Consider this a post from a practically confused entrepreneur.
I have few sets of questions as below –
As a start up (say 3 yr old), should you concentrate on getting more clients on less price per project or focus on getting less clients on higher price per project??
Shouldn’t you mind delivering quality work in extra low prices (just because you r a start up)?
Or should you be fine with having various clients from various industries getting added to you work portfolio?
These are some self-realized facts:
We started out doing work at low prices, assuming us to have a great portfolio and then raise our prices with good work to back it.
What we ended up is a boundary/limit which our old clients don’t agree to exceed.
Even if we have revised and increased our margins for a sustainable business, we find ourselves trapped in our earlier prices which will take years to be at par with the industry rates.
Finally, if we decide to get strict and think of circulating a mail having our “fairly revised prices”, we fear of facing rejection and loosing on our loyal and esteemed client base (as we all know the competition).
Suggest.
Tushar Bhargava
The same dilemma we had. Initially we priced our product on lower side but in a long run it hurts the revenues. Once a customer joined you on lower price-point it is never easy to get them to pay higher rates.
The only solution we found is let the old customers on same price point and increase the rates for new customers because at the end, if you add 10 clients and lose 8 (your old one) your total gain will reamin to 2 only.
Samudra Neelam Bhuyan
Hi Anamika,
Is it possible for you to deliver more value at that higher price? Like maybe “Premium support” or something similar, which your clients will gladly pay more for?
There have been 2 very interesting posts about pricing strategies recently – 1st post (about how low pricing works), 2nd post (counter to 1st post, about how value pricing works), and some very good discussion on HackerNews regarding both of them.
Without knowing anything about your startup, I believe I understand the ceiling that you have hit. I have been agonizing over pricing my products for a long time now, and have finally decided on the value based approach. This I have decided mainly because I would rather position myself as a high-value product, than an “affordable” one, even though there are options which the customer can take that makes it affordable.
If I were you, I would focus on finding other, higher paying customers and slowly replace your portfolio with them. My reasoning is that your existing customers will do one of 2 things: a) “upgrade” to your higher prices, OR b) drop out, leaving you with more time to focus on your higher value customers.
(I am not an expert on anything. Whatever I have said, is backed only by gut instinct. 🙂 )
Ninad G Deshmukh
Pricing decision for any product or service is always very difficult. Most of the time we think by pricing low we could get more customers or business. IMO, pricing decision should depend on how you want to position your company/product than purely to get customers in short term(but sustaining initial years is very difficult if you do not have customers/revenue).
I am into health food processing and used to participate several exhibitions in Mumbai to promote our products. Almost all customers at exhibition used to ask for discounts, saying that its exhibition and they should get some discount. I used to ask them to take a look at Poster pasted by me on back wall reading “We don’t Discount our Products, We don’t Discount your Health” and the reaction was very positive and they used appreciate our confidence in our product.
So you have decide how you want to position your company/services and stick to it from early stages of operation.
Anamika Joshi
Quite fair. But what if you are having a greater work flow from your old clients who are expecting you to work on the same rate but deliver more.
Believe us, what you have mentioned is what we are following till now.
We do have certain valid points like – expanded team, dedicated designers for specific projects and a bigger space to hold larger work force.
For a creative agency, it can never think of giving low quality for those who pay less. While it consistently works on polishing it skills with every passing day, clients often tend to ignore the very fact.
But yes discussing the question clears the mess and helps in coming out with a clearer picture.
Rituraj Chaturmohta
Hi Anamika, Not an expert but here are my 2 cents…
1. when you started, you positioned yourself as someone who would do GOOD work at low prices. You gained clients “initially” because of that. Now when you say that you want to raise prices to the same clients, you have to differentiate between the GOOD that you have been delivering and the GREAT work that you aim to deliver with these higher prices. Until the clients see a clear differentiation in the quality of work delivered, along with the clearly outlined factors which would contribute to it, they wont change their mindset about how much to pay you.
