9 ms·

Why Your Customers Would Be Happier If You Charged More

234 points by hawke 14y ago

patio11 14y ago
This is the 2nd part of the interview mini-series with Ramit Sethi on starting a consulting business, though we both talk products in this interview as well. I'm happy to answer questions, as always. P.S. I normally try to space out publishing things, to avoid a) reader fatigue on my favorite topics and b) imposing on HN goodwill by showing up on the front page too often. That said, the next two weeks are going to see a few more posts on the blog than usual. Several independently managed processes, with varying numbers of steps, people in the loop, and pipelines, all decided to terminate roughly simultaneously. I apologize in advance if it's mildly irksome -- believe it or not, it is the exact opposite of a planned media blitz.
- smoyer 14y ago
  Hideho Patrick ... the first one was great and having read through your blog a couple times already, I don't think fatigue is an issue. I hadn't really thought about it but it's interesting to me that I find myself more or less fatigued based on the writing style. In any case ... thanks for sharing! (and yes, I'm an old BoSer)
- zackzackzack 14y ago
  Fun observation: Ramit is fond of using the word "gamut" to describe his experience. In both this post and the first one, he uses the word at roughly the same point in the meeting to describe roughly the same idea: going from $x/(unit of work) to $x0000/(unit of work). Some google-fu and http://bit.ly/OJALPO http://bit.ly/OJALPO It seems to be a word he likes and uses well.
  - patio11 14y ago
    You'll find that many authors have words, analogies, literary devices, etc that they go back to. It's part of having a voice. I'm occasionally downright embarrassed by HNSearch. Easy example searches to demonstrate include [ROFLstomp], [pathological customer], [patio11 "charge more"], etc. Or, if you want things that take a little effort to spot, you can see that I really, really like parenthetical statements (one English teacher of mine estimated that I used them 20x more than her reference sets... oh, there I go again) and extended surprise expectation inversion as a device, particularly in introductions. A related issue is that these two interviews were recorded with a 30 second break in between and, since the topics are spiritually adjacent and our memories were fresh, we both recycled good turns of phrase and ideas from the previous interview.
    - grueful 14y ago
      It's also functional, in the "tell me three times" sense. Effective teaching tends to involve lots of repetition.
    - majormajor 14y ago
      I'm curious, what do you mean by "extended surprise expectation inversion"? Google didn't turn up much.
      - patio11 14y ago
        Explanation by way of example: Teen pregnancy. School stabbings. Teacher abuse scandals. Classroom mayhem. Flat test scores. Declining graduation rates. It's enough to make Japanese parents wish their kids went to school in America. (That is pretty much verbatim from an essay I wrote in college. I use this trick a lot.)
    - Natsu 14y ago
      > Or, if you want things that take a little effort to spot, you can see that I really, really like parenthetical statements (one English teacher of mine estimated that I used them 20x more than her reference sets... oh, there I go again) And I thought I was the only one (I have the same habit). It does make Lisp seem more familiar, though (rather than "ack, too many parentheses!"). P.S. Was surprised you didn't give out your summoner name on the last article. You probably could've gotten enough free RP for Midnight Ahri or whatever.
      - tomjen3 14y ago
        I believe that (ab)using parantesis are a side effect of having the engineer mind -- we have to quantify exactly what we mean, otherwise the mean compiler growl at us and so it becomes a habbit of our work.
    - edanm 14y ago
      My favorite patio11 word is "motivational", although it's possibly a really new one. Pet example: "They paid me motivational sums of money". (Oh, and yes Patrick, you're starting to develop a serious cult following).
- malandrew 14y ago
  I think it's awesome how aware you are of your own impact of appearing on the front page more than normal and how considerate your attitude is towards the impact of that on the experience of other HNers. Total. model. citizen.
  - csallen 14y ago
    It's also a self-serving attitude -- in a practical way, not a bad way. Part of maintaining a successful relationship with people is to understand what might piss them off, and avoid it. 99 times out of 100, being considerate is the smart choice.
  - danielweber 14y ago
    "Be nice to the people you meet on the way up; you will meet them again on the way down."
- istari 14y ago
  You are being needlessly modest. Your posts are always insightful and often valuable. I personally would not mind if you built a bot to spam the front page with your old articles.
- edanm 14y ago
  The only problem is that this is all coming out when I'm on vacation :) By the way, I'm subscribed to your new mailing list. I don't think it includes updates about new articles that appear on your blog. Is there a separate (non RSS) way to subscribe to your blog? If it is I'm missing it (admittedly, didn't have much time to look since I'm on vacation).
