Go Your Own Way and Ignore the Going Rate

avatarIn my previous post, I dismissed the idea of a ‘going rate’ without so much as an explanation, let alone telling you why I believe it’s a daft idea.

It was so self-evident to me I didn’t really feel the need to explain, but it’s clear a lot of people do buy into the ‘going rate’ myth, so here goes.

The first question you have to ask yourself is “Who sets the going rate?”

Then ask, “Is it an average price, a minimum price or a maximum?”

First one first. Going rates tend to be set by sellers (that’s you), based mainly on a feeling about what their customers would expect to pay, with some evidence from what they’ve paid in the past. That assumes that the offer now is the same as the average of all the offers that have gone before, among other things.

So, should your going rate be an average of other people’s prices, a minimum you can accept or a maximum you think you can get away with? For most people, it will be an average of other people’s prices, but the problem with that is that some misguided people will be cutting their prices to the minimum, which lowers the average…

So, following the masses by setting your prices at the going rate means you’re going to be charging less than is ideal and certainly less than you would like. Quite possibly less than you can afford.

But what happens to your sales when you ignore the going rate and set your prices higher than everyone else? (Obviously, you shouldn’t even think about setting them lower.)

The answer, in most cases, is not much. I’m talking about services here, rather than commodities, but even commodities can be priced differently when you add valuable extras like convenience, service, great guarantees, and so on, and especially if you build a relationship with your customers. I’ll talk about that in more detail another time.

Anyway, although you may have an idea of the going rate for what you do, your potential customers probably won’t know or even care, especially when you sell them on your value before the price is even discussed. Then, even if you’re still nervous about asking more than your imaginary going rate, it’s very unlikely that your customer will be put off by a price higher than that. Not because they’re ignorant of the going rate but because they don’t care – they’ve already decided they want you to do the job or deliver the service, and your price is what it will cost them.

They can always go elsewhere at this point, but you’ll be surprised how few of them will, just because you’ve dared to ask for more than a (more or less) arbitrary rate. In fact, if they are aware of what others charge, charging more tells them you’re a cut above the rest. It’s reassuring, at least for your ideal customers, rather than off-putting.

Hard work can be it’s own reward, but only for a while. After that, the worst kind of work you can do in business is work that takes your time but doesn’t pay you what you’re worth  And the going rate, for what it’s worth, will rarely pay you enough to reward you properly and keep you happy in your work.

Especially when you know there’s no need to take it.

And one last thing. Don’t worry about the people who can’t afford your prices in these testing times – there will always be someone prepared to work for much less. Let them, because there’s room for everyone.