decision to build an automated platform that does – like – everything with little effort. I give everything away for free to clients and monetize the network in a variety of ways. You want this cool social widget that lets you update all your social networks from one spot? Cool – here it is free. Now I have a social widget that feeds into a master ‘community’ – a huge install base with my clients and their users / customers and that widget has become a separate business entity itself. They love the functionality, their users love it – and I love the hockey-stick growth for every ‘addon’ i throw out there. You want to show ads, sell, ads, manage and optimize ads? Cool – here ‘s a easy to use single page that integrates all that – if you even want to get your hands dirty at all. Or you can just let my system do it automatically. Another business is born. You want to sell goods online – here you go – total ecommerce / shopping cart / datafeed / local marketing solution free. Perhaps you’d like to add other products to your inventory (from other people using my platform) and cross sell – boom another service is born. You just want a friggin domain name and 5 page website – well here ya go. I give that away too.

I simply ‘sell’ by talking to people. I ask them what they’re doing online and inevitably they need the same things no matter what they are trying to accomplish online. Lots of overlap – and lots of ‘local marketing’ services ripping these people off and making my solution very attractive.

Just watch Google and how they monetize giving away supremely awesome webmaster tools, APIs, mobile technology, ad / affiliate management, local marketing etc. Anyone remember how much DoubleClick used to charge for what Google now gives away freely? If they only gave away analytics and optimizer – i’d say it’s still a bargain. But now everyone is playing catchup and realizing that they have been jumping over dollars to grab pennies and trying to ‘out-smart’ the next guy when all they need to do is provide a valuable service and make it easy – dead easy – for people to get the value from it.

I gladly give Google (and hopefully soon other online businesses) my valuable data in exchange for tools that make me money and my clients money.

It’s amazing that (usually) everyone ends up winning and getting what they want without all this ‘sales’ psychology and trying to play poker when people don’t want to play games, they just want to (insert goal here) online and usually just let me take care of all of it.

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Travis October 14, 2010 at 9:28 am

I loved the rebuttal “compared to what?”. It’s all about selling value. Nice article!

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Herman October 14, 2010 at 9:34 am

Hi Peter,

When I was doing door to door selling (many moons ago) I constantly raised prices. Initially I received many rejections but when I continued with the new mindset I ended up making much more money. Now that I’ve sold services online for the past 10 years I’ve not done the same thing. Instead I’ve always set my prices low often resulting in doing more work than what was quoted. The reason for this was to win the contract over my competitors.

Your post made me rethink my pricing structure…thank you.

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Peter Shallard October 22, 2010 at 12:33 pm

That’s the whole point Herman. This should give you the reframing tools you need to never again work below your quote ;)

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Dr. Robert B. Hernandez October 22, 2010 at 3:28 am

I am working with my business coach on this issue. I agree with how you asked the questions to further drill down and have us reflect. The question my business coach asked, “What are you worth”. This is a difficult one, not because of low self esteem, but because I am used to doing a market analysis of what other psychologist charge and then I charge between the average and the most expensive.

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Peter Shallard October 22, 2010 at 12:34 pm

Hi Robert, thanks for stopping by!
The slightly cheeky question I would have for you is: What makes you believe that you are worth “between average and the most expensive”?

It’s all about perceived value right? :)

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Karri Flatla November 6, 2010 at 4:19 pm

This is such a layered discussion, and I’m luvin’ it.

As a marketing and copywriting strategist I’ve almost never had a problem getting a phone number so I can talk to someone by phone. And I used to avoid the phone. (Though most who meet me aren’t aware of my introverted inclination…)

So they might drop me an email to inquire. And I respond via email. But more often than not I talk on the phone with a prospect before he/she becomes a client. The key is to keep that “pre-consult” short and productive.

People really do appreciate a phone conversation though. The type of clients I work with want to know I can listen deeply to what matters in their biz (and then reflect that in their copy or the strategy we choose and implement).

Of course, as a copywriter, I do “close” business pretty regularly with email so I totally understand what James is referring to there ;)

IMO there’s a quiet revolution happening in business right now – entrepreneurs, more and more, are going to demand high-touch communication with their prospective vendors. They’re tired of the hype or feeling alienated by what’s already feeling like “old school Internet marketing.” They want “old school” relationships :)

Anyhoo, very interesting blog. Keep doing your good work, Peter. It may be more of the zeitgeist than many realize …
Karri

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Karri Flatla November 6, 2010 at 4:28 pm

PS: Urgency and helping your prospect to make a DECISION is key. People have so much *stuff* going on in their lives and in their heads and in their hearts that you really don’t want to add to the *clutter* that’s happening all around them. You want to offer the right solution and help them say Yes or No in as clean a manner as possible.

