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Smart customers have their own method of pricing to compete with the value-based pricing suggested in the post. It's called market-based pricing. Even if my pro

Smart customers have their own method of pricing to compete with the value-based pricing suggested in the post. It's called market-based pricing. Even if my programming work will make the client $100,000, if the client is convinced he can get that programming work done for $5,000, he will pick that over my $20,000 quote. I've read these several posts along these lines. The one huge assumption they make is that you have good clients who aren't on a budget and won't go shopping. Those clients are much harder to find as a freelancer.

larrys 13y ago
"The one huge assumption they make is that you have good clients who aren't on a budget and won't go shopping. Those clients are much harder to find as a freelancer." Agree. And it's not even so much budget as "not a schmuck" (sorry not a better way to put that). When I saw this, I laughed: "As an example, if I was proposing to build a website capable of creating an additional $100,000 of profit annually, I would ask the client to make an investment of $40,000 in their website." So we are taking a totally speculative number of profit ($100,000) and charging $40,000 to get there. You would have to either be working for a large corporation (using OPM) and have no clue to buy into a proposal phrased like that or be new in business and totally naive. The entire presentation to me smacks of naiveness. But here's the good part. I can totally see how things like this could and do work. That said you will have to find the type of customers who will fall for something like this. Most business people who have been around can smell a sales presentation a mile away and to many of them (me in particular) it's an instant turn off because it reaks of "you are going to be paying a lot for this that's why we won't tell you upfront the cost. Because we are going to do some smoke and mirrors to make you go for it." Lastly, one of the reasons in favor of discussing pricing in advance of a presentation is also to qualify people. I've seen to many salesman stupidly come in and not qualify people in advance simply not realizing that the local small restaurant simply isn't going to part with $10,000 no matter what you promise or tell them (or will have contract signers remorse and back out.)
- badclient 13y ago
  Speaking of schmucks, here's one that got me to give up on consulting from couple years ago: http://cliffkaplanfraud.com/ http://cliffkaplanfraud.com/
  - skore 13y ago
    Sorry for being a bit tangential, but I'm always astonished how people are still using checks for business. Especially in the US, where it seems standard industry practice of assholes to bounce checks. (I read about France still being in love with checks as well, although they have basically your standing with banks depend on you handling checks well. So even if they're still using a horribly outdated method of payment, at least they attach the right consequences to fraud.)
    - Silhouette 13y ago
      Part of the problem with modern financial systems is that as a business, you almost never actually have the money you think you have, guaranteed, just because it's in your bank account. The number of ways that different kinds of transaction can be reversed -- in a compulsory way, by the other party, and possibly with them getting the benefit of the doubt in any dispute process -- is crazy. And that's just the technical measures, before you get into payment services that demand authority to instruct your bank as a business practice and obviously whatever legal remedies a court might order if you litigate a dispute. I wonder how much more efficient the world would be if we had practical small claims systems in courts that were respected across borders, so there was an official and genuinely independent way to resolve disputes over small amounts of money, and then we did away with chargebacks, reversible transactions (other than in cases of genuine error), etc. While I'm dreaming, we could fix the crazy way that many of these payments are authorised, too. If bad people couldn't sneakily take your money so easily in the first place, you wouldn't need so many protections to get it back, which could then be abused against good people if the bad person is the customer.
- ProblemFactory 13y ago
  > That said you will have to find the type of customers who will fall for something like this. I don't think customers that who accept (and find value in) this proposal are necessarily fools. Writing code is a cheap commodity. Making business decisions is not, and development cost is inversely proportional to how precisely you know what you want. A business owner who has made all the business and technical decisions, and approaches developers with extremely detailed photoshop mockups and specs can probably successfully get an app or website made for $10/hour on elance.com, and keep all the extra value. A client who has made all the business decisions and knows what development they want on an approximate "outline" level needs to hire a 10x more expensive local developer who is willing to meet and push back on any technical assumptions. They are paying 90% for the decision-making expertise on understanding what they want, and writing code is a tiny part of the service. A client who may see value in a $40000 website offer is one who has not or cannot make the business decisions themselves. They are paying primarily for the business or marketing strategy consulting, and the entire development side is a tiny part of the service. Perhaps the client should make these themselves to be able to use a cheaper developer, and keep more of the value - but if they can't, then an expensive offer may still be profitable.
reedlaw 13y ago
Can a smart customer really get the job done for $5,000? Of course, because this customer will have clearly defined his requirements up-front. The average client will not have clear goals or requirements thus forcing the programmer to iteratively come up with a solution that meets the client's unwritten expectations. This overhead will generally add up to the amount of the higher asking price. So in the case of a poorly defined project, a $5,000 job will be woefully inadequate and will require the client to start over from scratch.