- itmag 14y ago
  In part 1, Ramit mentioned an e-book about customer retention. Do you know the name of it?
bdunn 14y ago
I'm putting together a fun little video this weekend where I'll be reading aloud (and toasting to) emails from people who have read my book (http://doubleyourfreelancingrate.com http://doubleyourfreelancingrate.com) and are now charging more. The dozen or so responses that make up this upcoming video and the corresponding shifts in worldview are directly inline with everything Patrick and Ramit have to say in this interview. Here are my takeaways from these testimonials: * Most people price themselves in the same way commodity markets price corn, oil, and hogs. * Fear keeps us from breaking away from market/cost-plus pricing to a pricing strategy that's focused on the value we deliver to our customers. * When you focus on why people hire us (to increase revenue or cut costs) and approach everything with that end goal in mind, you can dramatically increase the value you produce and the cost for that value. Commodity pricing is thinking "I write Ruby for my clients" or "I setup Wordpress sites". Pricing based on the value you deliver is "I help businesses increase profits by minimizing the amount of clicks the sales team needs to make in order to process a new transaction."
zupreme 14y ago
Wow. This is a great piece, even though I realize I've been guilty of just about every single thing they say NOT to do...
jiggy2011 14y ago
Whilst I agree with the basic thesis of "charge more and compete by providing value". The difficult part for me seems to be finding people who have money they can part with in the first place, you can't really sell somebody on the benefits of something they can't afford. I've recently been trying to pick up some part time freelance work to supplement my income and pick up a wider range of experience. So first stop was elance.com/Guru.com and similar sites. Looking at the jobs it seems like around 90% of the bids were from individuals in India or the far east happy to work for $7 per hour. So I figured I could "compete on quality" , however a lot of the individuals I would be competing against had CS or design degrees (often from western universities) , 5+ years experience and portfolios full of slick looking corporate websites. Besides, at the rates on offer I figured I'd have to complete at least one fairly large project a week to match my current salary and I'm not confident about producing quality on those kind of deadlines. Most of the project descriptions were also either extremely vague (I want a website), impossible (I want a website, must be #1 on google for <competitive search term>) or possibly illegal (I want a keylogger, must not show up on AVG). It also seemed like a lot of the bids came from various outsourcing companies who had a bunch of different skills in house and providing 24 hour coverage which would kill my timezone advantage (besides a lot of buyers were in the US when I'm in the UK or were in India/Far East themselves). Looking at the profiles of freelancers from the US/UK etc , most of them appeared to have never won a project despite being on the site for over a year often. So I gave up on that and figured, "It's all about networking right?" so I attended a local business networking event for "entrepreneurs". First bad sign was after sitting down and introducing myself to the lady next to me, "what do you do?" , "I build websites , computer software and mobile apps" , "wow, you TOO". Everyone there who wasn't a freelancer of some description desperate for business was either a recent university grad full of enthusiasm, bright ideas but no funds at all or some small mom and pop operation who were stressed out about meeting their mortgage payments that month and absolutely not looking to drop a chunk of change on any kind of bespoke software. Now I'm sure there are people out there with money to spend, but they are probably hiding behind an army of secretaries etc. Besides even people with money are looking to save it, and there are plenty of monied businesses like investment banks etc who are still offshoring all of their dev work. Any bright ideas on how to break through this firewall?
- 14y ago
ericdykstra 14y ago
Has anyone here read Ramit Sethi's book? Thoughts? I'm thinking about picking up the Audible version. By the way, thanks for this podcast, Patrick, I'm about to listen to both parts.
- forgingahead 14y ago
  Got it right out of college -- it was great for giving me a kick in the ass to get my finances in order. Highly recommended.
- graeme 14y ago
  Highly recommended. It's a very quick read, and gave me multiple tips that more than paid for cost + time invested reading the book. As a Canadian, much of the investment advice was irrelevant to me. But I switched to ING direct as a result, which simplified my banking (big time saver) and eliminated a lot of fees. He also has very good scripts for dealing with customer service reps. Various other small tips have been useful, such as better tracking of recurring expenses. Conservatively, I've probably saved at least $1,000 since reading that book two years ago.
