Business Bites Episode 131: How to Charge What You're Really Worth

How to Charge What You're Really Worth

Episode 131 on the Business Bites Podcast

The Gist Of This Episode: A fine balance exists between charging what you’re worth while not pricing yourself out of your market. Mike McDerment, CEO of Freshbooks, sat down with Rachel to share ways you can show value to your customers and  price what you need to be profitable.

 

What you will learn:

  • how to avoid the fear of pricing too much
  • how to value-base bill
  • how to uncover what your client/customer finds valuable, uncovering the problem they need you to solve by hiring you
  • how to communicate price changes
  • and more!

Expand To Read Episode Transcripts

Rachel Brenke:
Hey guys, welcome to another week of the Business Bites Podcast. As always, I’m your host, Rachel Brenke. This is episode 131, Learning How to Charge What You’re Worth. I have Mike McDerment, the CEO and cofounder of FreshBooks. We know y’all know all about it, is the world’s number one cloud accounting software for self-employed professionals, which is y’all. So Mike, thank you so much for coming on the show.

Mike McDerment:
Well, thanks for having me, Rachel.

Rachel Brenke:
Oh, I’m excited. We had tech excuse. We have COVID issues. But this topic just is something that we need to push through and get to. But before we get into this mindset and execution of charging what we’re worth, let’s share a little bit with the listeners how you got to where you are, because you didn’t start out owning the number one cloud accounting software. Where did you go and how did you learn the value of how to charge?

Mike McDerment:
No. We went and built it, didn’t we? So where I started before, I started building FreshBooks, I was working for myself, and I had a small sort of design firm, I guess, and we had a variety of billing methods over the years, but charged by the hour, those kinds of things until one day, I accidentally saved over an invoice, said, “There’s got to be a better way to do this,” and started writing my own software.

Rachel Brenke:
Awesome. Awesome. I love that. I mean, you went from four-person design agencies and Microsoft word creating invoices, and now, like I just giggled in the intro, everyone knows FreshBooks. So obviously, I’m very excited to have you here because you went from trying to keep the lights on. You moved into your parents’ basement for three and a half years. You revamped everything, and then you have the company called FreshBooks. What is one lesson maybe outside of charging what you’re worth, but what is one lesson you learned in that timeframe that our listeners can use? Because many of them are on their ground floor. Many of them may be in their basement, especially since it’s COVID listening to this. So what are some tips you can impart upon them?

Mike McDerment:
Well, I’d like to focus on the things that don’t change. So for me, for whether it was back in my client services time or building FreshBooks, I just think knowing your customer, focusing on them and their concerns and really listening and being wide open, just to make sure you understand those before you go and start talking about any solution you might have for them, knowing them and their problems to me is kind of the heart of entrepreneurship. For me, owning a business is the spirit of sort of serving others.

It’s really hard to serve people well if you don’t understand their problems and their needs. So that to me, I think is the thing. Really, know your customer. What gets hard over time is to get busy and everything else. I think the nugget is to keep finding ways to do that because we can all get busy and distracted, or you’re thinking we’re getting to know people, but literally making time to check in with your clients and ask questions that go beyond the project you’re working on and make sure you are always in touch with their context and their struggles.

Rachel Brenke:
I love that you honed in on this tip, but we didn’t even tee this up before the interview. But because it’s been in my mind a lot lately, especially during COVID, because that’s when we’re recording this, and it’ll publish. Is that mainly the needs have changed from your audience because of COVID. If you, and I’m raising my hand because I kind of just did this, I try to stick to my own marketing calendar because that’s what I thought my audience needed and wanted. I kind of put COVID to the side. We’ve been hearing it for so long the last few months. This past month, I go, “No, no, no. Let’s just step aside from it.” But I couldn’t. My audience really did show me through purchasing or not purchasing, through engaging, not engaging. If I had taken your advice, so I’m being transparent, sharing, even though I’ve been doing this for 15 years. You still have to always keep the pulse on what your customer or clients are needing and wanting from you at that time.

