What's The Fair Price?

Fairness is something I hear often from consultants when we discuss the possibility of charging much more for what they do.

If I suggest that you charge twice or thrice your regular prices in specific situations with certain clients (or as Blair Enns puts it, "price the client, not the job"), you might tell me that those prices are not fair.

What Is Fair?

Many economists would say that any price paid is by definition a fair price. The buyer agreed to pay it, the seller agreed to sell for it. But that's not true.

Fairness is a feeling: It's not about the number of digits in your invoices, but how your clients feel when they pay them.

It's even more subjective than value, since value is still correlated (at least to some extent) to the financial benefits you generate to clients. That also means you can't play the judge and decide what fee is and isn't fair for your clients. It's up to them to decide it.

When you undercharge for your services and justify it with "fairness" arguments, you're not only leaving money on the table. You're also signaling to clients you're not confident you're worthy of what they thought you are.

Of course, there's a limit to everything.

Can You Charge Too Much?

If fairness is subjective, how much is too much?

People pay unfair prices all the time. If my car's tires go flat and I have an emergency, I might pay a mechanic 3, 5, or even 10 times the price of a regular tire to get it fixed fast. What I won't do, however, is to return to the same place ever again.

When a client pays unfair prices for your service, they will resent you even if you overdeliver results. They will probably not hire your services again, nor be a source of referrals and positive word-of-mouth.

One of the best ways to avoid it is to aim for a "double thank-you moment". This idea was first coined by economist John Stossel, who puts it simply:

How many times have you paid $1 for a cup of coffee and after the clerk said, "Thank you," you responded, "Thank you"? There's a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.

So your pricing goal is to:

• Create as much value for your client as you can;
• Capture as much of that value for yourself;
• WHILE creating a double thank-you moment.

This comes down to effective communication. That's why pricing can't be decoupled from sales: the only way you can understand your clients' needs, expectations, and mental models is through one-on-one conversations.

Improve your communication, improve your profits.