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I actually had a conversation like this with a freelancer a few weeks ago. He was cutting back expenses to achieve financial independence (you know, 10-20 years

I actually had a conversation like this with a freelancer a few weeks ago. He was cutting back expenses to achieve financial independence (you know, 10-20 years from now). When I asked him why he didn't just increase his (seemingly low to me) freelancing rates by 10-20%, he said that was impossible. Little did he know I charge nearly triple his rate for sort of similar work, and spend about 50% less time than him working. You don't build wealth by saving on small purchases, you do it by earning.

Nadya 11y ago
Charging more can increase sales without changing the quality of your product, assuming the product is already "good" or marketable. An increased price adds a perceived 'quality' or 'prestige' and you'll get bigger spenders, although fewer spenders. This is because of the bad reasoning that "more expensive = better". My mother did this with her home business by slowly increasing her prices. The product she delivers hasn't changed in the slightest - but she now makes 5x more than she was before! People fall into the trap of lowering their cost to increase buyers without paying attention to how much they are working. They see an increase of price "would ruin them financially" because they would get less clients. Of course, finding the balance is important. There was a story on HN where someone was setting up custom sites for $75. They quickly realized this was more work than they expected and began charging $2,000 a site (after charging more and more per site, from $200->$500->$1000). People were still purchasing. Same work. $75 --> $2,000.
- charlesdm 11y ago
  Absolutely. I live by this. In contracting or consulting, you want to find critically important projects to work on and then almost shock people by what you're charging. Then overdeliver.
  - Nadya 11y ago
    >Then overdeliver. I feel this brings up another important thing. Set realistic expectations. Always set the bar at what they expect while remaining near the bare minimum of what you can realistically deliver...then do everything you can do deliver past that. 1) If you overpromise and underdeliver you give yourself a bad rep and have an unhappy client. 2) If you promise reasonably and overdeliver your client will be happy. Happy clients often lead to more clients. Assuming in 1 and 2 you did the same amount of work and the only difference was you didn't promise them the world and a field of kittens to boot. Marketing for 1 might land you the sale; but that's incredibly shortsighted. 2 will almost always do better for your business. You will likely lose some sales if you market with #2 in mind. However are those the types of sales you want to begin with?
brc 11y ago
It's both. You have to control the urge to spend or an increase in income will have a commensurate increase in spend, leaving you no better off. Breaking the nexus of the 'more stuff' mindset is important as groundwork in increasing income. I have read quite a few stories on here where someone hit a wild payday with an online venture but were broke again in 2 years. That is because they never tamed their desire to spend, and when lack of income was removed, all of it got spent, and more. Worse still, their expectations of life increased to the point where being happy again required a much bigger income. So it's better to put a frugal mindset in place and practice - and be ok with that- so that any increase in income can be channeled into building assets that will increase financial independence.
- charlesdm 11y ago
  Yes, true. I was talking about small purchases. My personal framework is not to worry too much about small purchases (i.e. coffee, eating out, etc) but to consider it when making a larger purchase (i.e. a holiday, car, house, etc). Before I spend money on a larger purchase, I tend to think: would I rather spend/waste money on this, or have it compound over many years. For each million invested properly, you can get annual gains between 50-100k.
jacalata 11y ago
Did you tell him you charge 3x as much? If so, how did the conversation go after that?
- charlesdm 11y ago
  I did not. I wanted to show him he could earn more (maybe not directly tell him I was making 3x), but he already got sort of annoyed/hostile when I brought up he could probably charge more, so I left it at that. I brought up it's usually more about value and trust than it is about the price of things. When a real estate broker sells a house for $500k, they (tend to) get 2.5% of the purchase price. That's a lot of money for basically showing people around, in most cases. But they do deliver significant value to the seller. Another example: I regularly work with a lawyer. He charges like a professional. We've worked together frequently on something during a 2 year period, and there's a trust relationship. He bills properly, like any professional would, but his billables are reasonable and he doesn't charge me as much as he does his other clients. Could I find someone cheaper to do the job? Absolutely. Will I go looking for someone else? Hell no, he's awesome at what he does and we work well together. We can also relate, since I have an interest in his area of the law and he has an interest in IT, which in turn leads to interesting conversations. Once you're past a certain price point, it's not about price, it's about value and trust. Too bad I couldn't show him that.

