Transcripts
1. Introduction: The average freelancer loses about $7,500 per year in work done for free according to a 2017 survey. According to a 2017 Fast Company article, female freelancers are paid about 32 percent less than their male counterparts. That is ridiculous, that is nonsense. How does your bottom line stack up? How does your pricing structure work for you? Are you able to make ends meet? Are you able to save for retirement? Are you able to have a sick day or vacation without freaking out that your clients are going to leave you and bail on you? I am going to ask you four questions across the span of this course that will help you get 90 percent of the way to a new pricing structure that will let you pay your bills, save for retirement, have a paid sick day, go on vacation and not worry that your clients are going to leave you. So who's this talking head blathering on about pricing and making you feel bad about your pricing structure? My name is Nick Armstrong, I'm the Geek-in-Chief of WTF marketing. I've owned my own business for nine years. I am the organizer of Fort Collins Comic Con and we've raised at this point $75,000 for the Poudre River Public Library District. I'm a TEDx speaker and an award winning entrepreneur. I am here to help you and I want to teach you everything I know about pricing. So let's get started.
2. The Value of $1: I'm going to teach you the most important business lesson that I know in a span of about three minutes. Are you ready? Here it goes. Answer this question. What happens when someone pays you a $? I'm not talking about systemic things or processed things like, it goes into your bank account or it kicks off your client, on boarding process, or blah, blah, blah. Now, yeah, your prices are higher than a $ or whatever else. I get it. I don't care about any of that stuff. I'm talking about the story. What is the story in the customer's mind when they pay you a $? What happens? I'll tell you what happens for my clients when they pay me a $. My clients give me a $ and I give them a story worth repeating. My clients give me a $, and I give them a marketing strategy that will earn them five more. That's what happens when somebody gives me a $. What happens when somebody gives you a $? Your business, what happens? That's the most important question that you can answer in business right now. Let me give you some other examples because it's hard to come up with that right off the cuff. I've had a lot of time to practice this and I'm not asking you this for you to answer it right now. I'll be doing that later in the lessons, okay? But for right now, what I want you to think about is these examples, and then, I want it to ruminate in the back of your mind as you go through the other questions. There are three more questions that come ahead of it. Larimer County Food Bank, when you give them a $, they turn it into $5 worth of food for our local community. Fort Collins Comic Con, when you pay in a $, it creates materials for childhood literacy. These are really cool stories that you can attach to the value of $1. Now, it doesn't actually have to be a $, right? With the food bank, that's a literal $. They're turning $1 into $5 worth of food. So that's a cool transactional thing. One of my examples, I turn $1 into $5 worth of revenue. That's worthwhile, right? Those things can be tracked through stats, but if you don't have that yet, the halo effect or the story, the intrinsic value of what happens when somebody works with you, that's the answer to the question. Have that in the back of your mind as we go through the rest of these exercises. You don't have to have the perfect answer just yet, and trust me, it took me three or four times to get the right answer for me as well. For now, just think about it and have it going in the back of your mind. Let's go onto the next lesson.
3. Question #1: How Do You Work?: I promised to get you 90 percent of the way to new pricing model with just four questions. Here's question number 1, how do you work? This is as much a systems question and a process's question as it is a philosophical one. My first question to you is, when you work, is all of your deliverable delivered all at once or over time? When you work, is your presence required? Must you be in front of the client when you were doing your thing? When you work, are you working mostly at night the day time with other people, with the team, and is your presence required during that? When you work, are you mostly improvising, listening to what you are hearing and then reacting or you following a set checklist? Are you including your overhead in your work? When you take on a new client, are you including the time that it took to onboard that client to get the contract negotiated, to get the pricing and all the deliverables written into the contract and these are overhead questions. How do you keep the lights on? How do you pay for the materials and the computers and whatever else you need to do your work? Beyond just keeping the lights on, how do you make sure that you provide some warranty for your clients or do you deliver work as is? Do you make sure that your work lasts a while? Or will they have to come back to you in a little bit and get a re-up? If you've never sat down and actually documented how you work and how the consequences of your process affect the client, this can be an eye-opening experience and it can be