How to price the work you do
I couldn’t handle the amount of people who were asking me to coach them. Even though I coach over the phone, and often in my pajamas, it takes a lot of energy and I can’t do more than two calls a day. It’s not like there aren’t other demands on my time and energy: I homeschool my kids, I have a VC-backed startup, and I am supposedly paying heed to the most obvious marriage advice in the world that says to make your spouse a priority.
So I raised my prices.
I started out at $250 an hour because I thought I was going to hate coaching because I hate talking on the phone, and I didn’t think I could stomach talking on the phone for less than $250/hour.
But it turned out that I really liked coaching on the phone. People who ask for coaching are generally smart and insightful because it takes an exceptional person to ask an outsider for advice. And I didn’t like having to turn people away because I was over booked.
So I raised my price to $350/hour. Which worked out perfectly because I still attracted the same type of people, but just a tad fewer so that I was able to say yes to everyone.
Then I invited my brother to spend his daughter’s winter break with us. We have goats, cattle, pigs, chicken, rabbits, cats and a dog. It’s heaven for children.
My brother said they can’t deal with the fact that we have only one bathroom for so many people.
It’s true we have only one bathroom. But my boys will just pee outside if someone’s in the bathroom. And since we are really rural, in a pinch, I will pee outside as well.
But I can see how this is not really okay for visitors. And I love my brothers so much and I want them to visit me so I decided to build a guesthouse. And to pay for it I raised my rates to $500/hour.
I figured the last time I raised my rates it was fine. So it would be fine this time.
But this time the clientele changed. It turns out that in order to afford $500 for career advice, you need to have a pretty amazing career. And in order to have an amazing career you need to have made careful, systematic decisions for most of your life.
I didn’t like coaching only one type of person. And also, I have to admit that each time I found myself coaching someone who makes $2 million a year at some huge company, I thought about how I’m nuts for charging just $500. I should be charging $5000.
I did some research about how to figure out how much to charge for yourself:
A site aimed at web analytics people suggests detailed evidence-based analysis to figure out how to price yourself. And, proving stereotypes are stereotypes because they are accurate, a site aimed at creatives suggests that to price yourself, you should go with your gut and keep all your options open.
In case those of you who are not freelancers are despairing that you are getting nothing from this post, here you go: Bloomberg recommends that you price yourself like a house. Which means you disregard what you negotiated last time and look at what the market can bear.
But even better: As a general rule the sex industry is ahead of everyone, for everything, including freelancer pricing. On the site TrickAdvisor.com, freelance prostitutes list themselves multiple times, with multiple names and profiles so they can appeal to a wider range of people.
After getting totally sidetracked by that sex industry research, (and finding out, among other things, that men in a committed relationship subconsciously try to stay away from women who are ovulating) I decided on my own strategy for how to price myself.
I decided I need to figure out what I’m working toward, and how many hours I want to work, and then determine the hourly rate to meet my goal.
But when I did that, I came up with $1000 an hour. Even if I gave up on a cute little guest house porch, I was still at $850 an hour.
Then I decided that I should price myself so the work is most enjoyable. You want to attract the client that makes your work most fulfilling to you. And for my coaching business, that is $350. I love coaching the people who stretch to pay that rate, and I still get the excitement of talking with people who could pay fifty times that rate.
And proving we are most creative when we’re desperate for cash, I thought maybe I could rent out the guesthouse each week of the summer and then it would pay for itself. Or maybe I could do a startup weekend at my guest house. It would be like fifteen people in a three room house though… So maybe I could sell it to MTV as a reality show… Or maybe I could build the guest house and set the rent too high for anyone to book it, but I could deduct all my gardening expenses because I have a little farm-based B and B business. You’d be horrified to know how lucrative it would be for me to deduct all my gardening expenses.
I did arrive at a solution, though. I’m not building a guesthouse. I’m building a bathroom. But I’m keeping the door locked except for when we have visitors. Because the only thing worse than having to pay for another bathroom is to have to pay for it and then clean it.
Well that was a fun ride! I can’t wait to click some links!
We live in a large, often cold, city on a 1/5 of an acre so an outhouse isn’t an option. My minimum standards are 1.5 bathrooms. If there is a stomach virus and only one bathroom. Just NO. Our house is nearly 80 years old so two showers would be worthless since they couldn’t be used at the same time. We can’t even use the water dispenser without scalding someone in the shower.
