Let's talk about a subject that's close to many digital nomads' hearts: pricing strategy, and in particular how to charge more. Why do some freelancers and businesses struggle to charge enough while others (apparently similar) businesses are able to charge double or triple? Why do you undercharge, and how can you fix it?
How does your pricing strategy itself actually affect how potential customers see you (eg ‘cheap' versus ‘premium')? I believe this is one of the biggest challenges that prevent would-be nomads from going, location independent. It can be the difference between living hand-to-mouth and having a cash surplus each week. It can be the difference between having the confidence to take your work on the road, and staying put.
I often see people in forums and Facebook groups saying, “You've just got to raise your prices!” If only it were that simple. Usually, there are real structural reasons why someone can't raise their prices without losing business (of course sometimes it really is purely psychological, and we'll talk about that too).
For now, though, let's look at some of the key reasons you're struggling to close deals at the prices you want.
Pricing Strategy Analysis: Why You Undercharge
In my experience there are five major factors that lead to under-charging:
1 – Branding Problems
Have you branded your service or product in such a way that it comes across as “budget” compared to your competitors? Do you mention price or “affordability” as a big factor in your marketing materials and sales copy? If so, you have a branding problem.
In this case, you've already branded yourself as “cheap” – so now your pricing strategy has to reflect that. You are targeting your service towards customers who are price-conscious, and as a result, you're going to end up haggling over the price with most of the clients you deal with.
The only way to fix this issue is to analyze your branding and make sure it doesn't say, “Pick me because I'm cheap.” In fact, you want to go in the opposite direction.
I have always aimed to brand my services as being high-end and premium. Many freelancers and owners worry that this will drive away a big chunk of their potential customers – and that's true. But it will also weed out a lot of the tire kickers, and make sure you're speaking directly to the clients who actually have money to spend and are happy to pay for high-end service.
Look over your branding. Does it say you're elite, and you charge accordingly? Or does it say you'll probably be willing to take what you can get?
2 – Lead Sourcing, Quality and Volume
Probably the biggest factor of the five here comes down to lead generation. If you're not able to charge the prices you want to charge, it's almost always due to a lack of good quality leads. Think about the psychological difference between having a few good leads coming in and having plenty of them.
If you're drowning in new good quality leads every day, who come to you without you having to “hustle” for them, are you going to be afraid of quoting what you're worth? Contrast this to a situation where every lead is precious, and if you don't close any given lead you're worried you won't be able to eat in two weeks. Of course, you are going to end up quoting a lot less.
To charge what you're worth you need to have an abundance of good quality leads. That means having a reliable lead generation system – preferably inbound. It's hard to build this on outbound lead generation alone, simply because of the time that usually goes into outbound lead gen.
Once you set up your inbound lead generation system – be it SEO, advertising, blogging, referral partners, or some combination – you also have more time to put into the work itself, which means you can bill more hours. So not only does it give you the confidence to charge more, you can actually get more paying work done.
The problem here is that a lot of nomads are scared of paid advertising or inbound lead generation systems that seem like they require a lot of effort to build. If this sounds like you, it means you're still not thinking in terms of ROI.
If you can land a $5000 deal based on a $100 ad spend, as opposed to spending 20 hours ‘hustling' to find that client, is the ad spend the better idea? Of course, it is (unless you happen to earn less than $5/hour). The problem is the learning curve, and being prepared to mess up at first.
Inbound lead generation is a whole bunch of skill sets combined together, but once you get it down it will change the whole game. Suddenly clients are coming to you, every day – and when a lead finds you instead of vice versa, then tend to be happier to pay more, provide more repeat business, and cause fewer service problems (in my experience – yes I have tracked these factors for inbound vs outbound leads).
Lead generation problems can break down further – for instance, you may just not have enough traffic coming into your offer, or you may not be converting the traffic into leads very well. Never jump to conclusions on what's wrong – make sure you have the correct analytics is in place so you can figure out where your problem is.
3 – Conversion and Sales
The next big problem that comes up is a terrible closing rate. Perhaps you're getting a lot of inquiries, but few of them turn into actual paying customers (or worse, you have few leads AND a low conversion rate).
There are a few things that could be happening here. One is that your leads are so bad (low-budget) that even the discounted prices you're quoting are too high for them.
In this case, it's really an extension of the above lead generation problem – you need to get better quality leads in the first place because the people you're attracting or targeting can't afford the prices you want to charge.
The other way this breaks down is that your sales and conversion system just isn't good enough to convince people. If you do a lot of your persuading in person, it means you're going to have to work on your sales skills.
If the conversion is done through an automated system (for instance you're asking for the purchase directly through a website), then you need to start number crunching, analyzing and split testing until you get your numbers up.
(Again, you may need to get better at sales and online persuasion techniques like video and copywriting here).
4 – No Personal Touch
The other major factor here – which is related to sales and conversion – is that your leads aren't feeling enough of a personal connection to you. Always remember that people don't only buy your product or service, they buy YOU as well. They buy the experience of dealing with you. If your leads are excited at the idea of dealing with you as opposed to someone else they are going to be willing to pay more based on that alone.
This doesn't necessarily have to revolve around you personally – you can infuse the brand itself with character and personality. However, ultimately, clients (especially if they're spending a lot of money) are going to need a personal connection.
You can take a lot of one-on-one time out of the equation here by having excellent content and videos on your website. Video in particular is a great way to let people feel like they know you and understand your expertise before you actually talk for the first time.
5 – Self Doubt
The final spanner in the works here comes from simply not having the confidence to charge what you're worth. You may be swimming in high-quality leads, they like you, and they're willing to pay you well – but for whatever reason, you can't get over the psychological hurdle of increasing your prices. This is typically due to a lack of understanding of just how valuable your product or service is to your clients.
