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Pricing by value or benefit?
What's your opinion
vincevincevince




msg:3602717
 9:13 am on Mar 17, 2008 (gmt 0)

There are many 'agencies' in our industry who think nothing of charging one customer twice or three times more than another for exactly the same amount of work, because they perceive that the customer will be willing to pay it or they believe that the customer will benefit more from it and hence should pay more for it.

Personally I believe in charging based not upon the benefit or the capability of the customer to pay, but upon the value of the work performed. I do not agree with charging big companies more than small companies. Work has a value based upon costs, overheads and the profit required to be made on the time and that's how I charge for it.

Why do I constantly encounter 'agencies' who charge more just because they think they can get away with it? Is it perhaps that many in this industry still thinks they are in the .NET-boom?

To me, there is no way that a web designer should be charging more than a doctor or a lawyer unless that web designer has had the same amount of professional training and is a person of the same caliber. I see people graduating from university knowing how to use photoshop and build tables in dreamweaver who, a few months down the road, feel they can bill at rates far in excess of what their training and experience have earnt them.

Is it a question of ethics? I've heard some people advance the argument that a large company won't pay a low price. That might well often be the case, but I can guarantee it's being done without the knowledge of the people who worked hard to found the company.

Others have suggested that bigger companies are more demanding; that's fine - the more work involved the bigger the bill... but not the higher the rates. But that's by no means how it works out. I've frequently seen 'agencies' create awful work and overcharge massively. To me, that just isn't right.

 

dbdev




msg:3602910
 2:17 pm on Mar 17, 2008 (gmt 0)

perceived value in price...

It's a fact that people think they get more when the price tag is higher however the same price for n product or sevice should be extended to all companies regardless of the size of their annual revenue.

There is nothing wrong with positioning yourself as a "cut above" and targeting a market that is able to pay a premium for your above average services.

So yes I feel it's a question of ethics and find it unethical to charge different amounts for the same service. Pick a pricing model and stick to it.

vincevincevince




msg:3603057
 4:45 pm on Mar 17, 2008 (gmt 0)

dbdev, I'm glad you agree there's an ethical issue here. Perhaps I've been watching for too long already... I just keep getting a nagging feeling that this industry needs some serious barriers to entry (i.e. qualifications and apprenticeship), and soon.

PaulHudson




msg:3604499
 9:07 pm on Mar 18, 2008 (gmt 0)

I personally have my rates and stick to them, I know what we can do and what we are worth.

If you want a top job, chances are you are going to have to use someone who is very experienced and added to that is very busy, both of which come at a premium.

I find the vast majority of service providers that I come across to be honourable people delivering real value for money. I have to say, that is true of even my closest competitors. Some I believe to charge more for a slightly lower standard than ourselves, but then maybe we should charge more. Although of course I am utterly bias and they would certainly tell you otherwise.

It is possible to compare developers’ rates to that of solicitors or doctors. Ultimately, you don't pay developers to push buttons on a keyboard, you pay them to know which buttons to push.

I do wonder though how companies justify charging tens of thousands for work that we could complete for a quarter of the price. More demanding clients, huge client expectations, timely delivery, efficient communication and administration… these are not unique to projects from large organisations. Fred Chambers of Chambers local DIY has just as many BIG ideas as any marketing director.

My guess is the classic case of ‘Well I went with the biggest company, so it can’t be my fault’. What middle manager really wants to risk it all using an unheard of supplier? Reputation counts in this game and a referral or heavy weight client list screams ‘safe bet’.

Certainly it doesn’t help that some services providers alienate clients with techno mumbo jumbo, provide an unreliable service, mismanage client expectations, over promise, under deliver and are generally unreliable and allusive.

No wonder those who can, end up paying inflated prices in an effort to guarantee quality. If they end up receiving the high level of service they are after then it was a price worth paying, else they wouldn’t have. Whether the price truly reflects value and couldn’t have been more competitive else where is another thing.

dbdev




msg:3604674
 12:32 am on Mar 19, 2008 (gmt 0)

Nice post Paul.

Fortune Hunter




msg:3604789
 2:26 am on Mar 19, 2008 (gmt 0)

you pay them to know which buttons to push.

I believe this sums it all up. If all you do is provide simple coding and graphics then you get paid entry level wages. If you provide years of marketing experience, offer copywriting, SEO, and other value added skills with a track record to prove what you are doing then you can and should get higher rates.

aspdaddy




msg:3605574
 5:57 pm on Mar 19, 2008 (gmt 0)

I do wonder though how companies justify charging tens of thousands for work that we could complete for a quarter of the price.

For web & IT projects supplier selection is mostly about risk mangement not cheap quotes.

vincevincevince




msg:3607829
 4:21 am on Mar 22, 2008 (gmt 0)

Does price help risk management? To me, a much better risk management could be achieved by paying half the price to two companies and then using whichever system gets delivered best. And whilst it is about knowing 'which keys to press', that's no different from a brick layer knowing exactly how to lay the bricks. The fact that knowledge and experience are needed doesn't mean that high prices are justified.

Fortune Hunter




msg:3608046
 3:56 pm on Mar 22, 2008 (gmt 0)

The fact that knowledge and experience are needed doesn't mean that high prices are justified.

I am not sure that is a fair statement. I agree knowing how to do a job shouldn't automatically mean you can charge outrageous sums of money. However I do believe there is a difference in how much you pay based how much experience and knowledge you have.

Using your example above there is a difference between a bricklayer that has 5 years of experience and can build basic brick structures and do them well and the master bricklayer with 20 years of experience and can build beautiful structures.

