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Busting pricing psychology myths

Busting pricing psychology myths

This feels like an episode of Mythbusters, but rather than bunsen burners and rockets, we have charm pricing and anchoring.

This feels like an episode of Mythbusters, but rather than bunsen burners and rockets, we have charm pricing and anchoring.

If you struggle to put a dollar amount on your time, click here to grab my Free Pricing Calculator here and run your numbers for yourself.

It’s the best way to work out your unique recipe for your prices.

Whether you’ve got some business experience under your belt or you’re still finding your way around the sales kitchen, I’m sure there are some “pricing rules” you’ve heard over the years. Anyone who’s worked in retail can probably tell you some of the “secrets” behind why the numbers are the way that they are.  

Thankfully, we’ve learned a lot about pricing psychology over the last decade or so, and a lot of those “rules” have now been disproven through reputable research. I want to make sure you’re getting as much of the money pie as possible, so read on to make sure you’re not missing out.

Myth one: Always ending your prices with a 9 will help secure the client

This myth is based on the idea that always ending your prices with a 9 makes it more likely that the person will buy. This is because of the ‘left-digit’ effect, meaning that consumers are more likely to observe only the number on the left and base their price perception on that (e.g. $199 sounds a lot cheaper than $200 even though it’s actually only a $1 difference in price).

Research shows that the left-digit effect has little to do with the actual price, and more to do with the way the price is perceived. This pricing strategy is called ‘charm’ pricing and can be fairly effective on products and services that have set prices. However, when it comes to freelancing, your prices aren’t usually built on a ‘one-size-fits-all’ strategy.

Most of the quoting you do as a freelancer will be bespoke. The deliverables you create are usually for a specific client to solve a specific problem. While there’s probably no harm in ending your prices with a 9, it won’t work as an actual pricing strategy that persuades the consumer to accept your quote.

When it comes to bespoke quoting, the potential client cares mostly about your ability to solve their problems than whether or not the price ends with a 9. A $799 quote won’t necessarily be accepted over an $800 quote if the recipient isn’t confident that you can do what needs to be done. When it comes to bespoke quoting, charm pricing won’t be the strategy that secures you the project.

In my own freelancing business, I implement a range of different pricing methods (and I highly encourage you to do the same). In situations like retainer pricing or productised services where the prices are set, charm pricing may be a strategy you can implement to help lock in the client (but should never be the only strategy you use). If your prices are also publicly available and able to be compared, the left-digit effect does come into play and it’s worth considering as a pricing strategy.

Myth two: Higher prices always equal higher quality

If you’ve engaged with any of my other resources (such as Being Expensive Is An Option), you’ll know that I often encourage my fellow freelancers to start charging more (and teach them exactly how to make that happen). In many cases, being more expensive than your competitors can work to your advantage because potential clients assume your higher price means a higher quality of work. If they care more about quality than price, this may make them more likely to choose you over someone else.

However, this is not always the case.

Quality is perceived through several factors, and only one of those is the price. Branding, customer reviews, and personal experience often carry more persuasive power than simply being expensive. If someone feels confident that a lower-priced freelancer can solve their problems as well as a more expensive one, it makes their choice a no-brainer.

Relying only on your pricing to communicate your quality won’t get as many quotes accepted as you’d like. You need to demonstrate your excellence in multiple ways, like user generated content (testimonials/reviews), on-point branding, a kick-ass portfolio, and case studies highlighting the outcomes from your previous projects. Let these things add validity to why your prices are higher than others.

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Myth three: Being the cheapest is always the best way to land clients

Too many business owners make the epic mistake of thinking that being the cheapest is the best (and sometimes only) way to make money. I honestly can’t count how many resources I’ve created or masterclasses I’ve run on WHY this is absolutely not the case. This is one of those pricing myths that can actually harm your business for many reasons, so let me break it down for you.