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Peter Shallard November 8, 2010 at 2:15 pm

Hey Karri,

I think you’ve got a real good point here, especially regarding the phone. I tend to gravitate to phone calls for all the points of contact I make with my “offline” clients…. and it produces great business results for me!

For many corporate people, email has gotten to a point of lunacy. Most executives receive hundreds of messages a day, of which maybe 10% are both urgent AND important. I use the phone to cut through the noise and deliver personal, significant communication.

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Perry December 18, 2010 at 6:40 pm

Love the look of your blog.

The “compared to what?” line, not so much. … Sorry.

I’m a copywriter, and I just can’t see myself asking that question for two reasons:

1. They may not have an answer to it. The odds are too high that they will then feel dumb and uncomfortable. Then try to sell them!

2. They may be one of those smart ones. Like me. heh

They did their homework and looked at the competitors. They will then tell exactly “compared to what,” thus having it backfire on the one asking it.

I know I do strict comparisons when hiring someone. If guy #2 can do more, and be better at it and he is cheaper, well, then….

It really doesn’t need to be said, anyway.

For me, anyway. I show them my site, free tips, samples, etc., and if they still say that, I move on.

There are WAY too many out there who see value in a good copywriter.

Sorry, I guess I’m the only one here who isn’t that crazy over that “compared to what”? method.

*waiting for the tar and feathers*

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James Chartrand - Men with Pens December 19, 2010 at 12:41 am

I find your comment curious, Perry, especially considering you’re a copywriter, because the “compared to what” is a common persuasion and influence technique used in copywriting. Copywriters used “compared to what” to get people to buy – “less than a meal for four at McDonalds”, “that’s only 30$ a mpnth – less than if you bought a coffee every day,” “cheaper than taking your family to the movies…” Stuff like that.

So if it works on your readers, why wouldn’t it work on your clients?

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perry rose December 19, 2010 at 4:08 pm

Sorry, but I just go by what I would do, what my family would do, what my friends would do, what my past customers and clients have done, what is, well, just common sense.

And, again, making a potential customer or client feeling awkward, maybe kind of dumb when they can’t give you an answer on that question is not a good way to sell.

Not all will feel like that, but many will.

Also, in many cases, when they say the rates (price) is too high, they mean that they cannot afford it. Period.

The “compared to what” question is then irrelevant.

Again, sorry.

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Peter Shallard December 19, 2010 at 4:21 pm

The assumption that your (and your family/friend’s) choices determine what becomes “common sense” for the rest of us…. is worth apologizing for.

Thanks for saying sorry Perry.

Since your statements also imply that you’ll only *do* the things that you learn from clients, family or friends… I sincerely hope you’re, at some point, lucky enough to include someone prepared to think outside-of-the-box in one of those groups.

Certainly, you won’t find anything on *this* site much use, since I don’t fit into those groups and enjoy questioning “common sense”.

I hope you find more of what you’re looking for elsewhere :)

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Perry Rose December 19, 2010 at 5:03 pm

Hi, Milenda. … Love the glasses.

Yes, of course I am using a comparison. In this instance, I CAN use it. And then I show them, instead of JUST making that claim. (If we were face to face and they objected to my price, I would say something like: “Is it because it doesn’t fit your budget right now, or is it because blah, blah, blah….?”

But we are disucussing the subject of asking the “compared to what?” question.

I just happen to disagree with it, and then I explained why in my previous posts.

No biggie.

heh heh, Um, you are welcome, Peter? :-)

“Since your statements also imply that you’ll only *do* the things that you learn from clients, family or friends… I sincerely hope you’re, at some point, lucky enough to include someone prepared to think outside-of-the-box in one of those groups.”

Well, it is obvious the way it was written that it means that most people are like this. Many good salesman and businessman will say so (also keeping in mind that many do indeed mean that they cannot afford it, thus making that question irrelevant).

I’m off to do some shopping. Like the long-distance provider who called on me last month, if I object to a high price, and if a salesman says that, I’ll tell him that I can get it cheaper over at XYZ store.

