One of the best gems of business wisdom that I have ever learned originated with Andrew Gordon.
Back in 2009, he was running two companies that specialized in providing design, creative, and interactive in various industries. Our mutual friend Tammy made an introduction after I got laid off from my copywriting job at a marketing firm.
In preparation for that first meeting, I updated my writing portfolio and thought through my pricing. My recently deceased salary had broken down to about $15 an hour, including benefits, yet the firm where I had worked sold my services for $85 an hour.
After some quick math and deliberation, I decided that my new freelancing rate could be $40 an hour. $40 an hour felt audacious to me, bordering on the absurd.
Quality speaks for itself? Wrong.
But surely clients accustomed to paying $85 an hour and up would be eager to get the same project for half the cost—or twice as much for the same price! I believed that given an opportunity to prove myself, the quality of my work would speak for itself.
Andrew and I met at his office, and as he thumbed through my portfolio, my heart fluttered in my chest. When he inquired about my rates, I could barely get the words out. He pondered what I said for a few moments, and then asked if he could give me some unsolicited advice. I said sure.
He nodded and proceeded to blow my mind:
“Your work is good, and I could probably rustle up a project for you within a week or two. One of our writers is going back to school.”
[So far, so good!]
[Didn’t see that coming…]
“But your hourly rate is too low. You simply wouldn’t be taken seriously in larger markets in the Southeast like Charlotte, Atlanta, and Nashville, not to mention other parts of the country. If I were you, I’d raise my rates to at least $75 an hour, starting today. And if we get a chance to work together, that’s what you should charge me.”
Some of you reading this are nodding your heads in agreement. I, however, was shocked. I had only been in the business world for six months. Before that, I’d been a high school English teacher and grad student. The room of my mind labeled Business Acumen was rather Spartan.
What is the relationship between price and branding?
Expensive = Branding = Respect
Andrew was the first person to elucidate the relationship between price positioning and perceived value, between pricing and branding.
I’ve always been a quick learner, and in the days and weeks that followed, connections became clear. Individual stars became constellations.
Do the time and materials that go into a Porsche or Bentley really make those machines more costly than a Hyundai or Kia? Is there really an extra $100,000 to $250,000 in workmanship and stuff? Of course not. The value comes in the form of social signaling and status and the hard-to-quantify satisfaction of owning and driving a “superior” vehicle.
You may see the driver of the sparkling Aston Martin double-park at the grocery store, but you won’t see the same behavior from the guy in the Ford F-150.
People show more respect to things that are expensive.
Cheap means cheap.
Cal Tech released a study that illustrates how the price of a bottle of wine affects how much people enjoy it. When people knew the prices of the wines in advance, they reported higher satisfaction in drinking them. They believed that the pricier wines were better. Yet, in blind taste tests, in which people didn’t know the prices, no correlation existed between price and satisfaction. People enjoyed cheap bottles just as much as expensive ones.
We creatives can glean a lesson or two from the study. You probably think you’re good because you’ve compared your work to other people’s. Yet, most of your clients will think you’re good because you’re expensive. Price is perceived value. “Expensive” has positive connotations like “better” and “high-quality” and “valuable.” And “cheap” means, well, “cheap.”
Inexperienced creatives, including Austin circa 2009, tend to think of their services as a commodity. I would have been thrilled to make $40 an hour on writing projects that I enjoyed, and wouldn’t smart people prefer to pay less for the same quality?
Experienced creatives, including Andrew, know that low rates broadcast the wrong message: Smart people expect the services to be low-quality.
Timeliness, Quality & Peace of Mind
The very clients I was trying to attract with my pricing would take one look and conclude that my work was sub-par. If I were any good, wouldn’t I be charging a premium?
Pricing is branding. Building a brand involves architecting certain perceptions. If you want people to see who you are and what you do in a certain light, then you have to put in the right windows.
In practical terms, that means you must think of your work not as skills and tasks but in terms of positive outcomes and the type of experience you want to craft for your clients.
What attitudes and feelings will define the experience of working with you? Chances are, you want your clients to feel freedom and safety.
You’d better believe that they will pay more for dependability, timeliness, quality, luxury, status, and peace of mind.
Want better clients? Charge more.
Perhaps the most surprising thing about premium-loving clients is that they tend to make fewer demands. In my experience, they ask for less, show more respect, spend more money with me, and send more referrals.
It all boils down to helping them meet their goals, and to that end, certain priorities almost always supersede price.
Would you pay extra to sleep on a high-end mattress and Egyptian cotton sheets in a nice hotel with a killer view? Maybe.
Would you pay $180 in Japan for a kilo of authentic Kobe beef? Some people do. They want to experience the tenderness, texture, and rich flavor.
Quality and Price Positioning in Business
Smart brands never compete on price alone.
You can price your services as a commodity: time and materials. You can price yourself competitively for your core competency or in your target market. Or you can position yourself as the Kobe beef option and charge based on created value.
This much is true: smart brands never compete on price alone. You don’t want to compete in a race to the bottom because the only prize is lower profits. Treat your labor as a commodity, and you will earn a laborer’s wage.
Or sell a super-premium burger and make a lot more money for the same amount of work.
A burger is never just a burger, and a website is never just a website.
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