Can people trust your pricing?

Let’s suppose you were a builder and a potential client says, I’d like you to build me a structure out of this particular material that’s this size with this kind of a roof, one door, and four windows. How much would that cost?

You go back to the office, look up prices for materials, figure out how much time it will take to build, work up a proposal and return to the potential client and say: This will cost $6,000. The potential client says: Oh, dear. I only wanted to spend $3,000. You say: Oh, okay. I guess I can do it for that price.

This is troublesome on so many levels, the most significant one being: the potential client now thinks you just tried to gouge them for $3,000 more than the job actually costs. Why would they want to do business with such a person? A person who might quite accurately be considered a liar and a thief.

Yet this exchange happens in service businesses on a disturbingly regular basis. Not because the people who cave in on price are dishonest. They are usually the nicest, most generous, most scrupulously honest people you can imagine. But they often are uncertain and insecure about pricing.

Now let’s continue this little dialogue, only now, let’s think of this structure in a more metaphorical way. Assuming you were being realistic about the $6,000 fee, then in order to accommodate the client’s budget, something has to go: about $3,000 worth of materials and/or services, right?

Let’s rewind this scenerio and try another tack. What if, instead, you, the honest builder, said: Well, in the $6,000 fee, each window was $1,000. What if we put in only one. [Yeah, I know, my numbers aren’t realistic, but this is a metaphorical building, remember?] You even do a quick sketch to show the client what the project would look like in order to meet the $3,000 budget. Then the potential client might say: Wow, I really think we need another window. Could you do it with two windows for $4,000? You say: Yes, indeed. We’ll change the specs to two windows and adjust the price to $4,000. Your new client says: Let’s do it. Not only do they trust you, but they feel like you are on their side, helping them to get as close to what they want as possible while respecting their budget constraints.

So what do you think? How do you handle it when you discover that you and your prospective client are miles apart on pricing expectations?

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One reason, I believe, why many people get themselves into this predicament is that they really don’t know how to price their services or answer the question: how much will this cost? If that question strikes terror in your heart or makes you queasy, you might find my Money Matters series of teleclasses helpful.

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This little scenerio I just sketched also assumed that the client was negotiating in good faith. For an edgier take on the issue of haggling over  price, check this out:

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Some related posts that might be of interest:

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One Comment

  1. Posted July 15, 2010 at 8:10 am | Permalink

    Pricing is a real challenge for small businesses and it’s great to see you bringing such clarity to the issue. We sabotage ourselves and our clients when we are hazy and unrealistic in our pricing of jobs and services, creating situations in which someone is bound to feel cheated at the end of the transaction and making it harder for both ourselves and others in our industry to price work at sustainable levels. Thanks for taking this and other “money matters” on.