- graeme 14y ago
  Highly recommended. It's a very quick read, and gave me multiple tips that more than paid for cost + time invested reading the book. As a Canadian, much of the investment advice was irrelevant to me. But I switched to ING direct as a result, which simplified my banking (big time saver) and eliminated a lot of fees. He also has very good scripts for dealing with customer service reps. Various other small tips have been useful, such as better tracking of recurring expenses. Conservatively, I've probably saved at least $1,000 since reading that book two years ago.
stevesearer 14y ago
While not in consulting, I have actually found the same to be true in selling advertisements on my website. My original plan was to sell ads at rock bottom prices - thinking that because they were inexpensive, they would sell out quickly. What I found was that the advertisements didn't sell out, and I was making rock bottom wages. I recently upped the price by 10x and have already sold an advertisement at the price, effectively making in 1 sale what would have previously taken 10 sales. I have also thought that advertisements at such low prices signaled low quality to potential advertisers, making them less inclined to purchase from me.
thaumaturgy 14y ago
I've only just skimmed this -- won't have time to fully read & listen to it until much later today. But I wanted to bring up something that I didn't see mentioned anywhere in there. You have to charge more. Aside from all of the arguments in terms of value and avoiding pathological customers and so on, there's one more really good reason to charge more: you need the money if you want to be awesome. I've been running a small business for a while now that helps a lot of people that need help but can't afford it. That's all fulfilling, heart-warming work, but it's also put me into a very difficult position. Right now, I need to hire more people, but I can't afford anyone that's good. That's directly hurting my customers. Our turnaround times are really hurting as a result. I've got an opportunity to hire on a brilliant old friend of mine, but I'm not sure yet if I can swing it, because the bank account really doesn't have enough in it to afford him, and I don't know if I can work long enough hours to get that kind of money in there. I've resisted every other justification for charging more. Vacations? I don't need more than just a few days off once in a while. Toys? Don't need those either. Avoiding pathological customers? But those people need help too, and I want to help them. But not being able to build a strong business with lots of talent under my current model? That's pretty hard to ignore.
- creativename 14y ago
  That's a pretty interesting scenario, though it sounds difficult. Is there any possibility of hearing more about what specifically you are offering? I would ask because it sounds like there would potentially be an opportunity to get those who can afford to pay more to do so and then in a way use that to subsidize lower-paying customers. This all depends upon the nature of the business, of course.
  - thaumaturgy 14y ago
    I don't want to be a distraction here; this is a better time for people to get feedback from Patrick on the interview. So, very briefly: we solve (technology) problems for people. Probably my favorite story so far is that we successfully recovered all of the medical documents & pictures from a cancer survivor's failed hard drive. Total bill was $90. I'm open to talking about it further off-HN. You're exactly right about subsidizing a set of customers, but there are all kinds of technical and psychological details that make it a tough problem to solve. I've really only just started thinking about it, so I don't have anything smart to say yet.
bejar37 14y ago
"
- deleted 14y ago
  [deleted]
ttcbj 14y ago
I did not read the full post, but the basic gist reminds me of the book 'How to sell at margins higher than your competitors.' I wasted a lot of time in my early 20's reading business advice books, but that book is well worth the time. It transformed my perspective on prices, what customers you want, and how to sell. Although it was written for salespeople in commodity markets (think lumber supply), it transformed my small software company. I highly recommend it.
Alan01252 14y ago
As a freelance developer myself, and thanks to Patio11, I've always had the charge more mantra firmly placed at the front of my head. So it's a little disheartening to hear on the basis of what was said in this conversation, that I'm still selling myself short. Without the advice I've read here, I doubt I'd of lasted the four months I have so far... The hardest part of this "charge more" philosophy is finding the clients. For example, I went to see a client yesterday, who knew my daily rate. We had a very positive meeting and I was told "they were glad they'd found the right man for the job". Yet today they stated they could get two developers for the price I was charging and would have to think about hiring me unless I was prepared to negotiate. I do wonder if maybe the world of freelance developing does have a payment cap, and that to reach the next level we need to sell ourselves as something other than just developers. Or does making the charge more philosophy work to its full extent in the development game, mean joining big company x, or selling my soul to big company y. The question I'm asking myself right now is. Would Patio11 be able to charge the same rate as a freelance developer as he does as a "I will help you sell more software" freelance consultant?
