On any given day, my office manager bills different clients $60 an hour, $275 an hour, $500 an hour or $10,000 a day.
What might seem overwhelmingly complicated or even, perhaps, unfair, is actually one of my favorite practices for building a sustainable business.
It’s called price discrimination and it’s a basic principle of Economics 101 that means selling the same thing to different buyers at different prices to maximize your sales and profits.
Rather than being a simple “one size fits all” pricing strategy (e.g. my hourly rate is $180) price discrimination allows you to charge what the market will bear, work with a stimulating variety of projects, and get paid what you’re worth.
If I ran my business solely on one hourly rate, then many clients wouldn’t be able to afford working with me while a host of others might think I’m too inexpensive to be good at what I do.
Price discrimination means I get to work with the kinds of clients I want and have a business that supports me and my family.
For example, I charge interesting startups (in pre-money stages) a much lower rate than what I charge large, established organizations and have yet another rate for non-profits. I even take on “pro bono” clients who are individuals (often single moms starting business) at a rate of $60 an hour.
Here’s how to set prices using the price discrimination principle.
1. Have a good idea of a standard hourly rate for the type of work you do.
Fluency with your industry’s pricing will help you be more effective as you set different rates for different clients. In general, I never want to be the least expensive option (then I would be a commodity) and instead shoot to be near the high middle or the very top relative to my competitors.
2. Use your observation skills.
When you’re having initial conversations with potential clients, ask questions to learn what they would like to achieve by working together, what success looks like, and how much work on your end it will take to help them achieve it. Also make note of their stage of business (start up, non-profit, established).
As you move into the proposal process, your observations help you craft the right services and right prices for that client.
3. Make sure that your prices engender buy in.
Getting a multi-millionaire to “show up” for coaching often requires a fee of $2000 an hour or greater. Charging her 200 bucks just wouldn’t be the skin in the game she needs to get motivated. By contrast, I once consulted for a young musician who paid me $20 an hour, and I knew that was a sacrifice for him. He was one of the most engaged clients I’ve had.
Price discrimination can be ideal when you want to work with a wide variety of clients but don’t want to be stuck with one standard rate, but it requires a willingness to be flexible and secure in your own value as a freelancer.
I’m grateful that I practice price discrimination because it’s exposed me to many more kinds of clients than I would have otherwise worked with and hope that it can do the same for you.
When Olympic athletes, members of Congress, venture capitalists and CEOs hit a block, they call Lauren Fritsch.
You may know her as a consultant and coach, but really she’s a champion for leaders of (mostly) fast-growing companies who want to expand their businesses with grace and love.
Her work has been spotlighted by ABC, Social Media Weeks NYC + DC, South By Southwest, the INC 5000, Let’s Talk Live, Design*Sponge, and Katie Couric.
When she’s not helping her clients and their teams change the world by doing business, you can find her throwing impromptu solo dance parties, scouring vintage stores around the world for items both sequined and sparkly, leading retreats through sun salutations and designing organic perfume, motivational posters and/or impeccable CX.