Introducing Golden Mean Pricing
We’ve all been there before. You’ve been approached to work on a project as a freelancer or small business owner. The client has unloaded a ton of information during a sit down that you have to digest and turn into a proposal that breaks down the scope of work and cost. The dreaded dance we all call sales.
Freelancers and business owners often struggle with this or never really settle on a favored solution to pricing. This can lead to fluctuations or inconsistencies in sales numbers that drive us crazy. We’re creatures of habit and enjoy being comfortable because inconsistent, unpredictable sales numbers can affect your bottom line.
While the sales process will never be totally predictable, there are ways to make it much more consistent. One way: find the pricing model that works for your industry and market.
We all know the entire transaction revolves around the price. As the service provider you need to know your compensation for your time just the same as the customer needs to know how much they are going to financially commit.
LUMINUS started out as a logo and web design house eager to take on clients of any size and budget. To accommodate them, we've tried almost every pricing model out there in order to find our place.
Initially, we broke down our proposals by attaching anticipated hourly commitments to individual tasks. We figured this approach was the most transparent and easiest for a client to follow.
But when you price a website with things like "Home Page" and "Contact Page" as line items, things can get messy fast. Cash-strapped clients might opt to remove essential elements of their websites and then try to bring them up mid-project as if they were included (a tense conversation for sure). In the best case scenario, the client ended up with an incomplete website and we ended up with a project with less value for our fledgling studio, both as a job and as a portfolio piece.
What we saw as an opportunity to be transparent and show where value was, really just led to more stress, less success, and tense conversations with clients midway through a project.
After a few years of maturing as a business along with gaining some reputation, we decided to try simply estimating how many hours something would take us and assigning a price to it. This was our feeble attempt at value based pricing.
In some cases, this model worked great for us. We felt confident that the strength of our portfolio gave us the authority to use value-based pricing, and even if we were still under-quoting to win bids, we were getting more value than before.
But unless our client had total faith in our work, we invariably ended up spending a lot of time defending our prices. Without hourly time tracking, clients often saw our prices as arbitrary and looked for us to defend them. Value based pricing worked better than hourly, but we still got tied up in too many nerve-racking sales meetings and phone calls with clients.
We realized that we were jumping from pricing model to pricing model because we were always under the gun to find a quick fix. So I decided to take a step back and think about this from more objective and theoretical perspective. If I removed my thought process from the urgency of an actual job proposal, I could take time to think about all the factors that go into each side’s decision making.
I realized that the two pricing models we'd experimented with represented two extremes. Hourly pricing was extreme because it represented the utopia of “always being paid for work” as well as accrued costs quickly for clients without a defined end. Value based pricing solved the issue of uncertainty, but was extreme in always trying to sell the moon to a client and pushing their budgetary boundaries.
Taking the best of both models, I developed what I've come to call “Golden Mean Pricing.” The Golden Mean is a philosophical term by one of my favorite philosophers (from the one philosophy class I took in college) Aristotle. The Golden Mean is “the desirable middle between two extremes, one of excess and the other of deficiency.”
The key to Golden Mean Pricing is identifying the point between the hourly floor and the aspirational ceiling that you as the business developer believe the client will also feel comfortable with while protecting your revenue return. This allows the client to see a flat rate price defined by your project objectives that is within their budgetary comfort zone. A comfortable and understanding client is more likely to sign a contract and trust your process will deliver the goods.
In this online series I will help you to understand the thought process behind Golden Mean Pricing by taking you through the common pricing struggles creative professionals face, how the anatomy of a project affects price, what other models out there have contributed to Golden Mean Pricing, and how to implement Golden Mean Pricing yourself.