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How to Tell A Client How Much Something Costs

28 Jan

It seems like telling your clients how much your services cost would be a fairly straight forward process, but a lot of freelancers get jammed up when the question is put to them, and for good reason.

If you answer without asking a few questions of your own, you run the risk of either underpricing your services for the client’s needs or scaring the client away with too big a price tag.

Here’s how to handle the question of “How much do you cost?” with finesse and a ninja’s negotiation skill.

First things, first: you need to understand what anchoring is.

By andy castro via Flickr.com

By andy castro via Flickr.com

Anchoring is what happens when one person names a number in a negotiation. Regardless of whether that number is well informed and thought out, or thrown out off the cuff, it will now inform how both parties view all other offers.

An example:
Let’s say you have a computer you’d like to sell and I just happen to be in the market for a used computer. I call to learn more about the machine, and you say, “I’d like to sell it for about $500.” You’ve anchored.

$500 is now the most you’ll be able to get for the computer (it makes no sense for me to counter with a higher number, unless I have a deep desire to rid myself of cash). But what if I had more than $500 to spend? You’ll never know because you anchored at $500.

Let’s say I then respond by saying, “Oh, my budget was more like $350.” I’ve now anchored as well; that is the lowest price the computer will sell for if we do the deal. You know I’m willing to spend at least $350 so there is no point in you accepting less than that.

So: sellers generally anchor the highest price and buyers generally anchor the lowest price. You or I might try to move the price in our favor beyond the anchors we’ve dropped but it will be verydifficult to do.

Another way of thinking about anchors is as setting expectations. Once those expectations are set, they are very hard to rearrange.

When a potential client writes and asks, “How much would it cost for you to build me a quick website?” anchoring and expectation setting happen almost immediately.

You probably key in on “quick website” and have an idea of what that means to you. You use that idea to come up with a number and shoot it back to the client. You’ve anchored on the price and they’ve anchored on the complexity of the job.

By Steve Snodgrass via Flickr.com

By Steve Snodgrass via Flickr.com

This isn’t good for either of you.

Neither of you have enough information about the job and what it really involves to anchor effectively. If you anchor this early in the process it increases the likelihood that you’ll both be disappointed and frustrated with the result.

So what do you do?

Don’t anchor.

When a client asks you how much your services cost, respond by asking questions about what they need.

You don’t have to get into the nitty gritty, but ask enough questions to understand how big a project they’re talking about, how complex it might be, and how quickly it needs to be done.

If there are things that will increase or decrease the price of the job, mention that. “This estimate is assuming we don’t have any problems with the database; if that were to happen it could increase costs by $500-$600.”

Don’t be afraid to ask about their budget.

It’s OK to ask about money; they’re approaching you about the possibility of paying you in the future. You’re going to talk about money eventually; might as well get started early.

If you understand their budget you’ll be in a better position to present relevant options. You don’t want to show them your Rolls Royce options when their budget is more of a VW Bug. (Or vice versa!)

If they shy away from sharing their budget, explain why you’re asking. Let them know you want to make sure you’re presenting them with options that are realistic given their needs and expectations.

When you do talk numbers, use ranges not specific figures.

You can’t dance around price forever, so when it comes time to talk about numbers, use ranges instead of particular figures. Ranges give you flexibility; if the project is more involved than originally thought, you have room within what they expect to increase the price.

When you offer a range — $3,000 to $5,000 — it’s in your best interest for your current estimation of the project to fit somewhere in the middle to lower portion of that range. If you think the job will cost $3,500, $3,000 to $5,000 is a good range to use. If you think it will cost $4,500, it’s best to give them a range of $4,000 to $6,000 to consider.

By digitalurbanlandscape via Flickr.com

By digitalurbanlandscape via Flickr.com

By taking the time to ask questions, gather information and strategically respond to potential clients’ questions about how much your services cost, you increase the likelihood of happy customers and better negotiations.

How do you talk to your clients about how much your products or services cost?

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