April 5, 2017

# Reader question re How to set “no-brainer” prices

Reader Michael Doyle wrote in to ask:

What price should you quote for a project that would MAKE your client \$100,000 per year? I’ve sold websites successfully over 20 years and I ask them what an average job is that they do. If BigCo Inc says they sell a kitchen renovation for \$15k then I say If I can deliver you 5 leads a week then thats a successful outcome then the \$10k website sounds cheap.

Thanks for your question, Michael!

I will address this in two sections:

• What To Charge
• Revenue vs Profit

Onward!

### 1) What To Charge

Regarding what to charge…

In a previous email, I said:

What price should you quote for a project that would save your client \$100,000 per year? In general, quoting \$10,000 (i.e., 10% of projected first year savings) would make the deal a no-brainer.

In Michael’s case, I’d still set the price at \$10k (i.e., 10% of perceived value) if the \$100,000 is incremental profit (vs revenue - more on that in the next section).

Again, I’m talking in general terms here but 10% of net improvement is a good guideline. There are times when you want to charge more or less depending on the specifics.

### 2) Revenue vs Profit

Let’s say BigCo knows that they close an average of 20% of leads. If Michael’s work delivers 5 more per week, they’ll be virtually certain to land one additional \$15k job every week.

So, here’s some math:

1 new job per week

x \$15,000

x 52 weeks per year

= \$780,000 of additional annual revenue

So Michael can charge \$78,000 (i.e., 10% of \$780,000) for the project, right?

Not so fast.

It’s important to remember that the \$15k BigCo charges for a job isn’t pure profit.

It’s probably not even mostly profit.

If BigCo’s profit margin on a \$15k job is \$1k, their incremental profit from Michael’s project would be \$52,000 per year, not \$780,000.

In other words, if Michael charged the client \$78,000 they’d lose \$26,000 on the project in the first year.

### Takeaways

• When your work reduces annual costs by \$100,000, then \$10,000 is a no-brainer
• When your work increases annual profits by \$100,000, then \$10,000 is a no-brainer
• When your work increases annual revenue by \$100,000, then \$10,000 is a probably not no-brainer

Yours,

—J