I have a love-hate relationship with the advice to ‘charge what you’re worth.’
On one hand, some business owners really need this advice to up their rates. They are too busy to think, but dealing with nightmare clients at the bottom of the market who don’t value their services enough to pay well for them. Others use it as an excuse to charge well above market value because they are ‘worth more,’ and believe that marketing will solve the problem of not having enough customers.
My son is 13 and started his first business (lawn mowing) about a month ago. I’ve been impressed by how seriously he has taken it and how much he has learned about life and business in the process.
Early on, he watched YouTube videos by other lawn care professionals who shared their top tips for running a business. One of those tips was not to undercharge.
It’s a great message, but recently when I was talking to my son he casually shared the one piece of business advice that had previously sent me on a rollercoaster of self-discovery:
Charge What You’re Worth
Early in my career when I priced my services, I was shocked that anyone would pay for them. On reflection, I charged in line with what I would have made as an employee and it was far too low. I was valuing my services based on what I thought my time was worth, and I didn’t value it very highly.
As I moved forward, the advice to ‘charge what you’re worth’ would cause me stress – high or low, no rate seemed to feel right. As I gained more experience and focused on some mindset issues, I learned why.
The truth is, each of us is ‘worth’ an infinite amount. In our western culture, we place a lot of weight on our income bracket and what it says about who we are and how we show up in the world.
Each person, regardless of net worth or social status, is invaluable.
What is able to be monetized is the value that we are willing to provide to others through our time and energy.
At its simplest, selling a service is like saying ‘I am willing to do x in exchange for y’. More importantly, our client is saying ‘having x done is worth y to me. It’s a two-way exchange of what each side feels good about and should be a win-win scenario.
We use things like experience and credentials to charge higher prices, but in truth, they don’t matter. What does matter is how well we are able to understand what needs to be prioritized and what truly has an impact. It matters if we can understand the value that we are providing to our customers in the short-term and the long term.
This is why I abhor hourly pricing. It is in no way tied to value, and generally speaking, asks your customers to take on the burden of risk because the service provider is too inexperienced or unwilling to accurately quote a project based on the potential variables. It’s confusing and stressful for the client, and relatively safe for the service provider with the exception of getting underpaid for completing a project quickly.
Value-based pricing, on the other hand, sets a rate based on the customers’ quantifiable or perceived value of a product or service. In essence, they have to feel like the value they receive is higher than the money they pay – or that it’s a good deal.
When you ‘charge what you’re worth,’ you typically try to determine what your time is worth based on the going rate in the market and then place yourself at the low-, high-, or mid-range based on your perceived experience and abilities.
That’s why I prefer the advice to ‘charge what your product or service is worth.’ It changes the focus from you to your customers and forces you to decide if you’re willing to exchange your time and energy for the rate that provides good value to your clients.