The now/later pricing pitfall

One of the common questions I get around pricing is whether it’s OK to charge less to get in the door of a new client.

“Get in the door.” That elusive milestone, after which point, it’ll be smooth sailing.

Sometimes we want to get in the door because it’s a high profile client, or a good name to have on our client list. Sometimes we see the potential for additional work. Sometimes we just need the work.

We price ourselves to getting in the door with the intention (read: hope) that we can charge more later.

One of my clients found out the hard way just how difficult this is.

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It was two weeks to the beginning of a new project with a current client, the largest project she had done for them.

Then she got an email from procurement.

If you’re not familiar with this… special group... within companies, procurement’s job is to control costs. They review every contract, nitpick every line item, and find every single cost savings.

“We have a few questions about your fees.”

They were looking at the invoices from previous work, and saw that this project was much more expensive, with different base fees, and they wanted to know why.

My client explained, “Well for that first project, we offered a one-time discount in acknowledgment of a building relationship with your company.”

Read: We offered a discount to get in the door.

The procurement person responded, “I see that it was a discount, but it set the benchmark that determines future pricing.”

In no uncertain terms: If you discount to get in the door, you’ve screwed yourself later.

Welcome to the Now/Later pricing pitfall.

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If you price low to get in the door now, it’s nearly impossible to increase your prices later.

My client’s story comes from selling to a company, but the same principle applies if you’re selling to individuals.

Ask yourself: who would want to pay more for a service, if you originally got the same service for less? Would you?

Cable companies are notorious for this type of pricing. Get three months at a reduced price, then you get the same service, for a much higher price.

How does that feel? Do you have warm feelings toward your cable company? Do you feel that they’re good service providers? That they’re fair to customers?

If you’re like me and the 22 million Americans who have “cut the cord” from cable (via), the answer is probably no. We took that introductory rate, enjoyed our cable while it lasted, and promptly canceled when the price jumped. We valued the service at the introductory rate, not the eventual rate.

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If you’re talking to a potential client whom you really want to work with, and you’re tempted to price yourself lower to get in the door, I urge you to reconsider.

And I’m not alone; pricing guru Ariane Trélaün reminds us that, “In the beginning of your career, sure, this is great for building experience, proving your concept. But very soon you’ll see that you’ve totally painted yourself into a corner…. Pricing low to avoid the No will kill you.” (via)

Instead, set the right precedent by charging your full fee. Teach your clients how to treat you by showing them what your work is worth.

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To help you make the right call, here are a few questions to ask:

1. Would I want to continue doing this work for this client, at this price, for the long term?
2. What if I got five more clients like this? What would it do to my bandwidth? My bottom line?
3. What’s driving me to want to sign this client? Am I feeling desperate for money? What other opportunities could I generate, or move to close, to reduce my desperation?

I’ll end with my favorite quote from Ariane, who offers a different way to think about your pricing:

“Think of your price as a super-effective way of determining who is serious about what you’re offering; read: serious-enough to pay you what it’s worth to solve the particular problem they have that you are ideally positioned to solve. Your price is your velvet rope.”

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