One of the best things you can do here is to start following up more after you've delivered to a client. Find out in their own words how what you've done for them has benefited them. Often happy clients will reach out to let you know, but sometimes they don't – some prompting is required.
If you don't ask, you can end up with the impression that your work is not as valued as it actually is. So start asking. (This is a great way to gather testimonials at the same time, by the way).
Troubleshooting Pricing Problems
Now we know what the biggest culprits are, how do you go about fixing each of these? I've put together a quick set of questions for you here for each item so you can start troubleshooting your business and ultimately raise the average price you're closing deals for.
Fixing Branding Issues
Does your branding say “premium” or “affordable”? “High end” or “low budget”?
Does your website look professional? (If you don't have a website, get one.)
Is there a personal touch coming through your marketing materials – email, website, phone calls, ads, whatever it may be?
Fixing Lead Generation
How are you generating your leads? Are they warm leads from referrals or cold?
Are your leads coming from outbound “hustle” methods, or do they find you?
If you don't have many people finding you, what methods to generate more would suit your business? (Adwords suits some business types, whereas Facebook ads is better for others)
Are you getting a good volume of leads? Do you feel like you can “take or leave” any project, or are you desperate to close every deal that comes across your desk?
Are there ways you can scale up on your existing efforts? (For example increasing ad spend, or hiring a virtual assistant to free up your time.)
Have you broken down which of your lead generation methods produces the best results (in terms of conversion to sale, average client spend, referrals generated, ease of dealing with the client, etc?)
Fixing Conversion Rates
What percentage of leads are you closing?
In cases where the deal doesn't close, is price usually the main factor even though you're quoting low? If so, you have a lead quality problem.
Are you good at sales? This doesn't mean becoming the uber-sleazy car salesman stereotype. Do you have a solid understanding of how buyer psychology works and how to use effective techniques for things like managing objections and closing?
If you use proposal documents, are they beautiful and effective or do they look cobbled together? Remember the look and feel of proposals all ties into your branding and the impression of professionalism you give (or lack thereof). Are the proposals stock standard or customized to each client?
If you're selling directly through a website, are you constantly running split tests on headlines, copy, design and so on? Do you understand how well different traffic sources convert into leads and then into actual paying customers?
Are you using an email funnel to help pre-sell potential customers before they buy? Do they get an offer straight away, cold, or does it come after they have already had a chance to get to know you?
The best sales advice I can give is to have an excellent product and then present it in an honest, personal way. If you can do that, you're already halfway to winning. You don't need sales “tricks” when your product quality speaks for itself.
Fixing Lack of Personality
The answer here is fairly simple – start injecting more of yourself into your brand. People should be able to feel like they're communicating with a real human when they read your copy. The design and feel of your website should be equally appropriate.
Video is a great way to create a more personal connection with site visitors before you've actually talked to them one on one.
Look at competitors – are any of them creating a great personal experience? You don't have to go into full-blown “personal branding” if you don't want to – just make sure the human element behind the business can be felt and heard.
Fixing Your Own Doubts
Is the big problem that you just don't feel your work is worth more?
Do an honest comparison between your prices and those of competitors, and look at the quality of each. Is yours much better even though you charge less? If theirs is better, what would you have to do to improve your quality to the point where you'd be happy to charge more than they do?
There is no simple way around limiting beliefs like this – the important thing is to gather real-world evidence for why the belief is false (eg, positive testimonials from happy clients), and then just take the leap. Get over it, charge more once, and see what happens.
Automating the Process
The more you can remove yourself from the lead generation and sales closing process, the better. That may seem to contradict what I said above about having a personal touch. Let me explain.
Yes, with large clients, you are generally going to have to put in a lot of personal time with each one in order to close the deal. But that doesn't mean you can't automate some parts of the process.
Why achieve over Skype what you can achieve through sales copy that can be read by 100 website visitors at once? Why say in person what you can say in a video?
Why do basic admin tasks yourself if you can have an assistant do them for 1/10th your hourly rate?
The tricky part is knowing your target customer well enough that you can anticipate exactly what they're going to think in advance, and then building an automated process you can trust to get you the same results in a much more scalable way.
Look at everything you do and ask: Is there a way I can turn this into a process so I don't have to do it myself every single time? Remove redundant time input from the business wherever you can. Get out of your own way, and watch it grow.
By leveraging like this you can grow the lead generation system and hone the sales skills you need to get more, better-paying customers.
Raising Prices for Existing Clients
Okay, so let's say you have an existing client base and you're all ready to raise your prices. How do you do it, and how do you explain it? For starters, stop thinking it's such a big deal. People expect prices to go up over time. It's normal. It may well be a bigger deal to you than it is to your clients.
All you have to say is that you haven't revised your prices for a long time, you're sure they'll agree they're getting excellent value for money for your service already, and you'll soon be introducing a modest increase in your prices.
That's it. Short and sweet. Give them some prior warning before you do it – and then do it. If it helps, say you're so in demand that it doesn't make sense to be working at your old, lower rates any more (if your clients are other business owners, they'll understand an appeal to economics).
Of course, you should actually be in demand – that's where the lead generation and sales conversion side comes in.
Another technique you can use is to introduce a new add-on to your service to explain the price increase (obviously, this should be something simple and effectively free for you to add, so it doesn't eat up profit).
The Psychology of Charging More
Last but not least, you need to recognize the difference between structural problems in the business (eg lead generation and conversion) and where you're simply losing the game against yourself by not getting over your mental hang-ups.
If you don't believe your service is actually worth more, there are two ways to fix it. One is to show yourself the value, by asking your clients how much they love what you do.
The other is to make your service even better.
(Why not do both?)