Mike McDerment:
Yeah. No. It is truly evergreen, right? Spending time against that, you’ll always get a good return.

Rachel Brenke:
Yeah, for sure. Just an FYI, y’all, we have an episode coming, talking about this very topic, not just surveys and gathering testimonials, but really digging into what your audience needs and pairing that with what you want to give them. So check for future episodes on that. But for now in episode 131, right here, don’t forget, you can check out all of Mike’s stuff and the show notes, because we’re going to get into the nitty gritty here about charging what you’re worth and how to get to that, and it will be at rachelbrenke.com/epi131. So make sure you jump over there for that.

All right, Mike. So let’s dig into the major beef of what we are here to talk about, charging what you’re worth. It’s funny because I was just having this conversation with one of my team members and one of my businesses this week, as we’re developing a new collection for our clients, and she goes, “But it’s easy.” But my pushback for her was, just because it’s easy for us doesn’t mean it’s easy for our client or our customer. There is value in pricing it more than what we would necessarily pay for because we’re the ones. We know what goes into it. We already have the requisite knowledge. So how do you fight that when you’re developing a product or service, and you’re looking at pricing aspect? How do you fight that own internal what maybe you would charge, but you already have the requisite knowledge of how to do it?

Mike McDerment:
Yeah. So there’s a whole bunch in there. The place that I’d start with is value is not determined by you, the service provider. Value is determined entirely through the eyes of the customer. In this scenario, you’re talking about sounds like, “Hey, based on your expertise and all of these things, you all been able to develop some materials, and yeah.” That wasn’t hard for you. But you know, you may have your air quotes, Malcolm Gladwell, 10,000 hours, might be expert in that area. So you can sit down and go ahead and put together, and I’m sorry, I don’t know what the nature of the offering was, but let’s say it was content or something along those lines. It’s easy for you based on your expertise and what have you to go ahead and do that.

But the value for somebody else to be able to come to you, let’s say and get a one-stop place to go to get competent answers that they trust and not have to like, what’s the alternative? Well, I have to scour the internet. I have to spend hours of time watching or reading or listening or whatever or figure out what I trust, what I don’t and to get to kind of the answers that might be offered.

Forgive me, I don’t know why I thought it would be an information product, but let’s pretend it was. There’s just value in the time savings of getting good answers here and now from a trusted source. So that’s just one example of just because it’s easy for you doesn’t mean it’s not valuable to someone else.

Rachel Brenke:
Yeah. No. definitely. This wasn’t informational. It’s on my law firm side of things. We’re working on brand protection and making sure that we stay on top of infringers and enforcing all of that. For me, my paralegal said, “But that’s easy.” I’m like, “It’s easy for you because you do it every day.” It’s not easy for the standard entrepreneur who doesn’t know what’s the difference between trademark, copyright or even how to enforce. So I know for me that this right here, what we’re discussing is a struggle that I’ve had in all my businesses for all 15 years because you want to balance that also against how not out pricing yourself. You want to price yourself to the point of attracting the people that can afford and want and buy into your messaging because you have a solution to a problem for them.

But how would you advise those listening? How do you balance that against the market pricing or the more pointedly, I guess, the fear of pricing too much or end up steering people away?

Mike McDerment:
Yeah. So I personally believe that almost every owner left to their devices will just under price their offering compared to what somebody will pay. Right? Even the majority of people will pay. We just bias to undervaluing ourselves, and we bias to, “Oh, it’ll take five hours, and really, it really it takes 12.” Just I don’t know if it’s like an optimistic side of ourselves. I don’t want to say low self-esteem, but for some reason, we won’t go ahead and do that. So I think one of the things you want to go ahead and do is understand… Again, I would go back to the customers to root around and figure out like, what is valuable to people?

So the example I gave sounds appropriate. If you think about their alternatives, the time they’re going to have to spend to go and find the answer some other way, or maybe the other firm they’d have to go and pick up the phone and be charged sort of, I don’t know how you’re pricing your product, what it is, but maybe it’s going to cost them. So if you think in sort of alternatives sometimes, now, that can also lead people to be… I’m not a fan of this is to just competitively, well, I saw somebody else doing this for $50. So we can’t be more than them. I’ll go ahead and say, then you start to get into, “Well, I think if you’re just reacting to competition, you’ve sort of lost the plot.”