The clients that you really want (e.g. the ones with fat wallets and chill personalities) aren’t choosing freelancers based only on price. They care most about your abilities to solve their problems in the best possible way. These clients are also less likely to be challenging to work with. They understand why you are the price that you are, and often actually appreciate it. The don’t incessantly question you, harass you, or demand more from you than they’re entitled to. They’re here for solutions and understand that, in life, you usually get what you pay for.

Standing out from your competitors shouldn’t happen because you’re cheaper. Don’t insult yourself and your skills by making this your competitive edge. Understand the value that your services bring and communicate it. If you focus on expertly demonstrating your unique skills and abilities, it won’t matter that you’re more expensive than some competitors (because your ideal clients don’t care).

Honestly, do you really want someone to choose you simply because you’re the cheapest? psst the answer is no…

Myth four: Discounting always increases sales

While on the surface this may appear to be true, discounting as a sales and pricing strategy rarely pays off in the long run.

First and foremost, understand that discounts should be offered to reward, not entice.

Continuing along the same lines as the previous myth, discounts attract the wrong demographic; clients who are shopping only based on price. While a discount may land you an initial project you might not have otherwise had, there’s a good chance it’ll end up being a client you wish you’d never met. The time and energy you invest in this discounted project could have been better spent on higher paying, higher quality ones that are more likely to lead to ongoing work.

Continually discounting significantly cheapens and devalues your brand and your skills.

If you’re quick to drop the price, it suggests that you’re not worth what you initially said that you were. We know that most people associate a higher price with higher quality. If you saw a “genuine” Louis Vuitton bag being sold for $49, you’d immediately assume it’s a fake or has something wrong with it. Luxury brands almost never discount their prices because they understand how detrimental it is, and they don’t need to.

Discounting also means that potential clients come to expect it and are less likely to buy from you if you’re charging full price. You’ll end up with less money in your pocket and less clients accepting your full-price proposals. Discounts should be used sparingly, and only to reward. When used this way, they can actually strengthen relationships you have with loyal clients and help solidify more ongoing work.

Myth five: Your prices should always be based on your expenses

This myth is built around the idea that your prices are built only by calculating your operating expenses and then adding a margin percentage. Many freelancers do this by working out their costs, creating an hourly rate, and then estimating how long the project will take. Operating this way makes you less likely to land the projects you want, and usually leads to you being significantly underpaid (read more about why that is).

I’m assuming you want to make as much money as you can, while still remaining true to your personal ethics and morals. You love what you do, and you’re pretty damn good at it.

If you want to earn the good dollars and work on the best projects, value-based pricing is the way to go.

When you price based on value, you consider how significant the client’s problems are, and how well you can solve them. Ask yourself what sort of return they’ll get from using your work. If you design and build a landing page that promotes a $2000 course, you shouldn’t charge $200 for it. The client stands to make a significant return from what you create and likely wouldn’t be able to without you.

If your skillset is particularly niche and not something they could easily find elsewhere, this bumps up the value even more. Value-based pricing is the pricing strategy I use the most, and one of the key reasons I earn a high income.

Myth six: Prices should always be round numbers

There is a belief amongst some that prices should always be rounded up to a nice, neat number. An example would be calculating your quote for a bespoke project, having the total be $1578, and then putting $1600 on the proposal. For some reason, people believe that doing this makes it more likely that your quote will be accepted.

Of course, this is not the case.

Putting those quirky, $786 or $4823 prices actually says a lot about you, the way your mind works, and what you value. It shows that you have actual criteria that you use to come up with your prices, and that you haven’t just pulled a number from the sky. It makes it easier to justify your price should you need to because you actually did use educated methods to come up with it.

Always quoting round numbers may also suggest that your actual calculated price was lower, but you added a little extra on top just for the sake of a round number. Sometimes I purposely quote quirky figures because it actually helps to secure the project.

When you really understand the psychology behind pricing, you begin to learn actual strategies you can implement into your business. Doing this means you don’t need to resort to discounting.

Still need more help ditching the discounts?

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