a little bit shocking at first. The idea that we're driving for with all of these questions is this, how much leverage do you get from one hour of your time? Do you get two hours of work done with one hour worth of your time billable? Or do you get less than that? Most small business owners just starting out when they're trying to figure out their pricing, don't have a one-to-one ratio. They have a less than one-to-one ratio. Now, if you're at one-to-one, you're billing hourly for your time and there are only so many hours that you can work before you run out of hours in the day that you want to contribute to work. When you get to one-to-one, it becomes problematic. When you are sitting at less than one to one that is a recipe for failure because you're not accounting for your overhead, you're not accounting for your materials, you're not accounting for anything beyond just keeping the lights on and maybe keeping yourself fed. The most successful small business owners and freelancers are the ones that have a better than one-to-one ratio on their hours spent. If you can get more than one hours worth of work out of one hour and more than one hours pay out of one hour devoted, then you are doing well. What's really fascinating is when you answer these questions, it can open up new opportunities for you to charge differently for your work. For instance, if all of your work is deliverable at the end of the project, so all of the work that you do up until you give that deliverable is basically not shown to the client or not worthwhile to the client until it's in that finally packaged form, then you need to be billing 50 percent, 75 percent upfront, and then another 50 percent or 25 percent on delivery of that. If you don't do that or if your contract is written as such that you're not protected against refund requests, then you're going to invest a whole lot of work on whole lot of projects and then get to that point just before you're ready to deliver when people start to bail, and that is going to trounce you as a small business owner. You cannot do that. When it comes to delivering in chunks, you have a little bit more flexibility when it comes to your payment structure. You can also, if you are really tied to doing hourly work or if you really like the concept for whatever reason, you can create chunks of hours that you bill as packages and you sell four hour increments of your time or eight hour increments or whatever meaningful amount of your time can create a good, meaningful deliverable that can help you get away from the hourly grind. If you are not doing these things currently, you're just building per hour, your invoicing per hour, you just tracking per hour, you are going to be really struggling when it comes down to finding a new client, figuring out what to do when a client dumps you and you have 20 more hours per week to fill that you didn't anticipate having to do before. Your homework for this lesson is to write down the intrinsic structure of your work, how you work. That's philosophical, that is systems, that's processes, and that's also your best-case scenario for what you expect realistically the client to do and how they should behave as you work with them. That will answer some questions as to the basic nature of the structure of your work. You can segment it into our early chunks. You can figure out a payment plan, you can figure out how to get retainer ships going. But a lot of those different models have to come directly from the natural extension of how you work, and if you don't line up your payment structures to how you work, you are in for a world of hurt and clients who are going to be very confused. In the next lesson, we're going to talk about how your competitors work and how to track your business processes against theirs.
4. Question #2: How Do Your Competitors Work?: Last lesson, we learned a lot about how the structure and nature of your work correlate strongly and should correlate strongly to your pricing model, because your pricing model has to be based on how you work, without that, your customers are going to get really confused. What we didn't talk at all about was, what that means in terms of positioning your business in the minds of the customers and how that relates to value. Your competition can tell you a lot about how your customers position you, and how they position themselves in the minds of the customer when it comes to creating value. We talked early on about the story of a $. What happens when somebody, a customer pays you a $? What value do they get out of that? What is the story that your competition is telling? What things do they specialize in? What things do they love to do? What things do they hate to do? What types of packaging do they offer? What is different about their service from yours? What's different about their product than yours? What is your true strength? What is their true strength? Be really honest about this. You can't just like, us versus them they are bad, we are good, it's the value is clear, you can't do that. Do not shortchange yourself on this question. What is your competition really, really good at? You might not even have direct competition, you might have ten gentle competition. For instance, if you are in the business of entertainment, there are a lot of different mediums of entertainment, including staying home and watching Netflix or watching skill Share