- patio11 14y ago
  Would Patio11 be able to charge the same rate as a developer as he does as a "I will help you sell more software" consultant? I charge the same rate for software development as I do for making graphite etchings on paper in aesthetically pleasing patterns. Consulting clients buy both of these things from me, in isolation or combination, on a regular basis. So if that's the way you're asking the question, "Yes, I could." If the question is "If you brought nothing to the table other than the ability to write Ruby code, would you be able to charge $YOUR_RATE for writing Ruby code?", I think I'll go with "I can guarantee you that someone gets that much for writing Ruby, and probably more besides, but it probably wouldn't be me" and "Wait wait wait, you seem to want to sell yourself as a commodity coder, don't sell yourself as a commodity coder, down that path lines madness."
  - Alan01252 14y ago
    Thanks again Patrick. You know what, I think I'm finally starting to get your point in its entirety.
btilly 14y ago
I am right now contracting, and I am learning a variant on this lesson that I have reason to believe will prove very valuable to me and hopefully others. 1. If the value of what you contribute can be measured, people are happy to pay you ridiculously more on a pay for performance model than they are with hourly consulting rates. 2. A/B testing can provide a way for them to measure the value of your contribution. Why is this? Well in pay for performance, the company takes no risk. Furthermore it lines the incentives up correctly from everyone's perspective. Suppose that compensation model inspired you to spend 2x the effort that you otherwise would for 1/3 better performance. Odds are that they've just covered the amount they have agreed to pay you and are laughing all of the way to the bank. But if you are compensated hourly, and they are not sure it will work, there is no way that they want you to spend 2x the effort up front, even if there might be a slightly better return. I am not at liberty to share specific numbers. But keep this fact in mind in the future. It may prove valuable to you. (I should think about writing this up in a blog post, along with lesson #3. That lawyers systemically fail to place a value on your opportunity cost...)
wtracy 14y ago
Best quote: "If you got into this business to make peoples’ lives better, and you have produced something which will succeed with that, and you are aware of truth about reality such as “better marketed products beat better engineered products every single bloody time”, then you have an obligation to get better at marketing yourself."
alpeb 14y ago
Great advice but gotta be careful this is really only applicable to freelancing/consulting as an individual. Building a self-sustained company is a very different beast. There certainly are scenarios where you're well enough positioned to set the price you want (Barney's), but if you're not targeting a very specific niche prices are already set for you (for example .99 in the Apple store and zero in Google play) and it all comes down on having a great novel and well presented product with tremendous operations efficiency and low cost. Unless you're running on VC free money of course :)
dsolomon 14y ago
Got 2 paragraphs in - realized author lives in fantasyland.
robbiemitchell 14y ago
A long thread like this and no mention of price elasticity?
jwwest 14y ago
I would have never paid any attention to Ramit unless he came with Patrick's seal of approval. The problem is that I shudder inside a little every time I hear the word 'info product'. The whole industry is beset by frauds and hucksters, and I think that generally people are a little skeptical when they see yet another person making claims such as "I will teach you to be rich". Ramit provides great, actionable advice in his content. The problem is that he sells himself the same way as everybody in his industry does. It's things like the way he speak to his sales site that puts a small part of me off and puts me on the defense.
gambler 14y ago
That's all wonderful form consultant's point of view, but if everyone reasoned like this guy, there would be no open source software, no cheap consumer software, everything would be SaaS and... well, I'm not sure I would want to see a world like that.
- bprieto 14y ago
  Why not open source software? They actually say something like "you can be free, but you can't be cheap". Making money with OSS is not easy, but there are certainly ways to do it. And for cheap consumer software, it's just that you need to be really big to win money being cheap. You can't do it as a one man company.
strebler 14y ago
Wow, perfect timing, I am just writing a contract proposal this weekend! This (novella-sized) article definitely resonated with me, will try applying some of their advice soon...