So I go and speak with some people. Again, whether it’s trying to understand their alternatives or trying to understand where value really lives. I’m going to give you a small, but unintuitive example. When I price projects, and by the way, just by way of background, I should have started with this, I did write a book on pricing your services. It’s, it’s been downloaded by a quarter million people. So well worth checking out. It’s free. It takes about an hour to read. But just the heads-up, it’s written like a fable. So if you don’t like those, I’d say just get over it. If you don’t get the time back, I’m sure it’ll be a good use of your time.

The purpose of the book is called Breaking the Time Barrier, and the purpose of the book, again, it’s free. So I really thought this would help people. Because I went out to dinner with my customers at FreshBooks for years and years, and they all had problems around pricing. So I said, “Geez, why don’t I go ahead and write down some of the lessons I learned when I was doing what they did and pricing for my customers?” The whole purpose of the book is not to solve every single pricing problem. But it’s to take you on a journey in a mindset shift from pricing that’s either matching or hourly billing to what I call value-based billing, which is around seeking to understand the value in the eyes of the customer and sort of pricing accordingly.

So we can talk much more about that. But let me just go to the unintuitive. One of the unintuitive things about pricing that I have learned over the years is the following is when you charge by the hour, and you think about pricing and projects. When it’s charged by the hour, people never know how much something you’re going to do for them is going to cost. So you might want to charge them by the hour because you know something’s going to cost a thousand dollars, let’s say, a little legal engagement for an existing client.

But if you were to tell them you have $1,200 in advance, and you don’t know billing by the hour, probably will be a thousand or whatever it is. But they would probably spend the $200 for the price certainty to get the job.

Rachel Brenke:
A hundred percent, hundred percent.

Mike McDerment:
Which is like, “Oh, that doesn’t show up anywhere. That’s not obvious.” So my whole point around this is, again, values in the eyes of the customers and just knowing what the price is going to be and not having to worry about it being too much is enough for people to pay a little more because it’s valuable to have price certainty. A small example of how this is a complex and confusing and nuanced topic, and I really do encourage certainly anyone who’s still billing by the hour, which I think is the worst way you can bill-

Rachel Brenke:
Of course.

Mike McDerment:
… to go ahead and read the book.

Rachel Brenke:
Agreed. Agreed. So actually, on top of that. We can just use me as an example. So y’all listening. You can apply this to any sort of type of business. But lawyers by nature are supposed to quote unquote, air quotes, you can’t see me, “supposed to bill by the hour.” But if you think about it, we all kind of do in a way, in the way that we have transitioned the law firm much like what you’re talking about, Mike, is that the consumers definitely love price certainty. So we do almost all flat rate stuff at the law firm, especially for our trademark registrations or applications. But how we developed that strategically to make sure that we were not losing money, but also so that we weren’t exorbitantly, overcharging the client or outpricing ourselves is we just kept track of our hours and time that went into that task for a certain amount of period, and we kind of just average it out because some applications you’re going to spend more time. Some applications, you’re going to spend less.

But we’ve been pretty consistent over the years because, and we had another episode last week about systems and processes, and that’s really huge in order to have a consistent baseline to see how much time is actually going into a process. What is the workflow? Because that directly connects to exactly what Mike’s talking about here. I may know, as an attorney, that it’s going to take me two hours to do X, Y, and Z. But then if you’re sitting there twiddling your thumbs, going, “Oh my God, what if my bill is actually 16 hours?” You as the consumer are not going to want to engage me. Whereas if I had done the work to know that the average time is two hours, I can tell you with certainty flat rate two hours, and I also know I’m not going to lose on the backend.

