I had a lawn care business quote me $1400 for a job later completed for $250. And completed by a much nicer person. So nice we actually hugged. Helpful context: he was a hippie. More helpful context: this was for a property that had been listed for sale.
So what was the non-hugging lawn care-shark thinking, with his outrageous quote? Well, this is what he said:
“Look, this is an investment in the sale price of your home. You’re going to get this much more if you have the work professionally done.”
At worst, he was preying on my ignorance as a consumer.
At best, he was value pricing – a ridiculous tack given the alternatives to his lawn care business.
I admired his technique. I even negotiated with him for the hell of it.
But the whole exchange illustrated how ridiculous and narrow-minded on-the-fly value-pricing can be.
One problem is that it usually presumes the thing you do is more valuable than what the others do on the same project. What about the other contractors working on my house?
Imagine a company that wants to expand its headquarters. They hire 12 different kinds of businesses:
- real estate lenders
- foundation/cement layers
- finish carpenters
- interior designers
Can each of the above businesses value-price their work? At 10% to 50% of the total value of the project? Does any single contributing company account for even close to 10% of the total value?
Perhaps the architect can make the case; sometimes they do. But that depends less on the value she actually creates than on three other phenomena:
- Her differentiating reputation in the market.
- Her selling skills: real-time negotiating, pricing, and emoting
- The perception that her work creates more value than the others
Part of value pricing is actively downplaying the value of the contributions of others.
This happens with large web and app software projects – for a six or seven-figure project, how do you ascribe value to one type of contributor over another? Should one software development firm get 20% of the project value and the designer $90/hour (0.2% of the project value)? Or another way around?
Who-gets-paid-what can come down to not just reputation, perception, and soft selling skills. It can come down to, “I know what I’m talking about; they don’t”. (This usually happens because tend to believe it).
Another approach: price in pre-fixed fees. Make productized services and price them preemptively on your website.
If the non-hugging lawn care guy had a printed out a fixed price of $600 describing the work I needed, I might have gone for it – even though it was about twice what I thought I’d been willing to pay.
Selling fixed-price products also requires reputation-building, soft-selling skills, and shaping the perceptions of your value and that of others in the ecosystem.
Just not as much.