2. Always remember that your initial clients are the ones who helped you get into the position where you can demand higher prices from clients, old or new. So dont just consider their payments in absolute terms of what they are paying. They are paying you back through repeat business and the resultant credibility it generates. Good references and credibility come at a good cost, and in case of service industry, at a HUGE cost. You just CAN NOT BUY good references
3. As has already been pointed out, you can go for a tier based pricing. For example, Silver Gold and Platinum which are differentiated based on parameters like time that a senior/experince/skilled of resource would spend on the project. (In my opnion, we should never say that a Silver tier would not have high skilled resource. We should rather limit the time s/he spends on that project as compared to a Gold or Platinum one). You can also differentiate the kind of support hours / warranty that you would be proposing for different tiers. There are multiple ways to do it.. think and you would get it.
Regards
Rituraj
Abhishek Sinha
I had an opportunity to listen Mr, Narayan murthy at one event and there he had said, in a situation, at a very early age of his business, he was generating 60% of revenue from one particular client. That client quoted his own price for their project and Infosys rejected to work at that price. many of the well known competitors agreed to work and got the work. Infosys lost the project but after an year he was happier than all his competition as he stated.
In case it helps you decide 🙂
Anamika Joshi
To let them ‘drop out’ becomes even more difficult when the agency-client relation is more on the informal front wherein you understand the basic issues of your clients and the client place great trust on your services.
But instead of replacing the existing clients with higher paying ones (which literally i can’t afford to do), let’s make them go with your first reasoning – upgrade them to our increased rates :)…in whatever way possible – may be with something like ‘premium support’ option as you suggested initially. liked the idea. 🙂
Anamika Joshi
Very impressive way out. the only thing i see here is a major issue with our kind of business – running an ad agency. You can’t say to your clients that “your designs will get compromised on if you pay less.”
But it’s a good example of a win-win situation. You happy with good pricing for your product and your customers happy with getting value for their money in terms of good product.makes for a great instance 🙂
Anamika Joshi
That was profound Rituraj!
gained some really meaningful points to ponder from your suggestions… You words exude guarantee. Thanks a tonne!
Just a point – when we started, we just wanted work, work and work. So it was not us who proposed “sir, we will give you best work (designing and content creation) at best price.” As a matter of fact, we had least idea of what the market price were then.
So we proposed the highest price (from our point of view) after collecting all our guts, but those were not quoted as ‘low’ by us, in any way.
But when we went with those price proposals to our prospective clients, they realized that they wont get better rates and thus our price became the reason for work that poured in, at the initial stage.
So it was always ‘best work’ that went out from our agency. However, i don’t regret the ignorance. It did teach us a lot. Many clients were surprised to see us working at such rates. An insider from a client office even warned us, “quote high, your prices are way too low. These guys will squeeze both your time and energy. Quote high”
There is always a way out and i guess, will have many ways out from guys like you! 🙂 thanks again!
Anamika Joshi
To say a NO is so gratifying. Believe me, I feel more happy saying ‘NO’ to a work which i think is not exactly what we started out our agency for, than nodding helplessly.
The above instance from you just replicates the joy of being assured and clear of what you want to do and what not. To just go on and do whatever comes by simply hints at lack of strategy and ultimately zero progress.
Thanks for the share.! 🙂
Abhishek Sinha
Well they were doing the same kind of work, it wasn’t a problem. They said no because they stick to their own price.
But I understand its tough to decide sometimes 🙂
Arindam Mukherjee
Classic question..I’ve been in this situation before with my own start-up venture too. A problem solving tool that has proved helpful to me is the Why-Why tree-helps you to address the real root cause behind this phenomenon which you’re experiencing. Try to look beyond just the pricing issue and dig deeper into what is ACTUALLY causing it(by asking WHY to each of your hypotheses)-factors within your control and factors not under your control. You’ll perhaps be amazed to find that the underlying issue is something else(like delivery times, etc.) and you can manipulate those attributes to differentiate yourself in the marketplace and improve your price-point!
Cheers!
Pranesh Sharma
I would ask you to look into the Cost — Time — Effort factor.
1. Generally, do consider the cost in completing the project. This would include both the fixed cost and operational cost. Once you consider this u will be in a better position to decide on the minimum price that you will charge to any client after giving due consideration for your profit.
2. If there are other projects that are in the pipeline, tell the client about the priority that you are giving and the time by which you will deliver the project. If the client expects a faster turnaround then you can surely charge more.
3. What is the time that it will take to complete the given project. Normally if it is an older client, then the time taken even at a creative agency would come down by atleast 20 % since u already know their tastes and what will pass and what won’t. Also, consider the effort put in developing new clients, understanding their processes and running around for payments .