So it kind of all evens out, and that’s the way that we’ve approached it. It’s an ever-evolving process. We still have to keep track of our time internally, even if we’re not for putting that to the client and charging the client by an hour. So I absolutely loved Mike, that you said that. Billing by the hour is the worst because I know a lot of graphic designers do this, wedding planners, photographers, et cetera. They start with a baseline, and then they do an hour overage, and it definitely has its place I think in the beginning when you’re learning along a specific task or project takes, but definitely, read Mike’s book. I think that is something that will help to revolutionize and help manage your expectations, your client’s expectations. But also, it just makes financial accounting a lot easier because then you know how many of X you need to sell or secure that month to make your goals.

Mike McDerment:
Yeah. So I want to talk about two other things. One to dislodge anybody who is sitting there, complacently sticking with their billing by the hour and the other to start to get at like, how do we have to go and get it in thinking about value and the customer? So the first thing is I just want to talk about why billing by the hour is basically unethical. It’s because, the best of my knowledge is the only billing method that pits you against your client.

So you are incented to work longer and they are incented to have you work less time. I’m super customer focused. I don’t like that misalignment at all. Being misaligned with my client is super, super, super, super bad. So Rachel, the place you’ve gone with, “Hey, once we understand the task well enough, yeah I might lose money on the odd one. But on the whole, I’m going to be profitable and everyone’s clear on the pricing.” That to me is also, by the way, then you… As much as I do think it’s a good idea to record time inside, you’re not doing it with like, “Oh, I have to present this bill to a client on the other side,” which is just dreary and dreadful and depressing-

… because, literally, it’s after the fact, and you’re pitting yourselves against each other. So yeah. So in terms of charging what you’re worth and understanding the value, I’m just a big fan of sort of consultative selling and what have you before I started engagement. To really get your potential, you’re kind of talking about our project costs. We understand this repeat kind of thing.

Those are kind of road projects. Sure. A trademark search. We know what that looks like. We’ve done a whole bunch of those. But there are other projects, maybe it’s the litigation or something like this, where I don’t know if that’s a good example or what, but where it’s not clear. You have probably an idea of how much time it’s going to take you. So you know where you’d be losing money and with what probability you would, obviously litigation go on, whatever, and maybe litigation is a bad example.

But I think there’s great value in going and probing and understanding again, the alternatives and how the customer is thinking about their problem and then sort of co-developing what a solution might look like. So here’s an example. Let’s not use litigation. Let’s go drafting a project, like a contract, right, for a particular partnership.

So if you get some understanding, you can charge by the hour and go draft that contract. Or you could go ahead and say, “Hey, tell me about who the counter party is?” Oh, it’s a big firm. Okay. I’m going to have to deal with lots of back and forth and whatever it is. Also, there’s big risks. Are you really concerned about this? Do you think you’re likely to be sued or not and start to kind of rough out like, how important is this contract to the success and failure and sort of wellbeing of my client, right? So I get pretty quick the understanding of if they want to spend $500 on it or $50,000. Then you sort of price accordingly, right?

Because obviously, if it’s $500, you might say, “No, thanks. I don’t want the business.” $50,000, you might say, “Yeah, that’s a pretty good size engagement.” I’m going to go ahead and work with them through, and there’ll be some back and forth. But I’ll give you that upfront price. Even if I maybe lose out on a few hours, I’ve got a great high margin project still, and off we go. Suddenly, by virtue of them being like, “Hey, this is really important to me. They’re going to be my biggest client.” I’m concerned about downside risks in these areas. But I really want to make sure we’re buttoned down on this, and we’re going to have to work with their counsel, and they’re huge. It’s going to take forever.

Yeah. $50,000 might be fine to get that contract going because it’s multimillion dollar engagement for them down the road, and they’d rather know they can sleep at night and all that good stuff. So I’m not sure that’s a perfect example, but it gives you a sense of uncovering the problem that your client actually has, with whom, and starting to even tease into like, “Well, what if we get this right. You’re telling me that the problem you’re afraid of being sued.” But how big is the contract?

Then you start to understand like, “Ah, we’re talking about potentially millions of dollars for you.” To spend $50,000 to get that set up, it’s probably not that big a deal.

