Business Guide: Run Your Business. Don't Let Your Business Run You.
Chapter 4

The Psychology of Pricing Your Services

Pricing Your Services

Use your hourly/project rate to throttle your client workload. If you’re simply too busy, tell the client you can’t start for X amount of weeks or perhaps raise your rate 1.5x. Make it worth your while to miss those nights of sleep. If you need work, discount your services in order to land a client.

psychology of pricing

Warning: There’s A Monster Ahead!

Say you’ve landed your first $500,000 what? Well, you need to hire some help. Let’s say you add three employees or contract workers. The momentum feels good enough to justify the additions, but as the project is winding down, you’ll ask yourself what do you do with these people you’ve hired? You’ll look for the next big project. You’ve created a monster--your business. You’re now the boss. It’s your responsibility, and you must work to keep your monster fed.

When you run a company, the most important thing is your happiness. If your business can’t make you happy, then you need to seek other means to support your family and make money.

The Psychology of Pricing Your Services

There are a couple ways to be successful in business, but you need to figure out how you’re going to compete. You can be one of the following:

The Cheapest

Your service/product is “okay.” You have a lot of clients, but you can’t spend much time with them. People on tight budgets that can’t afford the other guys will come to you. They won’t care about your opinions. They’ll want the work completed the way they specify. You must bow to their wishes. You won’t be able to care about your clients and product/service as much because time is money, and you need to move to the next project quickly.

Steve says...

“You can clearly infer that we don’t like to work this way, but that doesn’t mean that you shouldn’t. You should find the project/client that works best for you and excel there. Maybe you started your own company just to have more free time or to take days off when you want. Being the cheapest might be the perfect fit for you.”

Just Good

You offer good service and have a solid client list. Most people are right here. Being “just good” is the kiss of death. You’re Applebee’s. You’re Bud Light. You’re Mazda. You’re Sprite. You’ve got competition.

Remarkable/Different, Get Higher Rates

You’re highly-talented and highly-priced. You have fewer clients. Clients will want you, your opinions and your remarkability. You will be able to tell your clients how “it” should be. Being remarkable means not being like anyone else. It means your prices will scare some people off, and you’ll need to bring real passion to each project. You can’t fake being remarkable; you just have to be it.

Appeal to someone, have an opinion. Businesses fail for many reasons, but it usually has something to do with the following: The company doesn’t decide who or what they want to be. They try to appeal to everyone. They try to land every client and have an hourly rate that everyone thinks is affordable. When you try to appeal to everyone, you appeal to no one.

Steve says...

“We’re not interested in taking all of a client’s money; we’re interested in helping the client succeed. We think this attitude really comes through, and clients respond to it. Don’t try to fake it; try to really make your goal be their success. That will be the key to yours.”

Hourly vs fixed-bid vs weekly

the psychology of pricing

Deciding on being a fixed-bid project, hourly-working, or weekly company is a big decision. For three years, LessEverything did fixed-bid projects, then the company switched to hourly. Like any decision in life, there are pros and cons to each. Here’s a quick outline:


A fixed-bid job comes with a lot of good reasons to do it and a few big, bad reasons. For fixed-bid to work, you have to do a complete project plan upfront so you know what all the deliverables are in order to price it. This means you have to not only be able to foresee all the big and small tasks, but you also have to be able to predict how much time it will take to accomplish each task, where the potential pitfalls are, where you need to add extra time, and where you don’t. You’ll live and die by this number. If it’s too small, you’ll lose money on the project. If it’s too big, you won’t land the project.

Clients like fixed-bid a lot because they know what it will cost them up front. It can be lucrative for you because you might be able to charge more than you would have for hourly (then again, you might estimate poorly and accidentally charge less than you should). Although every project is different, there is one common fact--they all change before completion.

In the history of man, no project has been completed with zero changes. With this knowledge in mind, you can plan for it and allow for extra time. Explain to the clients that this is the case, and therefore, a certain amount of changes are acceptable. However, once they reach a certain point, you need to start saying “No.”

The hardest part of fixed bid is often the battle at the end. With fixed bid, you have to be a very good communicator so the client knows what to expect and what they’re going to get. Unfortunately, even when the clients swear they understand. they usually don’t. The end of most projects usually has a client saying something like, “I know the deliverables said X, but I thought that meant Y.” Often, their point of view is valid, and is a simple misunderstanding. After all, both a porta-potty and the Taj Mahal are really just one room buildings with some differing features.


Hourly is easy because there’s less fighting and less confusion. The client is able to get a more accurate model of what they want because it’s more of a step-by-step process. The downside to hourly is that it’s harder to get a client to be okay with the fact that what they’re seeing up-front is only an estimate, and that they won’t know exactly what the cost or time is until it’s finished. No client ever wants to hear, “Yes, you have to pay for the time we talk on the phone. You are buying our time, and you must pay for all that you use,” so that’s definitely something you have to deal with. Charging hourly also means that you only get paid for the time that you work, so if you have a server personal or personnel issue, you have to stop the clock and deal with it.


Weekly is kind of like hourly, but the client buys a week at a time instead of an hour. This can be good for you, but what do you do if someone gets sick or something else happens that prevents you from making those hours that week? Some companies have a team per week to help minimize this risk. You can also go in knowing that a week is 35 or 70 hours so you’re effective hourly rate is higher. It’s easier for a client to say yes to weekly if you have a good reputation. We’ve never done it, so we won’t say too much about it.

Are you Making A Deal or Creating Value?

The chasm between the terms “deal” and “value” is expanding like a roasted marshmallow. There are more self-checkout lanes and more self-help tech support applications than ever before. Reducing overhead allows businesses to cut their prices--offering you a great deal. On the flip side, some companies are looking to provide more value--being more service oriented--in order to distinguish themselves from the middle.

Read more about creating value here.

When your price is neither high nor low, you’re in the middle. This is a dangerous place to be. The people looking for that average-priced web de- signer usually aren’t the people that help spread your name around to oth- ers. Most businesses are in the middle--and no one talks about them. That gas station whose prices are “average,” the Applebee’s that no one really en- joys eating at--they’re stuck in the middle. If you want people to talk about your business, offer them either an awesome value or give them a great deal. Remember that you are selling value; not just a single product or service.

The Bad

The unique things you are doing today will, one day, become “the middle.” Airlines are now allowing for WiFi on their planes for a price. This is so cool now, but in two years, all airlines will have WiFi (and FREE WiFi at that). The value proposition you have now will change over time. It will be a race to keep yourself a value sale.

A good example of something that’s not “middle” is being able to go on and get tech support in one minute with a human that knows what they’re talking about. While this might cost $50, it’s a great value to most people, and it’s nothing Microsoft will ever be able to do. The gas sta- tion that won’t clean their toilets, but somehow sells their gas for five cents cheaper per gallon; that’s a great deal. Both of these businesses are success- ful, because they both know what they’re selling--a good value or a good deal.

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