videos. But when you are out for something in particular, you want to learn how to price your services, your businesses. There's a class for that on Skill Share. It's not not really a class for that on Netflix, that's more direct competition. The closer you can narrow into the things that your competition, your true competition is really good at, the better you will be able to understand how they are trying to position themselves in the minds of the customer, and how it allows you to position or reposition yourself in the market, in the minds of your customers and that value is 100 percent subjective on the different markers and contexts that you can place yourself in, in the minds of the customer. Question number 2 for you is, how does your competition work? Does your competition place itself in a certain position in the market that you don't currently occupy? Do they get an advantage from that? Or is it a segment of the market that you just don't want to touch at all. Are there segments of the market that they don't want to touch, that you can dominate, and how do you position yourself for maximum value in those spaces? Those are tricky questions to answer. But ultimately, it comes back to that story. If I pay you a $, what happens? What as a customer do I anticipate will happen if I pay you a $? What am I hoping? What are my dreams, what are my wishes? Ultimately as a customer, I have a need that I need fulfilled and that need is almost always intrinsically tied to an emotion. What is the emotion that I am feeling? What is the problem that I need solved? What is the, the gap, the unhappiness that I have in my life that you, as the business owner can help me solve if I give you a $, what is the answer to that question? By answering that labeling it, by asking your customers, asking your clients actively, what was it that you are struggling with? What was it that you were happy that I solved? If we could enter this market, what would you anticipate that we would be able to do for you? Asking those questions can lead you directly, directly to the source of value and how you can phrase and position yourself and in your contracts and in your marketing and everywhere else. How you can position yourself for maximum value in your pricing, because it's not about what does it cost. It's what's the value. Your homework for this lesson is, look at how your competition is positioning itself in the minds of your customers. Look at how you are positioning yourself in the minds of the customer and make sure that, that value that you are adding is really clear to the customer, and if it's not, you need to start asking better questions with your customers, what is it that we are doing wrong? What is it that our wording isn't suggesting to you? And if it's not clear, you need to start asking better questions of your customers. In the next lesson, we are going to talk about the different types of overhead and why you need to account for them in your price.
5. Question #3: What Kind of Life Do You Want To Have?: Oftentimes small business owners and solopreneurs will think about overhead in terms of things like electricity and utility bills, and rent, and office equipment, and software. But they don't think about things like sick days or making sure that they have paid holidays. You have to include these things as part of your price if you want to truly succeed as a small business owner. They have to be included as your overhead price as well. Now, I'm not saying that you have to make a line item for this in your invoices for your clients, but you do have to account in your price for things like personal training, skillshare. How are you paying for skillshare? How are you paying for your software upgrades? Are you creating a pathway to upgrade your computer systems every few years, or your equipment or whatever other equipment that you use? Are you paying to have downtime so that you can recuperate? You can have a mental health day if you need to. Are you having sick days that are paid? Are you having paid holidays and time off? Are you working yourself to the bone? These things have to be accounted for. This lesson is ridiculously short because if you want to have a life where you are just sitting and working 24-7 and then continue on by all means to not include your overhead in your pricing. I think that's a recipe for disaster and quick burnout. But if you want to have a better life, if you want to save for retirement, if you want to save money, if you want to have your car paid off, if you want to have your house paid off, if you want to have a college account for your kids or whatever else is important to you, money to spend on your hobbies, even. If you are not accounting for that in your pricing, where's that money coming from? Are you working extra hours? Are you taking on more clients than is wise and sustainable for you? It has to be sustainable. Pricing in small business must be sustainable. It's so important I'm going to say it twice. Your business pricing must be sustainable for the life that you want to live. If you're not charging that overhead as part of your rate, or as part of your packaging, or as part of your pricing model, then you are selling yourself short. This is the third question. What kind of life do you want to have? The next lesson, it's finally time. We're going to answer the question, what is the story of $1 for you and your customers?