Rachel Brenke:
Yeah. No. The one thing that really pushed me, at least on the law firms side of things, so if y’all are doing services, don’t even have to be a lawyer, just doing services, I found that I was being penalized by becoming better at my job because I was beginning the same type of repeat work. So obviously, instead of in the beginning when it took me three hours that I could bill for, it was taking me an hour. Well, client A that it took three hours for was paying for three hours. Then client C was getting the exact same benefit, but only having to pay for one hour because I got better. So the clients were getting the benefit, but I was getting the detriment.

Exactly kind of circling back to what you said earlier, and I’m going to paraphrase, and we’ll pull the quote to put out also on social media because it was so great about the value… Well, correct me if I’m wrong, but the value is in the eyes of the client. So it was how the client or the consumer perceives that they’re the ones that dictate the value and the pricing and the work, not us on the inside.

Mike McDerment:
A hundred percent, a hundred percent. You’re right, this is another problem with billing by the hour. I just want to underscore it for anyone again who’s sort of complacent and still has it. It sounds like you have a variety of owners and not just service based. But having been service-based, you just think about you’re, right? Not only do you get better at things and things take less time, I think of doing knowledge work as inherently creative exercise. I know that not every one of my hours do I perform at the same level. So it’s sort of nonlinear, and sometimes they have two hours to make my week more productive than the week ahead before.

You can have some breakthroughs or whatever, and maybe some stuff led up to that. But billing by the hour does not account for that sort of nonlinear nature of creative work. So yes. So again, price certainty and paying for the value, as opposed to your hours, is a good shift for people like that. I think that applies. So for us, let’s say FreshBooks. You may go to our pricing page and say, “Mike, you’re not doing this stuff today.” We’ve done various things over the years. But one of the things you might think about is for our software, that’s probably going to save you. I like to frame value in time saved.

So hey, on average, we save you four to 16 hours a month. Right? You might be paying like $20 to $50 a month. That’s really going to be worth it for you. Or you could frame it as, for less than a cup of coffee a day, right? So if you go and spend $2 a day at Starbucks, and you’re going to spend $50 a month on your subscription, it’s like, “Wow. I didn’t even think about that cup of coffee.” Maybe I should swap it for sort of more efficient way to run my business.

Anyhow, so I think that’s another way to kind of think about value to make sure you get your worth, again, positioned against alternatives or comparables or things from other categories that are noncompetitive and just kind of opened people’s eyes.

Rachel Brenke:
So what would you recommend? We’ve been talking really heavily on service based. What about those that sell a product? I mean, how do we look at charging what that’s worth and in comparison to your market or-

Mike McDerment:
So that’s good. I think that the first place I would go to there if you’re a product company is to figure out where you are in the brand landscape, right? So is the product you create, is it a story of craftspersonship and expertise that got you here, and we have the highest level of craftspersonship, and the materials that we use are really premium, and therefore, we’re going to price accordingly? Or are we focused on getting you the absolute sort of, I’m going to use air quotes, “best value”, as another way of saying cheapest. That’s what we’re selling on sort of price. Are we selling on some other less concrete dimension.

So that’s a brand decision. Then I think, then how do you position your pricing. Believe me, there’s positioning around pricing, no matter what you do, services or products. I think your positioning should then sort of frame your pricing. So am I trying to compete with the low cost providers, or am I charging materially more and having a story around it being materially better. I will expect to sell less units, but each one of those units will probably be more profitable.

So you may actually have a more profitable business. This is the story of the Google Android phone, which is let’s get the Android operating system and as many people as we can and make the phones cheap versus Apple and iOS.

Rachel Brenke:
Yeah. No. Agreed. I think this is one of the things that, especially for many of our listeners, they may be both. Right? They may have a end product being a logo designer. But there’s time, consultated times, they’re also offering services that is in further of getting that product. So we have a spectrum here, y’all. We’ve got one end of the spectrum, where it’s just like services. The other end that is just product, but many of you are a hybrid. Mike kind of touched on it earlier, talking about and putting out content or informational type resources. Many of us do that, for me, freemium model type level now. That’s just the name of the game for social media and connecting with audience members.

