How Much Should You Charge?
by Rob Spiegel
When a client asks how much you charge for a particular service, the natural response is to offer them a quote. But quoting prices doesn't always pay off. Here's a different way to answer that question that will likely result in a better rate for you.
Four times recently, a client has asked me how much I charge for a particular job. In all cases, the question came from a client I’ve worked with for years. Each client had asked me to do some work outside of normal monthly services. In each case, I stopped myself from making the big mistake of quoting a price. Instead of offering a price, I said, “I don’t know. What do you usually pay?”
A business friend told me 15 years ago: “Whoever mentions price first loses.” I shrugged off his glib-but-meaningless comment. But that snappy offhand line turned out to be one of the truest business principles I’ve ever encountered. Thank you, Dave DeWitt.
My response to clients – “I don’t know. What do you usually pay for this work?” -- was a friendly (and honestly asked) opening volley in the back-and-forth of price setting. My clients are typically employees at large enterprises. And here I am this silly little vendor sitting at a laptop in an upstairs bedroom in a far-away city.
My client was not playing a game. She legitimately wanted to know how much I charge. I legitimately didn’t know. The danger in answering that simple question is that you could easily ask for a rate that is far below what the company ordinarily pays. And once a price pops out of your mouth, it’s very awkward to take it back, saying, “On second thought – since you didn’t bat an eye at my price – I think I need to charge more than that dumb quote I just gave you.”
One of my clients didn’t respond when I said, “I don’t know. What do you usually pay?” Instead, she plowed right into giving the details of the work involved. I was tempted to cave, to give her a price – any price – just so I’d know what the heck amount I was working for. But I held steady.
The project spanned five weeks. Each week I put in six to eight hours, so my commitment to the project was considerable. She still hadn’t answered my question, and I – not wanting to lose – I didn’t raise it again. Finally the project was complete, and I asked, “How much should I invoice your for this?”
The amount she named was at the high end of the range I expected. It was easily twice what I would have quoted if I hadn’t stopped myself. In all four of my recent confrontations with price, if I hadn’t bitten my tongue, I would have quoted a price lower than the client was willing to pay. The funny thing is, even though I never would have had the guts to ask the amount she decided to pay me, she was pleased with the rate. After all, she set it.
My experience here is not universal. Sometimes you just can’t avoid setting the price or rate. In some cases, when you say, “I don’t know. How much do you usually pay? the response will be unacceptably low. But I’ve found over and over, year after year is that if I can avoid opening the price volley, I usually increase my compensation.
There are a couple of reasons this strategy is effective. For one, I live in a poor state, New Mexico. The rates businesses pay for services here are considerably lower than the rates companies pay on the West or East coast. All of my clients are located on one of the coasts, so there’s a discrepancy if pricing that falls to my advantage.
The other reason is that it can be socially awkward to ask for a rate at the high end of your spectrum of possible compensation. You have to get along with your client in a working relationship, so it can be uncomfortable injecting the tension into the relationship by pushing for high rates. It’s easy to make the mistake of setting a “nice” price. Instead, use the friendly and cooperative-sounding reply, “I don’t know. What do you usually pay?”