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Should Your New Business Charge Low Prices To Attract More Clients?

Aug 18, 2007
A few weeks ago, I was going through a bunch of subscriber email questions. One question that kept popping up over and over again went like this:

"I'm just getting started in my new business. My friends suggested pricing below market to build my portfolio. What do you recommend?"

As usual, my answer would be, "It depends."

Some profitable service professionals have fond memories of charging low prices when they still checked off the "new business" box at networking events. For example:

An executive coach told me, "I started my business ten years ago with fifty-dollar resumes. Now I charge $200-$250 an hour and get more business than I can handle."

A web developer built her reputation through a discount job site, then began working directly with clients. Now she charges a five thousand dollar minimum to design websites.

Meanwhile other service professionals charge bargain basement prices and never seem to get to the main floor.

So your friends may be right. Or not.

I encourage my clients to consider 5 questions:

(1) What is the range of fees for your service in your market?

Sometimes you have a "going rate." Everybody expects to pay the rate. Charging well below the market price will be viewed as a sign of desperation.

Career coaching is a good example. When you pay below $150 for a single hour, you're probably working with someone who is very new or very eager to get clients.

But sometimes fees are all over the map. You can pay as little as $150 for a decent web design (if you know where to look and how to work with the designer). Or you can pay over fifty thousand dollars -- sometimes well into six figures -- for a huge flashy corporate website.

(2) Will a portfolio of low-end projects create credibility among high-end clients?

You've probably heard this advice: "As a new business, your challenge is to build a portfolio. That's more important than charging a high price."

True.

But sometimes you'll find yourself creating projects that will brand you as a low-end service professional. For example: Low-end web design clients want simple, fast, easy-to-navigate websites. In the web business, low-end does not always mean low income. Some entrepreneurs who earn in the high 6 figures (or even 7 figures) have websites that look like their kids put them together for a middle school assignment. They know what appeals to their markets.

A portfolio of low-end design assignments won't look impressive to a client who's ready to pay premium dollars for a bells and whistles, flash and splash website.

In theory, you can delight your client by providing a product that's worth ten times what they paid. But that's like offering steak tartare to folks who come to McDonald's seeking Whoppers with cheese.

You'll invest a lot in materials and labor. And your client will probably hate it.

(3) Are you attracting testimonials from clients whose names will attract high-end clients?

Working on a project for a Fortune 1000 company will get you a testimonial you can take to the bank. A project for Small Newbie Productions will not impress larger clients(if you're lucky: don't be surprised if the newbie is more nervous about endorsing you than the big guns).

(4) Will you gain experience from working for low-budget clients? ?

You may find that you attract different types of clients at different feel levels. Peek in your neighborhood's $6 haircut shop and then pay a visit to a spa-type salon with haircuts $75 and up.

Sometimes lower-paying clients can be more demanding and more naive. They're less experienced in business, so they don't "get it" when you ask for testimonials.

At the other extreme, high-end clients expect more amenities, more service and a certain level of savvy and confidence that they associate with expertise. Personally, I have no problem with "fake it till you make it" as long as you deliver the goods: you can come across as experienced when you're a new business, but competence and talent will shine through every time.

(5) Will your clients move up to your new level when you get busy?

"Ingrid" grew her design business with rock-bottom prices. As demand grew, she raised prices - but old clients viewed her services as a commodity. They found new sources.

But "Len" told me his consulting clients were willing to pay more as he grew his business and enhanced his credibility.

In general, clients are more likely to grow with you if they realize you are moving up, not positioning yourself as low-end. For example, Your service agreements can include a clause emphasizing that fees may change on future projects.

And finally, you may decide you want to target smaller or lower-end clients with tight budgets. Some professionals enjoy working with solo-preneurs. Some enjoy creating many low-priced information products instead of a few high-end products that require large amounts of time and money.

In that case, you need many clients. You need to consider offering services to groups and creating information products.
About the Author
Cathy Goodwin, Ph.D., Copywriter and Content Strategist, can transform your website from a presence to a profit center. Fr^e Report: Secrets of Websites That Really Attract Clients
Pounce on Your Profits Ezine
Home: http://www.makewritingpay.com
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