So all of this applies. Really, no matter where you fall in the spectrum, it’s taking these pieces and figuring out these key things that we’re going to put in the show notes that Mike’s given us here and factoring it all in. I think my big encouragement, and then I have a followup question for you on this, Mike, my big encouragement is charging what you’re worth in pricing and all that. It’s not a one and done. I feel like along with the legal stuff, that’s one thing many entrepreneurs, especially when they first get in the game, they’re like, “I got to pick a price, and I keep at it,” and then they never adjusted. They never adjusted in the future, no matter… Great. You get more efficient. Maybe you have a better profit margin.

But you as in exactly what you were just talking about. If you are someone that’s crafted a really good story, you could sell less units for more. Why not capitalize on that? But many times I feel like they get in, and I kind of have done this in a couple of my e-commerce stuff, and I just haven’t wanted to make adjustments because I’m like, “But it’s working.” So how do you fight against that fear of increasing pricing or adjusting your offerings so that you are getting compensated for what you’re worth as you’ve built a authority and a brand?

Mike McDerment:
So with questions like this, where it’s kind of like a fear of change scenario, and these play out in life in many ways. But my approach is to just imagine the worst possible case, right? So let’s say we raise our prices by 10% and sales go to zero. What happens?
Rachel Brenke:
You just readjust your prices again and up your marketing and start over?

Yeah. Yeah. Exactly. So you probably find out hopefully pretty quickly. So the point is like, do you survive? You probably do? Right? You probably do. So it’s like, “Okay. Let’s try it.” So this can get really… The thing about services work with this stuff is it’s very much sort of the… But really, your feet are at the fire, you’re telling a client you’re going to charge them more. So that conversation, so by the way, I think it’s a good job to do some preparation work and know why you’re going to want to do it.

But what’s the worst thing they can say? You need to say, “I’m not comfortable with that,” or, “I’m leaving.” They can say, “Listen, I don’t know why. What took you so long? I was fully expecting this. I’m supportive.” There’s a whole bunch of ways that conversation can go. Only one of them is presumably a really bad way. Most of them are probably just fine. They might say, “Listen, give us six months at the same, and then not, if that’s okay with you, because we’re in a bit of a tough spot,” and it’s like, “Okay, no problem.” Right?

So I think the notion of just experimenting and not being fixed minded about these things and continuously reevaluating and whether it’s you getting more efficient and also, by the way, more expert, and therefore more trusted, and they’re inherently being more valuable. So both more margin and more top line can work in that world. Or just recognizing the landscape’s changed and the service you might have charged a lot for yesterday may be pretty much commoditized today for one reason or another, and it’s time to change for those reasons just to keep up with that. So there’s a whole bunch of… Yeah. It is a continuous reevaluation, for sure, with pricing.

Rachel Brenke:
So what do you recommend, though, when you do this reevaluation? Maybe they’re feeling the crunch of. I want to make more money, or I want to make these changes. How should they implement? I mean, do you just make the changes? I feel like, especially creatives, I’m looking at y’all, and I say this with love because I was there. But many times people feel like they have to announce this huge, big change to their audience or their consumers. I mean, unless they’re already someone that is engaged for you for a very specific service, or they’ve already ordered your product, you’re not going to change the game on them.

I’m kind of in the mindset. We don’t need to make this big, huge announcement. Do you see, maybe seeing a place in marketing or in business to announce, “Hey, I’m getting ready to double my prices”?

Mike McDerment:
Yeah. So I think the way to think about this is sort of existing clients and future clients. If you’re going to go and raise… So I run a subscription business. This is very pertinent to us. It’s one thing for me to say we’re going to raise our prices for new people to sign up. I would say that’s a non-newsworthy event. I would say it’s a different story to go and say, “Hey, you’ve been paying us for 10 years. Thank you very much. We’re going to increase your fee by whatever it is because we’ve added a lot to the service and these kinds of things.”