Then I’ll tell him: “Now, wasn’t that question kinda futile? Shouldn’t you have just said something like: ‘why do you think that?’ or, ‘if we can agree on a price, would you buy this right now?’”

And if he is a good salesman, he will then show me how to get it cheaper.

Thank you, Peter. … The best of luck with your site.

Merry Christmas, everyone.

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Peter Shallard December 19, 2010 at 5:12 pm

Thanks for stopping by Perry.

Your statement: “And if he is a good salesman, he will then show me how to get it cheaper.”

… has illuminated for me just how far our attitudes on this matter are apart.

Since I have no interest in working with customers who’s primary motivation is “cheap”, I don’t define “good sales” this way… at ALL.

My hope is that none my readers or clients get caught in a race to “the cheapest” with their competitors.

Certainly, *I* never intend to become the Walmart of therapy, consulting or blogging. Those who are looking for that had best call elsewhere.

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perry rose December 19, 2010 at 2:15 pm

“…is a common persuasion and influence technique used in copywriting.”

It is?

When somebody says the rate is too high, it is already naturally assumed that they looked at other services, and/or they say something like, “well, XYZ has a $27 an hour rate….”

Or, they just don’t know (the “piano” situation), and they say it because it, SOUNDS, too high, which is usually the case with (copy)writers.

Example: “$500.00?! … Just to write these words???!”

Either way, it needs to be countered with, ANYWAY, so….

“Copywriters used ‘compared to what’ to get people to buy – ‘less than a meal for four at McDonalds’, ‘that’s only 30$ a mpnth – less than if you bought a coffee every day,’ ‘cheaper than taking your family to the movies…’ Stuff like that.

I don’t use them like that, and at one time I would agree with using comparisons. But more ofthen than not they just can’t be used, because many (including myself if I were buying something) would counter with: “well this isn’t the movies, this isn’t a cup of coffee, this is XYZ, and I think it is a bit too much….”

But beforehand (on the sales page and in the intro. e-mail sales pitch), it should be countered with in several ways to work around it with Zig-Ziglar-type tactics to show value, to show benefits, to show them that they will get their money back, and…that they will continue to make money because the improved website, ads, sales brochure, store signs…will be on automatic pilot.

All due respect to Peter, it’s a question that shouldn’t, and doesn’t need to be asked because of the two reasons I gave in my last post…

…especially if they are put in an uncomfortable, feeling-dumb situation. You don’t want a potential customer or client feeling tlike that.

Unless I am missing something hear that Peter can point out.

Well, anyway, it’s just a case of different strokes for different folks.

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Peter Shallard December 19, 2010 at 3:51 pm

” it’s a question that shouldn’t, and doesn’t need to be asked because of the two reasons I gave in my last post…”

Shouldn’t according to whom? You, based on your theoretical assessment… or me, based on tried-and-true implementation of this technique?

It’s easy to sit on the sidelines and comment on the validity of a particular sales technique you haven’t (and probably will never) try out. As a copywriter, you’ll of course understand the importance of real-world testing and measurement.

That said, it’s worth pointing out that I approached this post from the point of view of a “direct-salesperson” … not to be confused with “direct-response”. As in James’ example, use of this technique in copy needs to be followed up by a suggested comparison, not left open to the reader’s imagination.

What you’ve missed here is the psychology unpinning this technique. A object of comparison *always* exists at the unconscious level. The skilled sales person doesn’t fear the prospect responding with “I don’t know” – rather, they know they’ll elicit the true unconscious comparison taking place.

Discovering that comparison is super valuable and it’s the entire point of this technique :)

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Melinda | SuperWAHM December 19, 2010 at 4:15 pm

Perry, I’ve just read through your website (and it was very entertaining, I loved reading it) and you’ve used the comparison at least once – you tell visitors “it’s cheaper for you” and my immediate thought was “cheaper than what?”.

So you are using it. :-)

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Steve January 5, 2011 at 11:59 am

Hey Peter,

Excellent write-up, and something that anyone doing freelance or hourly oriented work can attest to. I’ve found through the years with what I do (web design and marketing) that the most common “Compared to” response is usually something like, “My neighbors kid does websites, he could do this for $200″, which to me is usually the end of the conversation since they’re obviously not realistic about pricing for professional quality work.

In other cases I’ve used an approach like yours very well, which basically becomes a “you get what you paid for” message. More aggressive and up-front, but I’ve actually had the opportunity to ask a potential client what they spent on their wife’s engagement ring or their fancy new car as an example of this.