larrys 13y ago

"The one huge assumption they make is that you have good clients who aren't on a budget and won't go shopping. Those clients are much harder to find as a freelancer." Agree. And it's not even so much budget as "not a schmuck" (sorry not a better way to put that). When I saw this, I laughed: "As an example, if I was proposing to build a website capable of creating an additional $100,000 of profit annually, I would ask the client to make an investment of $40,000 in their website." So we are taking a totally speculative number of profit ($100,000) and charging $40,000 to get there. You would have to either be working for a large corporation (using OPM) and have no clue to buy into a proposal phrased like that or be new in business and totally naive. The entire presentation to me smacks of naiveness. But here's the good part. I can totally see how things like this could and do work. That said you will have to find the type of customers who will fall for something like this. Most business people who have been around can smell a sales presentation a mile away and to many of them (me in particular) it's an instant turn off because it reaks of "you are going to be paying a lot for this that's why we won't tell you upfront the cost. Because we are going to do some smoke and mirrors to make you go for it." Lastly, one of the reasons in favor of discussing pricing in advance of a presentation is also to qualify people. I've seen to many salesman stupidly come in and not qualify people in advance simply not realizing that the local small restaurant simply isn't going to part with $10,000 no matter what you promise or tell them (or will have contract signers remorse and back out.)

badclient 13y ago
Speaking of schmucks, here's one that got me to give up on consulting from couple years ago: http://cliffkaplanfraud.com/ http://cliffkaplanfraud.com/
- skore 13y ago
  Sorry for being a bit tangential, but I'm always astonished how people are still using checks for business. Especially in the US, where it seems standard industry practice of assholes to bounce checks. (I read about France still being in love with checks as well, although they have basically your standing with banks depend on you handling checks well. So even if they're still using a horribly outdated method of payment, at least they attach the right consequences to fraud.)
  - Silhouette 13y ago
    Part of the problem with modern financial systems is that as a business, you almost never actually have the money you think you have, guaranteed, just because it's in your bank account. The number of ways that different kinds of transaction can be reversed -- in a compulsory way, by the other party, and possibly with them getting the benefit of the doubt in any dispute process -- is crazy. And that's just the technical measures, before you get into payment services that demand authority to instruct your bank as a business practice and obviously whatever legal remedies a court might order if you litigate a dispute. I wonder how much more efficient the world would be if we had practical small claims systems in courts that were respected across borders, so there was an official and genuinely independent way to resolve disputes over small amounts of money, and then we did away with chargebacks, reversible transactions (other than in cases of genuine error), etc. While I'm dreaming, we could fix the crazy way that many of these payments are authorised, too. If bad people couldn't sneakily take your money so easily in the first place, you wouldn't need so many protections to get it back, which could then be abused against good people if the bad person is the customer.
ProblemFactory 13y ago
> That said you will have to find the type of customers who will fall for something like this. I don't think customers that who accept (and find value in) this proposal are necessarily fools. Writing code is a cheap commodity. Making business decisions is not, and development cost is inversely proportional to how precisely you know what you want. A business owner who has made all the business and technical decisions, and approaches developers with extremely detailed photoshop mockups and specs can probably successfully get an app or website made for $10/hour on elance.com, and keep all the extra value. A client who has made all the business decisions and knows what development they want on an approximate "outline" level needs to hire a 10x more expensive local developer who is willing to meet and push back on any technical assumptions. They are paying 90% for the decision-making expertise on understanding what they want, and writing code is a tiny part of the service. A client who may see value in a $40000 website offer is one who has not or cannot make the business decisions themselves. They are paying primarily for the business or marketing strategy consulting, and the entire development side is a tiny part of the service. Perhaps the client should make these themselves to be able to use a cheaper developer, and keep more of the value - but if they can't, then an expensive offer may still be profitable.

reedlaw 13y ago

Can a smart customer really get the job done for $5,000? Of course, because this customer will have clearly defined his requirements up-front. The average client will not have clear goals or requirements thus forcing the programmer to iteratively come up with a solution that meets the client's unwritten expectations. This overhead will generally add up to the amount of the higher asking price. So in the case of a poorly defined project, a $5,000 job will be woefully inadequate and will require the client to start over from scratch.