I started a small web development company with my friend.
When we talked about the services we were going to offer we obviously also had to talk about how much to charge for these services.
What we did was: we looked at some of the prices of similar companies we could find, and who listed their prices (many of them did not), and adjusted ours accordingly.
Most of the time we would set our price a little lower.
Now, I'm working for a web development company and they charge almost double of what we do.
All the while I'm actually doing the same work in both of the companies.
I feel like other companies and clients might regard my own company as unprofessional because my prices are "too" low compared to others.
I also noticed that most of the other companies do not list their prices on their site but we do.
So my questions are:
- Does having lower prices make my company look unprofessional?
- Should you even list the prices for your services on your website?
To give you some more information: I charge 35 euros / hour while the company I now work for charges 60 euros / hour.
If clients comparison shop, they are eventually going to ask, how can you charge so little? You may not have as much over-head as everyone else, but sometimes clients like to pay for those extras: a large team of developers and support staff, strong references, partnerships, certifications, etc. Some may only be able to afford someone on a part-time basis such as yourself.
Does having lower prices make my company look unprofessional?You won't attract large contracts this way. You may not care because this is your other job.
Should you even list the prices for your services on your website?Post your hourly-rate and see what happens. This really depends on the type of clients you want or don't want. If price is an issue, you could be dealing with clients who have too small of projects to make it worth your time (It's just a basic website.) or they will try and grind you on billable hours to the point you're losing money.
Listing prices is common with consumer goods, but much less so for business to business sales, especially with services. The question they are asking is less about how much per hour and more about how much will the overall project cost.
While listing your price may reduce unproductive sales inquiries and get you a few projects from people that just want to see the price, it also hurts your negotiation ability. It's best if the business tells you how much they are looking to spend on a project so you can turn down the under priced ones that will be high maintenance and maximize your profits from the rest. Once you provide a price, they will either walk away, saving you time but possibly losing a sale, or maximize their profits by negotiating down from your number.
When you do finally give out a price, start high and negotiate down based on how flexible the client is or how large the project is.
The biggest automatic signal for quality is price, so in general it's counter-productive to be like-for-like cheapest in a price band if you want to be seen as a quality leader. This isn't logic at work, just psychology. So there's no point pushing against it, you should work with it.
Here are three ways of leveraging a cost advantage (that is, a sustainable advantage in your underlying costs compared to the visible competition):
Price Option 1: Harvest Price just a little above your main competitor. And be willing to negotiate - as your (high cost-base) competitor almost certainly does. You'll discount a little deeper than the competitor, because you're smaller and keener to win the business. (Oh, and your margins are way, way better.)
Price Option 2: Stratify Create a couple of tiers. One is priced around the market norm (at, above and below all work, but there are some different nuances). The other is well below. Put all the useful stuff everyone wants into the lower tier. Put crazy stuff nobody needs into the higher tier. A prospective customer who has been persuaded they need lots of magic will engage you at the higher tier; a prospective customer who's comparison shopping will engage at the lower tier and know why you're so much cheaper than the market.
Price Option 3: Commoditize Come up with a simple explanation (5 words max) for why everything suddenly got easier (and therefore cheaper) not so long ago. In the more substantive copy use key words taken from your main competitor's website. You're repositioning the competition as, by analogy, a car company that builds everything by hand. Or, with an analogy slightly closer to home, they're absolute experts in all kinds of wonderful web technology. But you've jumped on to HTML5, so you don't have to work half as hard to produce results that are as good today and less work to maintain tomorrow.
Speaking from experience pricing yourself too low comes across as desperate and screams, "small, potentially unreliable and unable to meet strict deadlines". Not everyone thinks that way though, there are people looking for the cheapest possible price but they end up being the most troublesome clients expecting so much for so little.
Don't price yourself so low if you don't have too. I worked out currently I get paid around $35 an hour even though I'm on salary, when I do personal freelance projects I charge $55 an hour (which is super low compared to what other people here in Australia charge).
I have no overheads, my internet costs me very little, my computer requires no constant spend of cash other than electricity and the occasional upgrade or parts replacement when things go wrong, it's just time and sitting at home drinking coffee, eating my own food in the comfort of my own study $55 is a sweet amount for me considering I have a job like yourself on-top.
Don't ever list your prices on your site though, usually only the cookie cutter web development services (the kind that charge per page rather than time spent or the project as a whole) do that sort of thing. Create a functionaly nice looking website that will make people want to contact you and that way you can adjust your rates accordingly depending on the project, that way you don't price yourself out of a potentially high value client and can still get a lower paying client if you need the quick cash.
Remember your work speaks for itself. There's no point in charging a high hourly rate if you haven't got any work to show a potential client, it's like a painter getting a job painting houses by himself with no prior experience.
Yes, you are lowering your perceived value.
Presenting a premium price on your website not only increases your perceived value, it weeds out potential customers who can't afford you, so you can focus on your core market. There's nothing wrong with saying "Projects started at 5,000 Euros".
Here's a link to a Google Spreadsheet I created to illustrate the profit and quality of life impact of better pricing.