People respond to the two very differently. One, they have no prior knowledge of your pricing, and it’s like, “I guess that’s what it is. It’s still valuable. Here I go.” The other is like, “What? I’ve come to expect the price I paid for this thing.” Some people are very understanding. “Yes. The service has come a long way. I really love it. No problem. The value’s there.” Other people are like just very focused on the cost and saying like, “Hey that’s not [inaudible 00:29:49].” Or maybe they feel it’s too much.

So I think, really, the punchline here is to think about the customers who are new to your franchise, if you will, and then the existing customers. They probably require a different thought process, right? So for the new customer, your pricing is going to be kind of part of your brand and positioning, and it should indicate to them what kind of a business you are. Are you kind of premium, low cost, whatever?

For your existing customers, it’s a relationship reset, right? You’re probably kicking off an event where they say, do I still want to be working with you? They’re going to be 25% more now. I’ve been with them for five years, and they’re going from 100 bucks an hour to 125 an hour. Am I okay with that? The fact is everybody is… Any business that stays in the business for a long time raises the prices. It’s like there’s inflation. There’s everything else. But if you go long enough, if inflation is 2% or 3% a year, in 10 years, that’s 30% price increase, right? 20% or 30%. So just through that alone, we should all understand that this is coming on some level. But it doesn’t make it easy to have the individual relationship reset sometimes.

Rachel Brenke:
This, like we said earlier, circles back around what we talked about at the very beginning. What is the value in that customer staying with you, versus what is the time and financial outlay for them to go elsewhere? If I’m increasing my services for the next project by X amount, it probably will cost them X, X amount to have to start all over with somebody else who doesn’t already know their business, who already doesn’t know how they work. Both sides have to have a new relationship then, and that costs a lot of administrative and financial times.

So that’s definitely something that I would encourage if you’re working with clients specifically, probably more service-based, and you’re going to be increasing prices, maybe first of the year or whatever, and you’re are going to announce because we do let our existing clients know. We also partner that with maybe a discount or an interim period where they can get an adjustment to know that their bill is going to be more from now on. But we also partner that with saying exactly what I just said. It’s going to cost you more time, money, and energy to go find somebody else.

So doing the math breakdown really does help as well. I mean, we don’t want to get into all the nitty gritty and do all the work for our consumers. But definitely showing them all the benefits. Like with you, you said it with FreshBooks. You may increase the price because you added all sorts of new features. Well, a solid person, a solid entrepreneur who is really the ones that you want because they’re going to be long term and consistent as long as you go to them and say, “We’re raising it this much, and here’s why, and here’s all the new benefits to you.” Most stay on, don’t they?

Mike McDerment:
Oh, yeah. We’ve only run one price increase in over 15 years, and that was definitely what we saw. I think people understand value, right, and they value value, right? I think you’ll lose some people who… Again, it’s the relationship reset, and they say, “Hey, it’s not working for me anymore.” And they see it as a trust thing. So yeah. Don’t surprise people with the price increase. I always like to also start a higher prices with new to franchise people. So like, “Hey, my new clients that I onboard.” Then I go back to my existing clients and say, “Listen, we’ve been charging other people for six months this new rates. It’s coming for you in a month or two. If you have any questions, let us know. But we really value your business.”

To your point of the administrative cost of moving. But there’s also a trust thing. You go somewhere else, and it’s risky. So you may find that your customers are a little more locked into you than you think they are. Or, and I really hope this isn’t the case. You may find the alternative. But that’s, I would say, in my experience very across a range of businesses, much less common, and it’s probably more a symptom of you’re not running your shop well, so to speak, if that’s what’s happening.

Rachel Brenke:
Yeah. Well, and that’s good. That can be enlightening too. If you maybe do make a pricing change, don’t just blame it on the pricing. See what are these others? Things that Mike and I have outlined for y’all. What are reasons that they may have lacked. Maybe they didn’t trust you as much before. Maybe they didn’t actually value you before. Maybe you weren’t actually given that great of product or service. So that’s definitely good evaluations. I think that comes out of pricing increases and getting to charging what you’re worth.