234 points by hawke 14y ago

This is the 2nd part of the interview mini-series with Ramit Sethi on starting a consulting business, though we both talk products in this interview as well. I'm happy to answer questions, as always. P.S. I normally try to space out publishing things, to avoid a) reader fatigue on my favorite topics and b) imposing on HN goodwill by showing up on the front page too often. That said, the next two weeks are going to see a few more posts on the blog than usual. Several independently managed processes, with varying numbers of steps, people in the loop, and pipelines, all decided to terminate roughly simultaneously. I apologize in advance if it's mildly irksome -- believe it or not, it is the exact opposite of a planned media blitz.

smoyer 14y ago
Hideho Patrick ... the first one was great and having read through your blog a couple times already, I don't think fatigue is an issue. I hadn't really thought about it but it's interesting to me that I find myself more or less fatigued based on the writing style. In any case ... thanks for sharing! (and yes, I'm an old BoSer)
zackzackzack 14y ago
Fun observation: Ramit is fond of using the word "gamut" to describe his experience. In both this post and the first one, he uses the word at roughly the same point in the meeting to describe roughly the same idea: going from $x/(unit of work) to $x0000/(unit of work). Some google-fu and http://bit.ly/OJALPO http://bit.ly/OJALPO It seems to be a word he likes and uses well.
- patio11 14y ago
  You'll find that many authors have words, analogies, literary devices, etc that they go back to. It's part of having a voice. I'm occasionally downright embarrassed by HNSearch. Easy example searches to demonstrate include [ROFLstomp], [pathological customer], [patio11 "charge more"], etc. Or, if you want things that take a little effort to spot, you can see that I really, really like parenthetical statements (one English teacher of mine estimated that I used them 20x more than her reference sets... oh, there I go again) and extended surprise expectation inversion as a device, particularly in introductions. A related issue is that these two interviews were recorded with a 30 second break in between and, since the topics are spiritually adjacent and our memories were fresh, we both recycled good turns of phrase and ideas from the previous interview.
  - grueful 14y ago
    It's also functional, in the "tell me three times" sense. Effective teaching tends to involve lots of repetition.
  - majormajor 14y ago
    I'm curious, what do you mean by "extended surprise expectation inversion"? Google didn't turn up much.
    - patio11 14y ago
      Explanation by way of example: Teen pregnancy. School stabbings. Teacher abuse scandals. Classroom mayhem. Flat test scores. Declining graduation rates. It's enough to make Japanese parents wish their kids went to school in America. (That is pretty much verbatim from an essay I wrote in college. I use this trick a lot.)
  - Natsu 14y ago
    > Or, if you want things that take a little effort to spot, you can see that I really, really like parenthetical statements (one English teacher of mine estimated that I used them 20x more than her reference sets... oh, there I go again) And I thought I was the only one (I have the same habit). It does make Lisp seem more familiar, though (rather than "ack, too many parentheses!"). P.S. Was surprised you didn't give out your summoner name on the last article. You probably could've gotten enough free RP for Midnight Ahri or whatever.
    - tomjen3 14y ago
      I believe that (ab)using parantesis are a side effect of having the engineer mind -- we have to quantify exactly what we mean, otherwise the mean compiler growl at us and so it becomes a habbit of our work.
  - edanm 14y ago
    My favorite patio11 word is "motivational", although it's possibly a really new one. Pet example: "They paid me motivational sums of money". (Oh, and yes Patrick, you're starting to develop a serious cult following).
malandrew 14y ago
I think it's awesome how aware you are of your own impact of appearing on the front page more than normal and how considerate your attitude is towards the impact of that on the experience of other HNers. Total. model. citizen.
- csallen 14y ago
  It's also a self-serving attitude -- in a practical way, not a bad way. Part of maintaining a successful relationship with people is to understand what might piss them off, and avoid it. 99 times out of 100, being considerate is the smart choice.
- danielweber 14y ago
  "Be nice to the people you meet on the way up; you will meet them again on the way down."
istari 14y ago
You are being needlessly modest. Your posts are always insightful and often valuable. I personally would not mind if you built a bot to spam the front page with your old articles.
edanm 14y ago
The only problem is that this is all coming out when I'm on vacation :) By the way, I'm subscribed to your new mailing list. I don't think it includes updates about new articles that appear on your blog. Is there a separate (non RSS) way to subscribe to your blog? If it is I'm missing it (admittedly, didn't have much time to look since I'm on vacation).
itmag 14y ago
In part 1, Ramit mentioned an e-book about customer retention. Do you know the name of it?

