Hi. I’m Mark, and I’m a chronic under-pricer.
When I launched my services as a Budget Nerd (which means I act as bookkeeper and CFO for consultants and agencies), I set my retainer at $200 per month.
I didn’t mean to under-price — I promise.
I estimated I’d need about an hour per month per client for data entry and maintenance (the bookkeeping piece) and an hour per month on the phone with the client (the CFO piece). “$100 per hour is plenty,” I said to myself.
And two hours at $100 per hour would be enough…if not for my fatally flawed assumptions, such as:
- Expecting nearly-robotic efficiency in my work. Turns out I’m not a robot. (I’m a sci-fi nerd, so that’s a disappointing realization.)
- Expecting nearly-perfect behavior from my clients. Hahahahahahahahahahahahahahaha…deep breath….aahahahahahahahahahaha. (Am I right?)
- Expecting myself to exhibit super-human stamina. “Fifty to seventy-five one-on-one consultations per month in order to reach my income goals? No problem!” (See previous robot assumption.)
I quickly saw that $200 per month would kill my business, and fast. After signing ten clients at $200, I raised my rate to $300 per month.
A 50% increase!
Being a chronic under-pricer I was proud of myself for the increase — and relieved when people kept signing up for the service.
I signed another 20 clients (give or take). Revenue was adequate; I didn’t have to worry about covering my bills.
But now I was supporting close to 30 clients and, thanks to not being a robot, it was taking almost all my working hours.
In other words, I found out that a retainer that took roughly two hours of direct time (ie “billable time”) translated into closer to four hours of real time. Client emails, occasional supplemental calls, messy bookkeeping cases, and my own human inefficiency were eating up an extra couple of hours per month, per client.
It’s not the end of the world, I told myself. The money I’m making is adequate; I’ll just figure how to be more efficient as I add more clients. “I’m fine,” I pretended.
The clients kept coming (thankfully), but I discovered I wasn’t getting much more efficient. I’m still human, and so are my clients.
My income increased, but so did my working hours and my stress. I lied to myself, claiming it would get better with time.
Why did I believe that? There were no indicators anything would fundamentally change about my business model. I guess I was just scared to admit the current approach wasn’t sustainable because I didn’t see another way to support my family and keep the mortgage current.
Around this time I had an in-depth consult with a business coach named Jenny Shih. We did a great little exchange: I reviewed her business finances (which were pristine), and she took a zoomed-out view of Budget Nerd.
Jenny gave me exactly one piece of advice:
“Raise your retainer to $500 per month.”
“$500 per month??” I spat my diet coke all over my keyboard.*
The truth is Jenny had read my mind. $500 per month was the number I had in my head and was too freaked out to admit it. I don’t know why, but $300 per month sounded fine and $500 per month sounded like sheer madness.
Worth noting: I have no logical explanation for why I felt fine about $300 per month and paralyzed about $500 per month (and you probably have a similar problem). It was like trying to clear a mental and emotional great wall of China to get myself to buy into the idea that anyone would pay me such an “obscene” sum.
Also worth noting: The difference between $300 and $500 per month is just under $7 per day, which most my clients absolutely spend on the cliched “latte per day.”
My point? My fear was totally irrational (and yours probably is too).
Jenny had to do some life-coachy voodoo on me, and I finally gave in. During my next round of client calls I let my everyone know I’d be raising my retainer to $500 per month effective 60 days out.
My worst fears were realized when one of my clients said “Whoa! That’s an 80% increase! I don’t know about this.”
Guess what I heard from my other clients?
“You should make it $600.”
“Mark, that’s an extra $200 per month. If you’d started billing me the new rate without telling me, I probably wouldn’t have noticed.”
Me, sheepish: Oh, um, cool. Thanks.
I did lose some clients, including some who said they were gung-ho about the new price. (Lesson: people will say yes to save face and then cancel and/or enter the Witness Protection Program. That’s okay; they’re human.)
The dust is just now settling and my revenue is up close to 80%. Not only did most of my clients stick with me, I kept signing up new clients at the new rate. $500 per month was the new normal, and no one serious about working with me flinches at the price.
I’ve told this whole story in view of how it all affected me, but here’s the big takeaway:
When consultants and freelancers under-price, it’s the client that suffers.
I know — it sounds like a platitude we spout to make ourselves feel better about gouging clients, right?
If I hadn’t raised my rate; I’d soon be out of business. There’s no way I could have kept it up. And if I had stuck with it, my performance would have suffered.
Do you really think your clients want a totally-exhausted, spread-to-thin freelancer on their team? Of course not!
All this time you (and I) though we were doing our clients a favor with our “reasonable rates.” With help, I saw the error of my ways and made a crucial change.