Competing On Price? Watch Out!

If you want that attractive job or piece of freelance business, be careful: lowering your price may get you unexpected results.

I was talking with Chuck McKibben, one of the long-time greats in the broadcasting and voiceover business. We were sitting in my home studio swapping lies war stories about our shared experiences. Given the demands of the current economy, I asked Chuck about "pricing" in the industry he knows so well. This single example is worth pondering deeply, whether you're negotiating a salary or a project.

Chuck: I was producing TV and radio spots for a major ad agency in Manhattan. The VP wanted a certain "style" and I knew just the guy. We endearingly called him "Mr. 200." Need a 30-second radio commercial? His fee: $200.00. A one-hour session to do tracks for Station ID/Imaging? $200.00. Read the opening to an audio book? Right, you know the price.

This guy had figured out his cost of doing business, his value, and how to make things as simple as possible for everyone. And he was good. Really, really good, and everyone knew it.

The VP bounced back at me and insisted: "Call him and negotiate price. That's just too high." I knew it wouldn't make a difference but I called, went through the motions, and came back with: "$200.00."

So, we brought in some other folks to audition who were good and wanted work.  The VP managed to get every one of them to drop their price on the first go around. Who did we hire?

Mr. $200.00.

Why?

VP: Anyone who thinks that little of themselves and is willing to fold at the first salvo isn't the kind of person I want to do business with. I'm a business man. I understand value and negotiation. But I don't understand giving up just because someone asks you to. Get me the real guy. (Mr. $200.00).

Chuck: He would have understood it if any of those people said, "Well, I'll do A and C, but not B and the fee will be $100.00" In other words, change the scope and related value but don't change your value.

What are you worth? Are you holding fast and negotiating scope, not your value?

Comments

[Kent Blumberg]

People won't assign a higher value to you than you assign to yourself!

[Steve Roesler]

Ain't it the truth, Kent?

[Karin H.]

Hi Steve

Over a year ago I found a wonderful quote about pricing etc, which I keep at heart: Let the money chase you, never chase the money.
I.e.: if you are good - and you know it - and reliable then prospects/clients want to do business with you at your price. Lowering your price is lowering your perceived quality.

Karin H. (Keep It Simple Sweetheart, specially in business)

[Steve Roesler]

Welcome back, Karin. That quote is a good reminder to anyone who thinks that the key to successful business is always "cheaper."

[Mile High Pixie]

What an interesting post, Steve, especially considering how often architects trim their fees in order to get work. Sometimes, we trim our fee as a "loss leader" of sorts, as my firm did on a master plan project recently. We cut our fee in order to get the job so that we could do the master plan in order to hopefully get a real project later out of the work. We needed up cutting our fee nearly in half to do the same amount of work originally promised. When the master plan was done, the hospital didn't have any money to do a new building based on our recommendations, the CEO of the hospital asked my boss if we ever do pro bono work, and my boss had to say "um, we just did!"

[Steve Roesler]

MHP:

TaDa! One more real-life example (but of course, you are always to be relied on for those).

the thing that your boss experienced is the dynamic here. You guys are trying to be helpful/anticipate future work by knocking price down up front. The result: "Can you now do it for free?"

As my accountant once said to me: "Are you running a ministry or a business?"

Got my attention.

[Jeremy Hatfield]

Words of wisdom from a knowledgeable and experienced source. Keep up the good work Steve. Thanks Chuck!

My only concern is how this advice plays in the realm of the current economy. It seems like employers have the upper hand as the candidate population (supply) outweighs the sourcing needs (demand)?

[Steve Roesler]

Jeremy, that's a question I had in the back of my mind while writing this; and I think the concern is certainly legitimate.

The single principle that I keep coming back to is the notion of one's own "price point" or the salary version of "minimum daily requirement." That is: What is the absolute minimum you can go and still support your family as well as not feel as if you have sold yourself out? (If you violate this figure, there's a darned good chance you'll resent your work/project and be looking for another before Day 1).

Since you live in the realm of recruitment what are you finding, Jeremy?