bdunn 14y ago

I'm putting together a fun little video this weekend where I'll be reading aloud (and toasting to) emails from people who have read my book (http://doubleyourfreelancingrate.com http://doubleyourfreelancingrate.com) and are now charging more. The dozen or so responses that make up this upcoming video and the corresponding shifts in worldview are directly inline with everything Patrick and Ramit have to say in this interview. Here are my takeaways from these testimonials: * Most people price themselves in the same way commodity markets price corn, oil, and hogs. * Fear keeps us from breaking away from market/cost-plus pricing to a pricing strategy that's focused on the value we deliver to our customers. * When you focus on why people hire us (to increase revenue or cut costs) and approach everything with that end goal in mind, you can dramatically increase the value you produce and the cost for that value. Commodity pricing is thinking "I write Ruby for my clients" or "I setup Wordpress sites". Pricing based on the value you deliver is "I help businesses increase profits by minimizing the amount of clicks the sales team needs to make in order to process a new transaction."

zupreme 14y ago

Wow. This is a great piece, even though I realize I've been guilty of just about every single thing they say NOT to do...

jiggy2011 14y ago

Whilst I agree with the basic thesis of "charge more and compete by providing value". The difficult part for me seems to be finding people who have money they can part with in the first place, you can't really sell somebody on the benefits of something they can't afford. I've recently been trying to pick up some part time freelance work to supplement my income and pick up a wider range of experience. So first stop was elance.com/Guru.com and similar sites. Looking at the jobs it seems like around 90% of the bids were from individuals in India or the far east happy to work for $7 per hour. So I figured I could "compete on quality" , however a lot of the individuals I would be competing against had CS or design degrees (often from western universities) , 5+ years experience and portfolios full of slick looking corporate websites. Besides, at the rates on offer I figured I'd have to complete at least one fairly large project a week to match my current salary and I'm not confident about producing quality on those kind of deadlines. Most of the project descriptions were also either extremely vague (I want a website), impossible (I want a website, must be #1 on google for <competitive search term>) or possibly illegal (I want a keylogger, must not show up on AVG). It also seemed like a lot of the bids came from various outsourcing companies who had a bunch of different skills in house and providing 24 hour coverage which would kill my timezone advantage (besides a lot of buyers were in the US when I'm in the UK or were in India/Far East themselves). Looking at the profiles of freelancers from the US/UK etc , most of them appeared to have never won a project despite being on the site for over a year often. So I gave up on that and figured, "It's all about networking right?" so I attended a local business networking event for "entrepreneurs". First bad sign was after sitting down and introducing myself to the lady next to me, "what do you do?" , "I build websites , computer software and mobile apps" , "wow, you TOO". Everyone there who wasn't a freelancer of some description desperate for business was either a recent university grad full of enthusiasm, bright ideas but no funds at all or some small mom and pop operation who were stressed out about meeting their mortgage payments that month and absolutely not looking to drop a chunk of change on any kind of bespoke software. Now I'm sure there are people out there with money to spend, but they are probably hiding behind an army of secretaries etc. Besides even people with money are looking to save it, and there are plenty of monied businesses like investment banks etc who are still offshoring all of their dev work. Any bright ideas on how to break through this firewall?