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Peter Shallard January 5, 2011 at 5:50 pm

Hey Steve, this is a perfect example – I love the engagement ring thought the most! That’s a perfect example of a product where the actual price is sort of “all part of it”… imagine if you could have web design clients who bragged to the guys at the bar about the size of the price-tag attached to their new site!

It already happens with both cars and rings :)

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Shannon Steffen - Excira Media January 13, 2011 at 3:00 am

Most definitely right on the ball! I noticed this with my online retail stores. When I charged a very small markup on my products, I was getting very few sales. As soon as I increased my prices, my sales began to sore. Of course, the price increase came with the increase awareness in my value, reputation and branding.

I still own a number of online retail stores but my business has changed. I have been a “Human SEO” consultant for 6 years now and put this principle into play again with a price increase as of January 1. As soon as I did, my clients changed – they are not large businesses that understand the difference between sales and value-added.

You’re article is spot on. Definitely going to pass this along to my network! Thank you!

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Paul Anderson September 7, 2011 at 4:43 am

Ok, so you might have guessed that no one else would listen to Tad James’s CD’s. You could have tweaked the fake story and used something else or gave the poor guy credit.

Also, since when did Master NLP Practitioner be equal to clinical therapist? Why can’t good people like you try to establish themselves legitimately?

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joseph passi March 22, 2012 at 6:44 pm

Perfect,

Evaluate what your price will signify to the customer. People often think going cheaper will attract more customers but this is not always the case. Furthermore, a lower price often makes the product or service seem like less.

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Tomislav Tomić September 4, 2012 at 5:09 am

Fantastic post :-)
Thanks for sharing.

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Mohammed October 29, 2012 at 11:08 am

Excellent post Peter.
Being in a knowledge driven industry myself, i relate to the challenges of justifying a price of an intangible product.
The moment you begin discounting your pricing, your perceived value to the client decreases substantially.
On the other hand, being in difficult economic times and a highly competitive world, sometimes, it makes sense to take what comes.

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Robin Walls January 2, 2013 at 5:39 pm

Thank you! This article is inspirational from a business owner’s perspective and prompted me to do a double take on my own personal perspective of what “too expensive” means.

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Dr. Robert Hernandez January 2, 2013 at 10:38 pm

The concept is excellent and very helpful. When I started my practice I did a market analysis based on those I regarded as “greats” in my field were charging. I took an average of those psychologists and then charged between the average and the most expensive rate. Again thanks Peter for that story, great lesson!

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Shogo Garcia March 23, 2013 at 9:18 pm

Wow, this is just brilliant Peter. Thanks for the insight.

I actually came onto to your site to see how you do your pricing and what kind of a price schedule you have as inspiration (read: copy) for my own services pricing. This post alone was worth so much more!

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Piper King July 14, 2013 at 10:25 am

Great article and amazing comments/responses.
I am a fairly new entrepreneur (started April this year).
My trouble is that there are no pricing models to compare one part of my services to. The part that I get contracts for is verbal branding, teleintros (introducing a new company to the area via telephone) and turning cold leads into hot prospects (B2B cold-calling). What would be the psychological approach to pricing?
The other part of my business is technical writing, updating policy & procedure manuals and proofreading. I am having a hard time securing contracts, because everyone is interested in the telecommunications side. Suggestions?
Piper

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Peter Shallard July 15, 2013 at 10:59 am

Hey Piper,

You’re in an interesting industry, because you’re effectively a sales-outsourcer with the first part of what you describe. The good news is that there are several models in existence already for structuring pricing for this sort of thing. I would start by calculating your the lifetime value of the customers you help your clients find, then price yourself at the sweet spot between what it costs you to deliver those customers and what value those customers create for your clients. If that sweetspot doesn’t exist, you may need to tweak your business model a bit… but that’s essentially the way these sorts of B2B customer acquisition services work.

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Kim October 2, 2013 at 1:52 pm

He could have said compared to 12 step meetings, then it’s expensive. How bizarre that he compared it to piano lessons. I’m going to try the “compared to what?” question if someone says my prices are too expensive. I like your website, thank you for all the great information.

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giabafi.wordpress.com October 14, 2014 at 12:44 am

At this moment I am going away to do my breakfast, when having
my breakfast coming over again to resad more news.

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