However, if we decide to sell, well then 1.5 bathrooms won’t be sounding quite so ideal…
Thanks again for the ride!
I liked this. I too was second guessing my worth, just today when a parent was already to come for an interview and then asked my cost and said OH Never mind. When parents say I am too much it means they want dirt cheap (crap) care for 15 to 20 bucks a day for child care. But that gets you childcare that lets an infant bite 27 times because no one was actually watching the child. http://www.usatoday.com/story/news/nation-now/2015/10/01/infant-bitten-27-times-daycare-shut-down/73141176/ Another parent thought $600 for before and afterschool care was unreasonable.
I hate when parents want 10 to 12 hours a DAY but pay dirt for it. I priced myself high end because I am tired of those parents that want it for cheap. I still get those parents that will pay my rates no matter what because well no center will take their out of control child.
I love your comment so much because I’m a mom. I want what’s best for my kids. I will cut out all expenses that I can for quality care.
The thing to remember is that parents will always need childcare and by taking classes, and finding parents that share your philosophy you’ll never be out of paying clients.
Cheers to you!
This article was timely. Great read, thank you for explaining the research you did for how you price your consulting.
Are you building a new privy as an outhouse or did you somehow find space for a WC inside? Just curious.
It gets very cold in Wisconsin in the winter. My family would never go for an outhouse.
Penelope
Why don’t you offer a menu of your services so you can work with the kind of people you want to work with and also the ones who can afford to pay a higher price? Just ask, “What is your budget?”
Or on a related note, you could have a set rate to pay the bills and keep the traffic bearable, and discount it as you see fit for surviving clients.
Alternatively, target your favorite coaching demographic, or any demographic, by periodically giving away a coaching session at one of their professional meetings to get some variety.
Blasted auto correct! That was supposed to be “specific clients.”
I assume all your clients survive the experience *grin*
I don’t think she has that kind of time- I had my own consulting practice with a partner for 11 years- we advised Physicians and Hospitals on business practices and were always having smaller clients ask us to break our services out and charge less for them. We tried several times both hiring associates and having Interns. Nothing worked out due to the extremely high level of professional services we provided- no one else cared as much as my partner and I did and we almost lost clients when we tried to serve everybody. In the end we only served Hospitals and Hospital systems. They paid the best rates and offered a level of prestige to our practice that brought us ever more wealthy clients. Dollars and time decision. In the end, you get what you pay for.
Totally true about time, Lisa. Right now I have such a simple way to get coaching – you ask for it, you pay and you get it. If I had a bunch of different things I offer then I’d have to consult with people to help them figure out which package they should get. Right now, I’ll do whatever you want for $350/hour. It’s such a low-overhead approach and I like that more than I like more money… for now..
Penelope
I love the comparison with the sex industry! I love coaching on the phone too- I get the most from coaching people who are at a real loss and haven’t worked for a while (esp mums returning to work) but I charge £50 per hour because these are the clients I want to attract. I have worked at DBM (outplacement) Right Management (HR advice and outplacement) and have several qualifications in psychoanalysis, HR advice, training and coaching. I need new clients to keep afloat and would welcome referrals (commission paid, of course) Any chance we could talk?
hahaha
keeping it locked :)
I kept thinking about the publishing executive on The Affair who used her lakeside guesthouse as an incubator for aspiring novelists.
Oh, I love that example. I need to think of more ideas like that. I bet one would work if I came up with a whole list.
Penelope
Have you considered other ways to price your coaching calls other than by the hour? As an example, by the half-hour after the initial hour. As another possibility, working on a contract basis with a minimum number of hours and each call flexible by time spent after the initial hour. Each call could be some minimum amount of time which makes sense for you and the client depending on the nature of the call. You would always have as a minimum that first call which would be your hourly rate.
Love this! I have had a similar experience. I charge $200 on my site to choose the right colour for a roof. You’d think people would just buy it once they hit my site since their advice is from ‘THE true colour expert’, it’s a very expensive decision and most people actually get it wrong.
But the ONLY people who buy that service have such a complicated problem that I feel I should have charged $500 in the end.
Thanks for writing such a great post, I’m perculating on a similar one now. This is what I love about your blog, it always inspires me to write better!
