July 17, 2018

Rates vs Prices

Some people use the terms rates and prices more or less interchangeably.

Here’s how I would define these terms in the context of a service business:

Rate—A set amount of money paid for an atomic unit of work - e.g., per hour, per word, per page, per slide, per photo, etc.

Price—An amount of money expected, required, or exchanged for an engagement.

Rates are extremely granular, and are focused on the unit of measure rather than the aggregate outcome delivered by the accumulation of all the units.

Prices are set on an overall engagement, and ideally would be considered relative to the value of the desired business outcome.

Rates make it easy for clients to fool themselves into thinking that they can compare apples to apples, which creates a race to zero dynamic for the seller.

Prices make it hard for clients to compare apples to apples, which encourages them instead to consider the potential ROI of the project and their level of trust in the provider to deliver the desired outcome.

If you talk to a prospect who insists that you provide them with rates, even if you’ve already give them prices, my advice would be to pass on the work.

Yours,

—J

P.S. Do you think you’ll be sending out a proposal in the next month or so? I can almost guarantee that you’re going to price it too low. This week, I had a student close a deal at a price 50% higher than his biggest proposal ever AND for a project that requires 25% of the work. There’s currently one opening left in the program. Learn more here -> jonathanstark.com/coaching