Rituraj Chaturmohta
Happy to help Anamika,
I am myself planning something and this discussion would certainly help me define the pricing mechanism for my own venture. Similar to you, I dont want to be locked into a relationship v/s profitability cycle..
Thanks for initiating the thought process again!!!
Anamika Joshi
to differentiate services based on factors like delivery or you can say turn-around-time is great! the challenge lies in fulfilling your differentiating factor every time for every project.
But yes, a solution lies in there in your lines. 🙂 thanks!
Anamika Joshi
the second point..ofcourse, we have tried that. The result varied with various clients. Usually our turn around time has been fairly good. But what it lead to is a disaster.
Most of our old clients now want work to be done in a jiffy. So when we were asked to deliver few significant projects in no time at all, we decided to charge a bit more. Our purpose was to make client clear that ‘time is money’. These are the varied reactions below from same client –
– We asked for a day’s time instead of few hours – he said, ok leave it, don’t do.
– We said we would charge extra for the urgency – he said, ok take your time, but I won’t pay extra.
– We said we won’t do it – he said, ok don’t do it.
In nutshell, nothing worked. It’s a learning process, but the cost of learning it is way to high.
Pranesh Sharma
You can use the second point only if you have other work in hand. Else it is not worth taking the risk.
Nimit Panpalia
Hi Anamika,
Couple of points which comes to my mind:
I wish i knew more about your business as the above points are generic and maybe needs to be customized for your business. Happy to help 🙂
Regards,
Nimit
Anamika Joshi
hmmm…point!
Anamika Joshi
this makes me point out yet another issue – you are so badly stuck in fulfilling the requirements of your existing/old ever-demanding clients at low price, that you are unable to move forward and grab some new ones …mainly due to “small team” issue, where a single person is handling multiple positions.
So, yes, new ones are the answers to the primary issue, but then you find yourself hovering around the initial admirers of your ideas 🙂
Nimit Panpalia
My understanding is that you are emotionally attached to your old clients, which is nice to feel, but there are times in business where you have to take tough decision against your emotions. At the end of the day, you really need to be convinced that you are delivering more value than the price that your clients are paying. At the end of the day it is all a business arrangement between the clients and if they cannot understand your problems, it is better to have new set of clients. Until you take the steps, you will never come to know whether it was the right step or wrong. In a worst case, you can still go back to your old admirers if things dont shape up the way you want.
Again, i wish i knew more about your company or website, but still happy to help 🙂
Nimit
Anamika Joshi
hahha…sorry it slipped ma mind..This is an advertising agency – nailbites! You can check out http://www.nailbites.in | facebook.com/nailbites | http://www.nailbites3c.wordpress.com
These are three different links which will give you a definite perspective about nailbites. We are ardent nailbiters that tickles our thinking process and we love to call our place of work as – “a thinking hub”! 🙂
Once you visit these links you will get to know about our services and other stuffs! 🙂
happy to converse!!!
Ashish Kothari
Hey Anamika ths is the real dilemma for any startups. To get more client or business we try to prove our self at early stage by giving services @ a price which compels our client to say “WOW!!! is that possible”, but once proven and established with our credentials everyone would like to get the revised prices which client’s don’t except this could be through many reasons. So the real dilemma: ” If you increase prices they would probably leave you and if not you wont be happy in serviceng them”.
The best solution could be to create “Sub Portfolio” (increase the length )inside your product portfolio category. i.e. if you have say X, Y, Z as products before, now you increase it to X (X1, X2, X3) ans so on for each product, but make it a point to clearly differentiate between the products and service (while you deliver them). If not so your client would feel cheated and would leave you/your services.
Abhishek Chhibber
Hi Anamika,
You can have two service offerings in this case. You can deliver the same quality to old clients at old price (say proposition A)… and add few value adds and deliver it at higher price to new clients (say proposition B)… you can then ask your ole clients to either upgrade to new pricing, or continue with their existing rates. However do note:
1) Your old clients should NEVER feel that they are being cheated or less prefered – hence do maintain the same quality.
2) The propositions, especially proposition B, should be packaged in a way that the old client feels he got value for money by upgrading. – use some marketing in value adds.
Anamika Joshi
great !!.. need to devise something around this really soon…
thanks.