Happy New Year Penelope!
xoxo
Maria
Maria, you always make me want to know more. What is a complicated roof problem? I’m dying to know.
Penelope
I loved this. !!!
This business of cleaning bathrooms is a huge issue. Don’t forget, the cleaning instinct started way before the germ theory, so it is clearly a universal survival trait that goes way back.
What I want to know is: if women weren’t so committed to cleaning, would there even be a human race?
Yes because the men would just go to the bathroom outside and come up with solutions such as “designated area, throw dirt on it,” after many problems appeared.
Then there would be the guy who inevitably was a visionary and could connect the dots. He would be ignored of course. Then lots of trial and error and everything would circle back to him and people would finally listen.
:)
Should a single-mom, public school teacher really be paying as much as a Fortune 500 CEO?
I think a sliding scale makes more sense. I am a private tutor and have charged different rates depending on the student’s family’s circumstances.
You could come up with a pre-coaching questionnaire to determine means– these people are going to be talking to you about their careers so it’s not as if they can lie about their jobs/salary and then get good career advice from you.
Moreover, studies show that people tend to value things more, the more expensive they are. If you charge everyone $350, only the ones who need to stretch for that amount will feel privileged to work with you. While you’d think your rich clients would be happy to get such a deal, they actually subconsciously will trust your advice less. So your rich clients will actually value you more and perceive themselves as getting more benefit from your services if you make them stretch to afford you as well.
Actually, a better way to structure this would be to advertise the coaching as $1K a call or $5K a call – whatever is a reasonable rate for the fortune 500 crowd.
Then, underneath that you write that each month you reserve a limited number of discounted slots for the readers who would find this price point prohibitive. You write on this blog all the time that you enjoy hearing from your readers. This becomes a concrete way to put a monetary value on that. People can contact you and write a little bit about themselves so you can decide if you want to charge 250, 750 or whatever makes sense to you.
Sherry is right, people tend to value a product more if they think of the sticker price as much higher. It feels a lot better to think that you paid 350 for something that costs 1K. It’s human nature. Your wealthy clients will value the calls more too. It’s a win/win.
That’s really interesting. It seems like definitely it would work. But now I think I need to have this pricing model for something else. I’m already too far down the path with coaching. But I have some other ideas. And you know what? I think what has kept me from launching some of my ideas is that I didn’t have a good pricing model. But yours is really good, Leonie. Thanks.
Penelope
It should be according to your potential and capability. For example, if you are looking for content writers for your digital marketing campaigns, you’d find that people on Fiverr are charging $5 for an article. But, these articles have such low quality content that it would actually harm your website rather than benefiting. So, an elite writer can price his services @ $75-100 and right people will flock to them.
I hate being priced by someones perceived view of how much money I have. I can’t believe people are recommending that.
The only reason to do that is if the service actually differs.
If I were selling apples on the street and set the price different depending on the buyer, wouldn’t you be pissed?
Procential discounts for certain groups, ok. But making me pay more because I have more money is ridiculous and sleezy.
It’s like the friend that wants you to pay for them every time you go out (their idea to go out) because they don’t feel like working so much and earn less. Jesus.
If your service has a 350 dollar value then that’s your price. You lowering your price under it’s value is charity.
The flip side of lowering your price is that you’ll subconsciously lower the value.
Raising your price does the opposite.
” Why should I prepare when he’s getting a bargain? Oh I was totally distracted during this call but hey, he only paid 20 bucks so whatever. “
I think the wealthier the person, the more he/she would not pay for the premium price if a cheaper option is present. CEOs tend to treat advisors as employees – not advisors. But if someone is successful in tampering high-profile people, let me know.
In response to Dee and Nashaat– It seems to be somewhere in the middle of real value and market value. Pricing according pocket book goes too far to the market side (what the market will bear) and pricing only according to quality goes too far the other way. So, yes, “potential and capability”, but only if the market is actually working within that framework of what people are willing to pay.
Paying what you can or pricing differently for different people makes me think of the Panera Cares restaurants and also even the non-static bargaining culture in the middle east. I don’t like either one. But there is something to flexible pricing because really something is “worth” in the monetary sense what people are willing to pay for it. If you have a really fancy car but no one has any money to buy it, the Blue Book price isn’t what it is worth. On the other hand, the price might have little to do with something’s real worth in truth. Maybe in a healthy society, price and worth match up so that could be a kind of thermometer of what is going on in a society.