14y ago

ericdykstra 14y ago

Has anyone here read Ramit Sethi's book? Thoughts? I'm thinking about picking up the Audible version. By the way, thanks for this podcast, Patrick, I'm about to listen to both parts.

forgingahead 14y ago
Got it right out of college -- it was great for giving me a kick in the ass to get my finances in order. Highly recommended.
graeme 14y ago
Highly recommended. It's a very quick read, and gave me multiple tips that more than paid for cost + time invested reading the book. As a Canadian, much of the investment advice was irrelevant to me. But I switched to ING direct as a result, which simplified my banking (big time saver) and eliminated a lot of fees. He also has very good scripts for dealing with customer service reps. Various other small tips have been useful, such as better tracking of recurring expenses. Conservatively, I've probably saved at least $1,000 since reading that book two years ago.
graeme 14y ago
Highly recommended. It's a very quick read, and gave me multiple tips that more than paid for cost + time invested reading the book. As a Canadian, much of the investment advice was irrelevant to me. But I switched to ING direct as a result, which simplified my banking (big time saver) and eliminated a lot of fees. He also has very good scripts for dealing with customer service reps. Various other small tips have been useful, such as better tracking of recurring expenses. Conservatively, I've probably saved at least $1,000 since reading that book two years ago.

stevesearer 14y ago

While not in consulting, I have actually found the same to be true in selling advertisements on my website. My original plan was to sell ads at rock bottom prices - thinking that because they were inexpensive, they would sell out quickly. What I found was that the advertisements didn't sell out, and I was making rock bottom wages. I recently upped the price by 10x and have already sold an advertisement at the price, effectively making in 1 sale what would have previously taken 10 sales. I have also thought that advertisements at such low prices signaled low quality to potential advertisers, making them less inclined to purchase from me.

thaumaturgy 14y ago

I've only just skimmed this -- won't have time to fully read & listen to it until much later today. But I wanted to bring up something that I didn't see mentioned anywhere in there. You have to charge more. Aside from all of the arguments in terms of value and avoiding pathological customers and so on, there's one more really good reason to charge more: you need the money if you want to be awesome. I've been running a small business for a while now that helps a lot of people that need help but can't afford it. That's all fulfilling, heart-warming work, but it's also put me into a very difficult position. Right now, I need to hire more people, but I can't afford anyone that's good. That's directly hurting my customers. Our turnaround times are really hurting as a result. I've got an opportunity to hire on a brilliant old friend of mine, but I'm not sure yet if I can swing it, because the bank account really doesn't have enough in it to afford him, and I don't know if I can work long enough hours to get that kind of money in there. I've resisted every other justification for charging more. Vacations? I don't need more than just a few days off once in a while. Toys? Don't need those either. Avoiding pathological customers? But those people need help too, and I want to help them. But not being able to build a strong business with lots of talent under my current model? That's pretty hard to ignore.

creativename 14y ago
That's a pretty interesting scenario, though it sounds difficult. Is there any possibility of hearing more about what specifically you are offering? I would ask because it sounds like there would potentially be an opportunity to get those who can afford to pay more to do so and then in a way use that to subsidize lower-paying customers. This all depends upon the nature of the business, of course.
- thaumaturgy 14y ago
  I don't want to be a distraction here; this is a better time for people to get feedback from Patrick on the interview. So, very briefly: we solve (technology) problems for people. Probably my favorite story so far is that we successfully recovered all of the medical documents & pictures from a cancer survivor's failed hard drive. Total bill was $90. I'm open to talking about it further off-HN. You're exactly right about subsidizing a set of customers, but there are all kinds of technical and psychological details that make it a tough problem to solve. I've really only just started thinking about it, so I don't have anything smart to say yet.

bejar37 14y ago

deleted 14y ago
[deleted]

ttcbj 14y ago

I did not read the full post, but the basic gist reminds me of the book 'How to sell at margins higher than your competitors.' I wasted a lot of time in my early 20's reading business advice books, but that book is well worth the time. It transformed my perspective on prices, what customers you want, and how to sell. Although it was written for salespeople in commodity markets (think lumber supply), it transformed my small software company. I highly recommend it.