6. Question #4: What's Your Story of $1?: It's finally time. You've had it in your mind that this entire time. But what is the story of a $ when a customer gives it to you? What ends up happening for that customer when they give you a $? More importantly, what's the subjective value of that $? When somebody gives you a $ something happens. But they could have also spent that $ on a new car going on a Disney cruise, you name it. Why subjectively, is your value higher than any of the other number of things that they could have spent it on. Now, you want to make this subjective, the context is subjective to the customer who will truly benefit from the thing that you are doing for them and they will truly have value and truly see the value in it. We're not talking about a Joe of the street, we're talking about your ideal customer. What happens when something triggers them to pay you a and what does that story that they tell themselves about it? You might still feel confused about how you should be pricing your products or your services. Let me tell you that it's not black and white. Pricing is subjective. Now there are helpful indicators like industry averages and other things like that, your competitor's pricing, for instance, although they might be totally off the mark. So don't base what you do off of an industry average or off of what you think somebody is going to be charging for it or what you know somebody is charging for that. What you should base your entire pricing structure around is the idea of value. It's not about what it costs. It's about the value that you add. What would it save you if I solve this problem for you? Or what would you pay to avoid XYZ, this problem that I can solve for you? Those are the types of questions that lead to the correct price. If you can answer those questions, then you are closer to your actual price in value. Not the price and cost that one's easy enough. Cost is easy enough to figure out, but the price and value, that's a whole another ball game. I want to show you this graph because I think it's pretty helpful. This is a graph that I designed after figuring out the story of a $. It is the difference between the quality of life before and after someone hires you. The difference between the initial starting value of quality of life and the after they've hired you quality of life when they've done the work or when you've done the work for them, that's the value that you bring to the table. If you can put a $ amount to that value of difference, then you have your price. If you want to take this a step further, what are the alternatives that they could have spent that $ on and what stories do they tell themselves about that $? What would they most likely spend that money on if not you? Now, there might be a competitor and you can easily answer what happens when the customer gives your competitor a $? Now, try not to be snarky about this try to be legitimately considerate of your competition and your client's time. Because if you're snarky about it, it'll come off as cocky and arrogant and you will not be able to sell that. But what you can sell is if you give me a $, I will do this, this and this better. They might be able to do this, this and this better, but I can see that you need this, this and this, and that lines up to my service offerings exactly. Being able to tell that story is a huge sales benefit for you. Alternately, if they're going to go spend their money on a Disney cruise, or a new car, or whatever else, whatever other things in their mind that money would typically go towards, then you know that you can answer those questions as well. Those are tangental competition as opposed to direct competition. Take some time, write down the answers to that right now. In the next lesson, we've got a bonus question that will get you the rest of the 10 percent to a new pricing model.
7. Bonus Question: Where Are Your Leaks?: It's time for a bonus question. This will get you the other 10 percent of the way to a new pricing model. Where are your leaks? What are you inefficient at? Are you inefficient at billing? Are you inefficient at systems and processes? Are you inefficient at training your clients? Are inefficient at what you charge and how you charge it? Are you inefficient at explaining the value of how you work? Are you inefficient in dealing with their competition or dealing with transitions from clients to non-clients. Are you inefficient new contracts? Do you have leaks in your contracts that are causing you to have an insane number of refund requests or other things, revisions, things that you don't necessarily get paid for. Are you for getting about certain components of your project? Is your project or work insanely variable so that you never know from client A to client B how much work or how much time will need to go into a particular type of thing. If you can figure out how to plug the leaks, you won't have to figure out how to charge more for a particular deliverable. You will have saved that value on the back-end. This is the other 10 percent that I left out of the pricing model. Those four questions gets you a long way. But this last question can save you that last 10 percent that's been holding you back from earning as much as you potentially could. Now it's time for a recap and final summary in our next lesson.
8. Summary and Class Project: Let's talk about what we've learned today. The nature of how you can charge your clients is completely dependent on how you work. Setting those expectations up front for your clients will save you a lot of frustration from those clients. The value of your product or service is based on how the client's position you in the market relative to your competition, whether is tangential or direct. So things that they would spend the money on otherwise, or things that your competitor can do better. Next, we learned about the power of overhead. What kind of life do you want to lead? Do you want to save money for your kids college accounts? Do you want to save for your retirement? Do you want to have paid sick days and time off? Then you need to account for those things in your pricing. finally, what's the story of a dollar? When a customer pays you a dollar, what happens? What is the value that's gained? The final bonus question gets you the other 10% of the way. The first four questions get you 90% of the way, but this last one gets you the last ten. Where are your leaks? Are there in your contract? Are they in your process? Are they in how you bill? Are they near value descriptions? Where are your leaks? Hopefully you've been answering the questions I've been asking as you've been going through these lessons. If you haven't, do yourself a favor, go back and start answering those questions one more time. Now, what I would like you to do as the project for this class, it's very simply post your old pricing model versus your new pricing model in the comment section and the short hand version of this, if you don't want to do all of that, just post the story of a dollar. What happens when a customer pays you a dollar? What is the story behind that dollar? I hope you've learned a lot. I'm here for you. If you have any questions, please feel free to post them in the comment section. Feel free to reach out anytime. I am here for you. I want to help you succeed. I want to see you earn as much as you possibly can. I want to see you not be struggling when it comes to things like sick days and retirement and all this silly stuff that we have to worry about as freelancers and paying for ourselves. I hope you have a wonderful business. I can't wait to see what you post.
Nick Armstrong, I make marketing FUN.