This also reminds me of when Beanie Babies were popular (understatement) and people would pay $1000 for one even though it was only normally a $5 toy. Weird. I wouldn’t say this was a bad thing. Maybe it’s only a bad sign in society when things of high worth are terribly priced. Trends that drive prices way up, to me, also seem good, because, why not? That’s just competition.
Pretty interesting. And sort of just trivial. But fun and still interesting, yes.
I have a two-story house. I am thinking of building an addition that is two stories – two bathrooms. This seems ridiculous, because the house already has 2.5 baths. But adding one bath means adding a new sewer line, separate heat, and separate electricity. May as well add two. And then I could move the laundry room to the addition, giving me a pantry by the kitchen. But because of the way the garage roof drains, I might have to reconfigure the garage roof. And as long as I’m reconfiguring the garage, why not add an entrance from the garage into the addition?
Sooner or later, it’s easier to get a different house…
I’m relieved to learn you hate talking on the phone, yet you enjoy coaching by phone. I also hate the phone, and have been limiting my income potential, by only taking on local clients. Perhaps, I’ll reconsider.
I’m slow to believe creativity thrives under desperation for cash. As evidence, I refer to your spoken words in the “How to write about your life” course, where you stated the exact opposite.
I can’t remember where I put my keys, or the bag of frozen corn I swear I took home from the grocery store. But for some reason, your words have stuck.
Clarifying: Desperation for cash forces you to be creative about how you get cash. Desperation for cash is terrible for writers because writers don’t earn cash very often anyway — writing is just getting up and writing and not worrying about if you make money from it or not.
Penelope
Interesting approach. And interesting sort of customers willing to pay by the hour rather than by result / completion of a project. Seth Godin has just released a good blog post on this subject: http://sethgodin.typepad.com/seths_blog/2016/01/when-to-charge-by-the-hour.html
It shocks me to learn that there are people who can actually afford to pay such high hourly rates.
I also find it distasteful that there are people who value things according to the cost.
I certainly wouldn’t place a higher value on advice simply because I had to “stretch to pay for it”.
People come and visit us all the time. We have 6 bathrooms, maybe that’s why.
Why not just charge $1000/hr as your base rate, but give substantial discounts to clients you find particularly interesting? Or do something like “$1000/hr starting from next week, or $350/hr with a waiting period of 3 months”.
Penelope, sometimes I don’t read your blog for months at a time because I’m convinced that you are just plain crazy, but I’m always drawn back because I realized you are a really smart and insightful person. I admire the way you see the world and the perspective that you can share with someone like me who does not always see the world the way you do. I guess it is that fresh perspective that brings me back. I’m sure if we met we would not get along well even though we might agree on a great many things. You certainly challenge me and I like that about you. I guess that was a long way off saying keep up the good work… And stay a little crazy.
Thanks for continuing to read, Heather. One of the strengths of this community is that we don’t all agree but we are able to listen to people we don’t agree with. I love reading the comments when people tell me I’m crazy. I always read carefully to see if I think they are right.
Penelope
Absolutely loved this post too.
I admire your honesty, and I feel very inspired by how much you’ve earned last year, by building and consolidating your business from home.
The challenges you face are, in my opinion, far greater than those who work 9 to 5 jobs and let themselves being carried by the wave of their routine.
It’s difficult to wake up every morning and create one’s day (and home school kids, and do a million other things I imagine).
All the best!
Have you considered tiering your rates by client like this guy? http://ivomynttinen.com/blog/a-different-approach-to-charging-clients-as-a-freelancer/
It should depend upon the quality of the service you provide. No one is here to pay for the quantity every body wants good quality and perfection in the work.
It can only depend on the quality as long as there is a market for it. Without an existing (or I guess even potential market if one can be created) market, quality can’t determine the price of anything, if you want to sell it. The highest quality the market will bear is another way to put it. In market terms, not real terms, it is worth what someone is willing to pay. Of course, something can be worth an infinite amount in theory. Some things that aren’t really worth much can sell for a lot (late 90s Beanie Babies or even property in an enclosed area like San Franisco) or in a sad society good art or any other product or service not being seen for what it is really worth and just waiting for a turn-around in values.