Not only will hopefully you make what you want to make to have your value compensated for, but it can highlight all these other internal things that one way or the other within your business. So this there’s definitely a good barometer. I’m saying that to encourage everyone listening, don’t just simply say, “Okay. I listen to Mike and Rachel. I’m going to go start charging and that’s it.”

Then all of a sudden, y’all are leaving a bad review. When you’re getting backlash from people, well, it’s probably not just about pricing. I’ve said it in other episodes, pricing’s not a sales tool. Mike has dropped it a few times through here, and I’ve said it. It’s all about the messaging connection and the value of things that you’re giving to your consumer, and really pricing is just a mechanism, a way you get compensated for your time and shows your value in that way. So Mike, let’s go ahead and wrap up this bite of business with one last tip that you would leave with them regarding charging or yeah, charging what they’re worth.

Mike McDerment:
Again, this is free, and you won’t really see my name other than in the cover, but want to go ahead and say this because I think it’s probably the best way I can help anybody with this is go spend 45 minutes. Download for free Breaking the Time Barrier, read it, again, 45 minutes. I think it’ll help you just go on the journey of understanding I think some of the themes in this call we’ve had around the value of being in the customer’s eyes, not yours, and how to go and figure out where that value is so you know both how to charge for it because it might be greater than you think it was, and also had a message for it so you understand that. So I would really encourage you to go and do that. I think it’s super valuable and whether you’re selling. It’s written primarily for people in services. But anyone doing anything they need to hang a price tag on will benefit.

Rachel Brenke:
Definitely. By the way, Mike will refund you the money that you paid for said free book, if you don’t like it and not paying.

Mike McDerment:
Let me go one way. I ran it as an experiment, and we actually, when we let the book out, we said it’s free. Pay us what you want to. People, for that free ebook, individually sent me, I don’t know how much money it was in aggregate, but multiple people spend hundreds of dollars as a way of thanks.

Rachel Brenke:
Wow. That’s a good example. That is-

Mike McDerment:
Hopefully, you’ll find it at least as valuable. We’ve even taken that away. Read about it in the book, but there’s no way to actually send me money, unless you really work out. So hopefully, you enjoy it.

Rachel Brenke:
Well, fantastic. Mike, thank you so much for this. Y’all, don’t forget to hop over to rachelbrenke.com/epi131 because it’s episode 131. As always, on Facebook in our Business Bites group, we will have a thread dedicated to this. We’ll get the links and everything of this book that you guys absolutely need to have, and I really encourage you read it because I kind of want to do a “book club” for it. Let’s read it. I will get some engagement and questions posted in the group so we can chitchat and learn from it. I would love to hear from all spectrum, whether you’re service based, product based, because we have a variety of entrepreneurs in that group that can help. So thank you, Mike, so much for this wonderful information, and I’ll talk to you guys next week.

Featured Guest & Resources

Mike McDerment is the Co-Founder and CEO of FreshBooks, the world’s #1 cloud accounting software for self-employed professionals. Built out of frustration after accidentally saving over an invoice, Mike spent 3.5 years growing FreshBooks from his parents’ basement. Since launching in 2003, over 10 million people have used FreshBooks to save time billing, and collect billions of dollars. A lover of the outdoors, Mike has been bitten so many times it’s rumored he’s the first human to have developed immunity to mosquitoes.

In January 2003, Mike was running a four-person design agency and using Microsoft Word to create invoices. One day, he accidentally saved over an old invoice, and something in him snapped – he knew there had to be a better way. Over the next two weeks, he coded up a solution and eventually turned that side-project into what is now FreshBooks.

To keep the lights on, he moved into his parents’ basement for 3.5 years and completely revamped how he ran his design firm to the point where he only worked 19 days in one year — while generating over $200,000 to bootstrap the company that would become FreshBooks.

Today, Mike has grown FreshBooks to nearly 300 people serving more than 10 million users in 160+ countries. To help self-employed professionals set better rates, Mike also co-authored Breaking The Time Barrier, which has been downloaded more than 300,000 times.

You can find Mike here:
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About the author

Hi, I’m Rachel Brenke

Rachel Brenke

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