We’ve all had that email.
“I really like what you’re doing and I do think you’re the man for the job, but…we’re going to go with so-and-so because he’s cheaper.”
Last year, I lost two project bids because I was priced too high. In the first instance, that was actually a good thing – the client wasn’t looking for a professional copywriter; he was looking for a Craigslist writer. He was looking for someone to type out 200-word-long keyword-stuffed garbage posts for $3 apiece. He wasn’t looking for a writer; he was looking for a typist. (I refuse to call that kind of work writing, because to do so would be an insult to writers everywhere.)
So clearly, this wasn’t a good fit. I was happy to scare off that client with a high rate. And if you’re pricing yourself right, you should be scaring away the bottom-feeder clients. One of my writing mentors like to say that “Writers who start at the bottom, starve at the bottom.”
The lesson here is to just ignore the garbage pay rate jobs, no matter what industry you’re in – your competitors can have them while you make good money doing something you actually care about.
In the second instance, the client was willing to pay professional rates, but we were just a little bit too far apart on what the project should cost, so I lost out to a less experienced writer. In this kind of an instance, another writer might have been tempted to quote a lower price.
But you see, when a client says I’m outside their price range, there are two ways I can interpret that message.
The first interpretation is that I’m priced too high and I need to cut my rates.
But here’s what happens when you cut your rates: It shows your clients that they have leverage over you, which completely shifts the power dynamic.
If you’re anything like me, then starting your own business was supposed to be about TAKING control of your life, not giving it up.
When you allow your prices to be dictated by your clients, by your competitors, and by those weird intangible “market forces” (whatever the hell that means), you are defeating the very purpose of entrepreneurship. You are betraying your business and yourself.
You are giving up any kind of leverage you might have. You are giving your clients total power and control over you, which makes you terribly vulnerable. When you compete on price, you show your clients that they are in charge. Instead of being a trusted advisor, a knowledgeable expert consultant, a business asset, you become just another expense, which makes you expendable. You basically become their de facto employee.
You might as well go and get a (shudder) job.
What most businesspeople – especially in commodity-based businesses – don’t understand about price is this:
Price is the tie-breaking factor that people use to decide between two different options that look more or less identical.
When I was in high school about mumble-cough years ago, I had a part-time job as a gas jockey. You know what I noticed? Gasoline is a commodity. That has a literal dictionary meaning – a denotation – but it also has a real connotation that has a major impact on how much money gas stations make.
(Side note: While working at that gas station, I learned that there’s really no money for station owners in the petroleum business. Your Friendly Neighbourhood Gas Station makes next to nothing on gasoline sales. The CBC found that soaring gas prices mean lots of money for the oil companies, but basically nothing for the stations – and a good percentage of those stations are small businesses. Station owners feed their families by earning money on convenience store purchases, lotto ticket sales, bottles of oil & washer fluid, and value-added services like full serve islands.)
But anyway, back to my point about commodities.
You see, if your gas station sells the exact same Octane 87 gas that the guy down the street sells, for the exact same price, then the customer has absolutely no way of figuring out whether they’re better off shopping at your gas station or at the one down the street.
Gasoline is a commodity, and you can get a commodity anywhere. As I write this right now, I can buy Octane 87 gas at Petro-Canada for 92.9 cents per liter. Or I can go down the street to the Shell and get virtually the same gas for….drum roll, please….92.9 cents per liter. And if I’m not happy with that, I can head on over to the Esso across town and get my gasoline for – you guessed it – 92.9 cents per liter.
It’s the exact same gas no matter where I go. So there’s no reason why anyone should charge me more. If Shell decides to cut their prices, then Petro-Canada and Esso will have to follow suit. And that means lower profits in an already razor-thin-margin business.
So if you’re competing on price, that means you’re eventually going to find yourself in a race-to-the-bottom price war that will ultimately end with you keeping the same amount of market share you had before, but with far lower profits.
What these gas stations – and a lot of other businesses – don’t understand is that if you have to compete on price, it means you haven’t done a good enough job of communicating your brand.
What if you didn’t have to compete on price? What if you had the selling power of a brand behind you? What if you could count on a loyal army of clients and customers – ready to pay a major premium for you – instead of having to match what your competitors do?
If people aren’t willing to pay your prices, you can either decrease your prices, or you can increase their willingness.
Three guesses as to which one of those is more profitable.
Yep – you guessed it. It’s far more profitable to increase buyer willingness than it is to cut your prices.
So how do you make more people more willing to pay you more money?
It’s simple: You stop competing on price and you start competing on value.
This doesn’t necessarily have to involve changing your product and services – though it could. No; sometimes all it takes is a re-packaging of existing offerings, or just a few tweaks to your brand messaging.
In Oscar Wilde’s play Lady Windermere’s Fan, Lord Darlington utters a now-famous line: “(A cynic is) a man who knows the price of everything and the value of nothing.”
Nowadays, we typically say that a fool knows the price of everything and the value of nothing.
I’m going to let you in on a little secret:
People will pay whatever you ask them to pay if you have something they really, truly, desperately want.
Notice that I said want, not need. People spend money on things they need, but usually they try to minimize those expenditures.
I know that I need a place to live, but an $800/month apartment will do just as well as a $1 million luxury home. Both offer me a place to lay my head. But nobody ever actually needs to buy a house. Renting can make a lot more sense in a lot of situations.
No; people buy houses because they want to buy houses. Because they want the sense of ownership that comes along with buying a house.
See, nobody likes getting gouged on a purchase price. But everyone loves getting a great deal. The key to making this work is to always provide more value than what you take in return. If you always over-deliver on value, people will always feel like they’re getting a deal, regardless of how much they’re paying you.
Best yet, competing on value doesn’t have to be complicated – and any business can do it.
If you’re a B2B consultant like me, over-delivering on value looks like little project add-ons and freebies – for a marketing writer it might be a free analytics report on top of a content marketing strategy, or for a web designer it might be a free logo for a website.
Basically, in B2B and B2C, the easiest way to over-deliver on value is to give a few quick, simple freebies that can make a real difference for your client.
So ask yourself: What sorts of freebies can you offer to give your clients extra value? Your clients are asking the critical question: “What’s in it for me?”
If you can answer that question and provide some freebies that tie into the answer, you’re competing on value.
But freebies are really just the beginning. In order to really, truly compete on value, you need to create a BRAND around your value.
You need to offer your clients and customers a host of benefits they don’t get anywhere else.
You need to offer them peace of mind. You need to offer them a strategy that can help them reach their goals faster. You need to offer them something that soothes a pain point or helps them conquer an obstacle.
Maybe your client has been stuck at $100,000 in annual revenue and really needs to go to $250,000, but can’t seem to break through that income ceiling. What does that problem look like? What does it feel like? Figure out what that extra $150,000 per year would actually mean to a business owner, and then sell the meaning.
Another simple way to increase your perceived value? Niche down.
If I’m a real estate agent and I need a new website, am I going to go to a web designer who does work for all sorts of businesses? Or am I going to be more enticed to find a web designer who specifically targets the real estate industry?
A specialty real estate web designer (if there even is such a thing) would know about all of the challenges that real estate websites face. He’d know the value of high-quality photos and the challenges with large photo file sizes. He’d know about the best way to lay out my website to get people to buy homes.
That expertise is worth a lot of money.
Money that could be yours – if you can prove you’re worth it, and that starts with competing on value.
Are you competing on price, or value? What can you do to better demonstrate to your audience that you’re worth a higher dollar amount than your competitors?