The following is based on a true story because it is a true story. I once gave a client the opportunity to choose what they wanted to pay. I quoted the client a $250 flat fee for a web project or gave them a choice to pay me to work for $75 / hour. The client chose the flat fee and it turned out that I finished the job in 40 minutes effectively making my rate $375 that time.

And now here is the True E! Hollywood Story of how I made $375 an hour:

A client approached me about a web design project and honestly I did not want to take on the project, however, the client had proven to be faithful in the past so I figured I would do the work. They asked me to make changes on a website coded in ASP a previous freelancer worked on. I knew how to make the change but I wasn’t fully confident especially since it was not what I normally worked with. I was completely transparent about this fact with the client, therefore, I proposed two choices of pricing for the project:

Option 1: I can work for $75 an hour.
Option 2: I can work for a $250 flat fee.

Looking at the pricing options, I was presenting it’s obvious to tell if they take option 1 and I complete the work quickly, the client wins. If I take a long time then the hourly rate is not favorable and the client would have been better off paying the flat fee of $250.

After some quick consideration, the client chose to pay me a flat fee of $250. I invoiced them, they paid the invoice, and I started the work. I familiarized myself with the server environment, saw the problematic issue and applied the fix. Of course, I had to test out the fix as well but the entire process took me only 40 minutes. When you do the math I was working at a rate of $375 an hour.

Did I overcharge the client?
Is this a question of morality?
Should I go back to the client and report how long it took me?

The answer is this was a fairly priced project in good faith, no moral compromise, and I did not inform the client of how long it took me. (Who knows maybe the client is reading this now and I just told on myself.) What happened here is a matter of risk and choice. Both of the pricing options I presented had a fair amount of risk: what if the client chose the hourly rate of $75/hour, I only would have received about $50 but I would have been okay with that and moved on. What is the client paid $250 and it took me 4 hours to complete? That’s lower than $75/hour, but I was okay with the outcome because the positive experience for the client was more valuable to me.

Present the client with at least 2 pricing options

As a pricing strategy think about presenting your client with options. I presented the client with options and increased my chances or winning the project. Their mind switched over from how much does the project cost to which pricing option is best.

The client made their own decision

The second thing that happened is I gave the client control to decide how much money they wanted to spend. Earlier I asked if this is a question of morality or overcharging this is not overcharging because they had two choices presented to them and they chose the amount of $250 for the whole project. So they willfully accepted the amount they paid.

When clients have a role in choosing the amount they want to pay, they will be less likely to complain or pay attention to what you’re charging because they had to direct hand and what that amount was.

In this example, we looked at an hourly rate versus a flat fee but the same type of logic would work if I was quoting a more in-depth project, perhaps the billing could have weekly vs monthly.

Price Anchoring

The whole idea of what went down here is price anchoring. You’ve seen price anchoring in action before. Think about when you go to the grocery store and see an advertisement for apple Juice: Buy 3 bottles for $10 or buy them for $4 each. At a glance, you already know the 3 for $10 is a better deal when you compare $10 / 3 = $3.33 vs $4. Price anchoring psychologically shifts your mind to a different decision. Instead of thinking about whether or not you want apple juice you are thinking about if you want 1 bottle or 3 bottles.

This logic works for higher prices as well, is $10,000 a high price for a logo? This may seem like a high price but when you compare it to logos which were priced at $1,000,000 then $10,000 looks like a steal.

So what do you think? Are you willing to give price anchoring a try in your business?

Showing 2 comments
  • Kevin cancino

    Thank you for that insight Nathan I was looking for some inspiration and randomly found you keep it up you the man bro.

    • Nathan Allotey

      Thank you glad we were able to connect. How were you able to find me? I know you mentioned it was random, I’m curious.

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