To make this relevant to our discussion if you are a web designer with a newly minted certificate from a community college and maybe 2 years of design experience you would and should get paid one rate. However if you are a designer with 10 years of experience and 15 years of copywriting and marketing experience as well as a full portfolio of satisfied clients you could and should be paid more. Both of these individuals can do a web site, but which one would you rather work on your business web site?

I think to simply say that both can do the job so both should be paid the same minimizes the experience and knowledge professionals build up over a lifetime practicing, learning and refining a craft.

ildarius




msg:3609343
 6:30 pm on Mar 24, 2008 (gmt 0)

A high-grade consultant was once asked:"Why do you charge so much, for such simple advice?", "So they respect it" answered the consultant.

In business schools they say "do not be afraid of big numbers" if you charge fraction of a price of what the competitor is charging you potential customers might get suspicious

perceived value in price... all the way ;)

PaulHudson




msg:3611670
 11:04 pm on Mar 26, 2008 (gmt 0)

I always laugh at this...

Consultant: We can give you 1. Fast service 2. A great solution and 3. Low prices.
Client: Great!
Consultant: Now choose two of them.

Receptional Andy




msg:3611680
 11:17 pm on Mar 26, 2008 (gmt 0)

I'm interested in the ethical dimension to this question.

Personally, I'd like clarification of the 'same work'.

I imagine that many people would be happy helping out a friend or acquaintance for little or no cost, but would expect much better renumeration if they were working for a high-stress multi-national ;)

PaulHudson




msg:3611703
 11:42 pm on Mar 26, 2008 (gmt 0)

Personally it is love or money with me. Business = money ¦ Friends = free (maybe a few beers or a meal).

When it comes to pricing for clients I put in the same price I would regardless of client size. Every time I have the opportunity of seeing the other potential supplies quotes one will be a quarter of what I quoted and one will be 4 times mine.

I'd say price seems to be mostly guided by suppliers availability and demand for work. I suppose it is ethical if the client is aware of the cost from other providers, but is still happy to pay an inflated price.

Is it the clients prerogative and responsibility to make them self aware of the price range. Or should developers value their relationships with clients so highly they make it clear they are bumping up the price for what ever reason (too busy, not experienced in the area concerned).

Fortune Hunter




msg:3612265
 3:11 pm on Mar 27, 2008 (gmt 0)

A high-grade consultant was once asked:"Why do you charge so much, for such simple advice?", "So they respect it" answered the consultant.

I totally agree. I don't pretend to understand the psychology behind this, but for some reason when you reach a certain size client in business it seems that if you DON'T charge a high price they don't respect you or your advice.

I was competing for a web development contract for the city I live in. It was for the city government and they wanted a nice web site to help communicate with citizens and voters. This city is very small, about 7 square miles. I went in against two larger competitors with well known reputations. We all submitted a contract. My contract was 9 times cheaper than the next contract, but because it was an RFP I was delivering the SAME work as all the rest of the contractors.

The city chose the contractor who offered the highest price! Again, for the same work! I learned very fast that charging higher prices might be the difference between getting a piece of business and not getting it. Obviously the city council felt that the higher dollars they would pay would give better value. I thought this was silly since all 3 of us had to deliver the same exact work by contract, but hey, it is psychology. To them a high price meant better quality.

If you anyone says this is government and it was a sweat heart deal or that they always pay too much. You would be wrong again. I was the person with the most connections on city council. If it was going to go to the "inside guy" it should have been me. Also this city is considered fiscally responsible by a number of independent rating agencies. Further, I have run into this mentality more than once in the private sector with for profit companies.

Again, I will say there is nothing unethical about charging a large sum of money for any work as long as the value you deliver is more than the price you charge, the client is choosing freely, and you are not doing any type of dishonest practice like hiding costs until the client has signed a contract or something like that.

PaulHudson




msg:3612296
 3:38 pm on Mar 27, 2008 (gmt 0)

Ayem

PaulHudson




msg:3612305
 3:41 pm on Mar 27, 2008 (gmt 0)

* Amen

dbdev




msg:3613541
 5:15 pm on Mar 28, 2008 (gmt 0)

Government always goes with "lowest responsive bidder". I have worked on both sides of that fence (for the gov defining RFPs and for myself submitting proposals to RFPs), in both Canada and the USA.

Sure not every gov is the same but it has to be justified to council before any contracts are awarded.

The example Fortue Hunter gives looks a little like someones friend doing them a favour with the contract award... I've seen this too and I've seen this go very wrong... like people in jail type wrong...

Undead Hunter




msg:3615688
 9:41 pm on Mar 31, 2008 (gmt 0)

Price is an indicator with big business. I had to double my rates to work with a Fortune 500 company - fortunately I had someone on the inside to give me that advice. When I did it sailed through. And they were pleased with my work, it was a win-win for everyone.

Overall, the more I charged customers, the more respectful they were with me and my time and my advice.

And the $500 customers gave me more trouble than the $5,000 ones ever did.

The really tricky part with website design is simply selling it. How can you describe it, show it, show the value, compare to other sites/situations, make the value clear to the end users? It's all intangible stuff for the most part. I once sold my car and a website in the same week for roughly the same price - the car sold in 20 minutes, the website took 3 meetings over several weeks before it went at the final meeting. Why? Because the car buyer understood what they were getting, got in it, drove it, touched it, checked it out, understood it.

I nearly decided to sell cars instead of websites after that.

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