Nadya 11y ago

Charging more can increase sales without changing the quality of your product, assuming the product is already "good" or marketable. An increased price adds a perceived 'quality' or 'prestige' and you'll get bigger spenders, although fewer spenders. This is because of the bad reasoning that "more expensive = better". My mother did this with her home business by slowly increasing her prices. The product she delivers hasn't changed in the slightest - but she now makes 5x more than she was before! People fall into the trap of lowering their cost to increase buyers without paying attention to how much they are working. They see an increase of price "would ruin them financially" because they would get less clients. Of course, finding the balance is important. There was a story on HN where someone was setting up custom sites for $75. They quickly realized this was more work than they expected and began charging $2,000 a site (after charging more and more per site, from $200->$500->$1000). People were still purchasing. Same work. $75 --> $2,000.

charlesdm 11y ago
Absolutely. I live by this. In contracting or consulting, you want to find critically important projects to work on and then almost shock people by what you're charging. Then overdeliver.
- Nadya 11y ago
  >Then overdeliver. I feel this brings up another important thing. Set realistic expectations. Always set the bar at what they expect while remaining near the bare minimum of what you can realistically deliver...then do everything you can do deliver past that. 1) If you overpromise and underdeliver you give yourself a bad rep and have an unhappy client. 2) If you promise reasonably and overdeliver your client will be happy. Happy clients often lead to more clients. Assuming in 1 and 2 you did the same amount of work and the only difference was you didn't promise them the world and a field of kittens to boot. Marketing for 1 might land you the sale; but that's incredibly shortsighted. 2 will almost always do better for your business. You will likely lose some sales if you market with #2 in mind. However are those the types of sales you want to begin with?

brc 11y ago

It's both. You have to control the urge to spend or an increase in income will have a commensurate increase in spend, leaving you no better off. Breaking the nexus of the 'more stuff' mindset is important as groundwork in increasing income. I have read quite a few stories on here where someone hit a wild payday with an online venture but were broke again in 2 years. That is because they never tamed their desire to spend, and when lack of income was removed, all of it got spent, and more. Worse still, their expectations of life increased to the point where being happy again required a much bigger income. So it's better to put a frugal mindset in place and practice - and be ok with that- so that any increase in income can be channeled into building assets that will increase financial independence.

charlesdm 11y ago
Yes, true. I was talking about small purchases. My personal framework is not to worry too much about small purchases (i.e. coffee, eating out, etc) but to consider it when making a larger purchase (i.e. a holiday, car, house, etc). Before I spend money on a larger purchase, I tend to think: would I rather spend/waste money on this, or have it compound over many years. For each million invested properly, you can get annual gains between 50-100k.

jacalata 11y ago

Did you tell him you charge 3x as much? If so, how did the conversation go after that?

charlesdm 11y ago
I did not. I wanted to show him he could earn more (maybe not directly tell him I was making 3x), but he already got sort of annoyed/hostile when I brought up he could probably charge more, so I left it at that. I brought up it's usually more about value and trust than it is about the price of things. When a real estate broker sells a house for $500k, they (tend to) get 2.5% of the purchase price. That's a lot of money for basically showing people around, in most cases. But they do deliver significant value to the seller. Another example: I regularly work with a lawyer. He charges like a professional. We've worked together frequently on something during a 2 year period, and there's a trust relationship. He bills properly, like any professional would, but his billables are reasonable and he doesn't charge me as much as he does his other clients. Could I find someone cheaper to do the job? Absolutely. Will I go looking for someone else? Hell no, he's awesome at what he does and we work well together. We can also relate, since I have an interest in his area of the law and he has an interest in IT, which in turn leads to interesting conversations. Once you're past a certain price point, it's not about price, it's about value and trust. Too bad I couldn't show him that.