If No One Says No, Your Rate is Too Low
Date Published: 24 August 2022
Pricing is hard, and pricing yourself and your services can be one of the toughest things to get right. While I can't claim to have the answer for how to ideally price your services, I can tell you this: If no one says no, your price is too low.
Getting to No
There's a popular book, Getting to Yes, which offers some great information on how to negotiate. It's the obvious inspiration for this section's name, "Getting to No". Having would-be customers or employers tell you that you're too expensive is not something to fear, unless you lack options. When you're desperate, any rejection can feel devastating, and it's common knowledge that negotiating from a position of desperation is never ideal. You want to negotiate from a position of strength, which means that you're perfectly content to walk away from a deal that doesn't satisfy your requirements or meet your needs. So, the first step in "Getting to No" is to be OK with some potential clients or employers telling you, you're too expensive for them. And the best way to do that is to have a lot of potential clients or employers. How you do that is a subject for another time, but it all essentially comes down to marketing and personal branding, both of which I've written about previously and are common topics in my devBetter coaching program.
Consider a fairly common scenario. You're a developer with a few years of experience and for whatever reason you find yourself going independent. Maybe you made the jump purposefully, or perhaps you left your last employee position and haven't had luck getting hired, so you're looking at contract work at least for the time being. Let's say you were making $80,000 at your last job, so you naively calculate that that works out to an hourly rate of $40/hr. You decide to pad that a bit to an even $50/hr, and you post something to a few websites and hope someone gets in touch. In this kind of scenario, you benefit from some self-filtering of potential clients, since ideally anyone reaching out to you will be OK with your published rate (Note: this isn't necessarily true in the real world). But because even $50/hr is a lot higher than many others folks are willing to work on such commodity websites, you may not get many leads. When you do, you're likely to take the first one that comes along, just so you have some work and income. If it turns out to be a longer term engagement, you're going to be tied up for a while. You might take down your listing, or you might respond to additional leads to let them know you're booked. In any case, you're locked into a rate for a while, because a) you set a low rate and b) you took the first lead you got.
What if instead you doubled your rate to $100, avoided the commodity contract website, and spent some time building your own brand and presence (of course you can do this even if you've already gone down the path described in the previous scenario). There's a joke along these lines:
Business Consultant: "You should double your prices."
Business Owner: "I can't do that! I'd lose half my clients!"
Instead of saying yes to every client who comes knocking, plan on many of them balking at your rates. Aim for 50%. Now, that means you need to be getting enough leads that you can afford to turn away half of them. But guess what? If you're charging twice as much you can bill half as many hours and still collect the same revenue you would have with the lower rate. That frees up half of your time to work on lead-generating activities like marketing, as well as activities that improve your value to your clients (training, certifications, etc.).
Talk Clients into You by Trying to Talk Them Out of You
Ok, this sounds great: you'll just double your prices and magically everything will be great and you can retire early, sure, sure. But what about when clients balk at your rates? What about when they say, "Your competitor Acme Development charges half as much!"?
Ask them why they're not talking to them. "Why are you talking to me instead of them, then?"
Odds are, they'll have an answer.
"You have a better reputation."
"One of your other clients referred me to you."
"They're too busy; my project wouldn't even start for months and I can't wait that long."
"This is really important and I don't trust them with it."
They're telling you why they need you, not your cheaper competition. If you end up writing a proposal, be sure to include their exact words in it when you explain why you're the right person/vendor for the job.
This is just one question among several you can ask when discussing projects with clients. Jonathan Stark describes The Why Conversation really well, and covers some other 'why' questions you should ask. The goal is to get the potential client to tell you all the reasons they need to build a solution, why they can't use some off the shelf solution, why they can't wait, and why they're not using someone else. Basically, all the things you need to write a proposal that sells itself.
What if Everyone Says No
Of course, there's a limit to what people are willing to pay, especially when you're pricing by the hour. This is one reason why hourly billing is nuts, but it's still the most common way software developers deliver their services. If you're finding that nobody is saying yes no matter how many leads you get or proposals you write, then you probably want to adjust your price downward. You can simply adjust your published rates (if you publish them), or you can offer things to your clients in exchange for different price points. For example, many clients will pay in advance if it gets them a discount. Many clients will pay more to get a guarantee of results. Some clients might pay more to have exclusive ownership of the work produced, but might be OK with a lower rate that gives them a perpetual royalty-free license to use the work, but you retain ownership of the code. Sometimes a longer-term contract is worth a discount, while small short-term jobs cost more. There are many ways you can adjust your rates without simply raising or lowering them across the board.
Another way to get more leads, especially leads that you know have some budget to actually pay for your work, is to offer productized services. That is, a service that you package and sell as a product, rather than billing hourly for. These should be things you know you can do quickly and consistently that you can charge a modest amount for and sell as a unit. An example might be an assessment, or an introductor training session, or a custom prototype with a fixed number of features. Remember, you have time to develop such offerings if your rate is higher because you only need to be billing 50% of the time to make the same revenue. You sell these productized service offerings for a fixed price and guarantee the work ("satisfaction guaranteed or your money back"). You may need to give some clients their money back, but often these were going to be nightmare clients you didn't really want to work with, anyway, or the experience taught you something important about your offering. In any case, because the scope is small, the risk (both to you and the purchaser) is small as well. And for those clients who are satisfied with the result, they're very likely your ideal candidates for selling your higher-priced servies to. Creating products like this is called a product ladder, and it's another way you can increase your marketability.
If you feel like you're trapped in a rat race with no easy way to improve your financial position, think about your rates and how you're currently reacting to new leads. If you feel like you have to win every lead you get, and it's stressful if any of them balk at your services, odds are you're negotiating from a position of desperation. If you can increase your rates, and justify that increase with some improved marketing that demonstrates how your services are worth more than your competitors, you can get into a position where you can afford to let some leads balk at your rates. And once you're there, you'll have ability to build up your skills and your offering so that you can continue growing, instead of being stuck on a never-ending treadmill (or worse, a race to the bottom competing with others ever-cheaper rates).
Steve is an experienced software architect and trainer, focusing on code quality and Domain-Driven Design with .NET.