Alan01252 14y ago

As a freelance developer myself, and thanks to Patio11, I've always had the charge more mantra firmly placed at the front of my head. So it's a little disheartening to hear on the basis of what was said in this conversation, that I'm still selling myself short. Without the advice I've read here, I doubt I'd of lasted the four months I have so far... The hardest part of this "charge more" philosophy is finding the clients. For example, I went to see a client yesterday, who knew my daily rate. We had a very positive meeting and I was told "they were glad they'd found the right man for the job". Yet today they stated they could get two developers for the price I was charging and would have to think about hiring me unless I was prepared to negotiate. I do wonder if maybe the world of freelance developing does have a payment cap, and that to reach the next level we need to sell ourselves as something other than just developers. Or does making the charge more philosophy work to its full extent in the development game, mean joining big company x, or selling my soul to big company y. The question I'm asking myself right now is. Would Patio11 be able to charge the same rate as a freelance developer as he does as a "I will help you sell more software" freelance consultant?

patio11 14y ago
Would Patio11 be able to charge the same rate as a developer as he does as a "I will help you sell more software" consultant? I charge the same rate for software development as I do for making graphite etchings on paper in aesthetically pleasing patterns. Consulting clients buy both of these things from me, in isolation or combination, on a regular basis. So if that's the way you're asking the question, "Yes, I could." If the question is "If you brought nothing to the table other than the ability to write Ruby code, would you be able to charge $YOUR_RATE for writing Ruby code?", I think I'll go with "I can guarantee you that someone gets that much for writing Ruby, and probably more besides, but it probably wouldn't be me" and "Wait wait wait, you seem to want to sell yourself as a commodity coder, don't sell yourself as a commodity coder, down that path lines madness."
- Alan01252 14y ago
  Thanks again Patrick. You know what, I think I'm finally starting to get your point in its entirety.

btilly 14y ago

I am right now contracting, and I am learning a variant on this lesson that I have reason to believe will prove very valuable to me and hopefully others. 1. If the value of what you contribute can be measured, people are happy to pay you ridiculously more on a pay for performance model than they are with hourly consulting rates. 2. A/B testing can provide a way for them to measure the value of your contribution. Why is this? Well in pay for performance, the company takes no risk. Furthermore it lines the incentives up correctly from everyone's perspective. Suppose that compensation model inspired you to spend 2x the effort that you otherwise would for 1/3 better performance. Odds are that they've just covered the amount they have agreed to pay you and are laughing all of the way to the bank. But if you are compensated hourly, and they are not sure it will work, there is no way that they want you to spend 2x the effort up front, even if there might be a slightly better return. I am not at liberty to share specific numbers. But keep this fact in mind in the future. It may prove valuable to you. (I should think about writing this up in a blog post, along with lesson #3. That lawyers systemically fail to place a value on your opportunity cost...)

wtracy 14y ago

Best quote: "If you got into this business to make peoples’ lives better, and you have produced something which will succeed with that, and you are aware of truth about reality such as “better marketed products beat better engineered products every single bloody time”, then you have an obligation to get better at marketing yourself."

alpeb 14y ago

Great advice but gotta be careful this is really only applicable to freelancing/consulting as an individual. Building a self-sustained company is a very different beast. There certainly are scenarios where you're well enough positioned to set the price you want (Barney's), but if you're not targeting a very specific niche prices are already set for you (for example .99 in the Apple store and zero in Google play) and it all comes down on having a great novel and well presented product with tremendous operations efficiency and low cost. Unless you're running on VC free money of course :)

dsolomon 14y ago

Got 2 paragraphs in - realized author lives in fantasyland.

robbiemitchell 14y ago

A long thread like this and no mention of price elasticity?

jwwest 14y ago

I would have never paid any attention to Ramit unless he came with Patrick's seal of approval. The problem is that I shudder inside a little every time I hear the word 'info product'. The whole industry is beset by frauds and hucksters, and I think that generally people are a little skeptical when they see yet another person making claims such as "I will teach you to be rich". Ramit provides great, actionable advice in his content. The problem is that he sells himself the same way as everybody in his industry does. It's things like the way he speak to his sales site that puts a small part of me off and puts me on the defense.

gambler 14y ago

That's all wonderful form consultant's point of view, but if everyone reasoned like this guy, there would be no open source software, no cheap consumer software, everything would be SaaS and... well, I'm not sure I would want to see a world like that.

bprieto 14y ago
Why not open source software? They actually say something like "you can be free, but you can't be cheap". Making money with OSS is not easy, but there are certainly ways to do it. And for cheap consumer software, it's just that you need to be really big to win money being cheap. You can't do it as a one man company.

strebler 14y ago

Wow, perfect timing, I am just writing a contract proposal this weekend! This (novella-sized) article definitely resonated with me, will try applying some of their advice soon...