Pricing - an art and a science

Monday Marketing Minute

I have just finished reading a book by Steve Sammartino called 'The Lessons School Forgot'. Published in 2017 by my old employer (John Wiley & Sons) it looks to what jobs will look like in the future. Or more accurately, what 'gigs' will look like, in a world with only a small number of conventional 'jobs'.

Many of us - including me – are already in the 'gig' economy, running projects for clients instead of being employed. And when you are a consultant / coach / contractor, deciding how to price your services is hard – a bit of an art and a science.

There are a couple of factors at play here. The first is that offering the lowest price is not always the best approach. Sammartino refers to this in his book, where he put up his prices for speaking, expecting fewer enquiries, and he ended up getting more. And then there's the apocryphal story about the jewellery store where a new (mathematically challenged) staff member, instead of knocking 10% off the price of a slow selling item, added a zero, at which point it sold immediately.

In marketing terms pricing is an indicator of value, and prices that are too low can put people off. The classic demonstrator of this is gift buying, where (most) people have an idea of how much they want to spend on a gift. A 'perfect' gift may be ruled out because it is 'too cheap' (which may have been a factor in the jewellery store).

The other factor, for a business weighing up employing someone as opposed to using a contractor/consultant is comparing apples with apples. Employing someone is not simply the costs of the wage - in addition there are all the other costs such as superannuation, leave entitlements, payroll tax and then the on costs associated with having employees such as recruitment costs, office space, electricity/air conditioning etc.

From the contractor's perspective it also can't simply be a question of looking at a previous salary and converting that into an hourly rate. Actual 'chargeable' time can't be based on a full 40 hour working week since, as a contractor, there is no holiday pay, sick pay etc plus you spend a chunk of time on the business (the marketing and sales side for example!), not in the business. Sammartino for example recommends working out that hourly rate based on the salary and then doubling it.

And then there’s the question of how you charge for your services – by the hour or by the project? That’s another conversation for another time!