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I live in the same world as you. My business has a proven model for digital publishers that generally increases their yield 2-4x yet they refuse to spend the percentage needed to make the deal happen. Sometimes pride can be so large...spend 5k to make 50k? No thanks..lol

> generally increases their yield 2-4x

> spend 5k to make 50k

I'm sure it has nothing to do with people making numbers up.

Have you had success overcoming that? I suspect a rational counter won't win over an irrational objection. But will an irrational plea (eg play to their ego) work?

As someone who has operated in the world of digital advertising, this may have more to do with the fact that so much bullshit has been slung at both advertisers and publishers that there is an incredible amount of skepticism about advertising products.

I understand that I don't have the same insight into your customers as you do, but to give a counterpoint, I charge significantly higher than $5k for my services and my customers don't receive any tangible improvement to their revenue as a result. I have not found that they are incredulous about my rates, let alone due to pride. Maybe there's something other than pride at play here, such as market dynamics or your product?

Your customers' pride could be one reason why they refuse to spend that, but have you considered that this is an uncharitable perspective? Don't you think it could also be because they have honest reservations about your product or better alternatives for their business than that they are obstinately refusing to just hand over their money to make $50k?

I think it's much more likely that the situation is actually quite nuanced with competing incentives, priorities and perspectives on either side. An information asymmetry is not the same thing as irrationality.

1. They don't believe the benefit will be realised in their circumstance.

2. There is both opportunity cost and hidden cost for trying your solution.

And to add, these are reasonable things for a consumer to believe that are not evidence of irrationality.

Well, much of the customer doubt has to do with companies promising things they can't deliver. The phrase "If it's too good to be true, then it probably is [too good to be true]." exists for a reason.

> Because a discount to them signifies a moral victory, or that they're not being taken advantage of, or they simply want to believe they're great negotiators or something like that. I don't get it, but I have seen it often enough for it not to be unusual.

Then why not raise your price to $99, and let them negotiate you down to... $35?

Because most customers don't like, or don't know how, to negotiate (yes even B2B customers where you would think this is the norm). So if the initial price is too high, they won't even bother to talk to you. The conversation literally dies.

Alternatively, they know how to negotiate, or don't mind it, but given the bigger picture it's not worth their time to go back and forth through the intro emails -> demo conference call -> pricing negotiation loop with every company that has high prices, and they are faced with an information asymmetry as to which ones are worth it.

When I think of how much of my life sales people have wasted on meetings and calls and blah blah it makes me want to cry. Just tell me the goddamn price. I'll tell you if it's too much.

Oh, yes. When exploring a new domain, the "call us for pricing" people get put at the end of the line. We're not an enterprise, and we're not going to waste our time with sales small-talk before we've even seen what the product can do.

If you can get such a big discount, that's a red flag: the price was bogus, I'm being conned (or, more charitably, a communication error might have been made). It's typical for enterprise purchase of software or IT services, for example, to either discard or put in question offers that are quite below their competitors in the RFP.

But on the other hand, again, when dealing with enterprise purchases, the purchases department needs to demonstrate that they bring value to the table by lowering costs. So it is typical to make what you suggest and account for a commercial discount of 3-10%,depending on purchase size, etc.

You need to fight for it, but you are safe to grant it in the end.

This might happen even if you don't know about it, if your boss sets the prices and you can request a special discount for special clients.

You've just described the business model of essentially every department store.

Yes.

Too true. I had a potential client who had already spent months and a bunch of money on external consultants regarding an intermittent identity management integration issue. They heard about me through word-of-mouth.

I offered a fixed-price "no win, no fee" rate equal to about a week of my normal hourly rate. I thought it was a great deal given how much they'd already spent, plus it gave some certainty to them around something could have been very messy and open-ended.

The client got hung up on, "What if Tom only takes an hour to solve it? What an expensive rate! What a rip-off!" They were more concerned with seeing me put in time and effort than actually getting results.

I've seen this so many times...

Forgive me if this comes across as patronizing, but I think you might avoid this in the future by doing the following:

* Charge daily or weekly, not hourly.

* Don't anchor your results to "free" (this includes not getting paid unless specific results happen).

* If a customer has been repeatedly burned by other consultants and believes this problem could be solved in an hour, consider either 1) avoiding those customers or 2) working on an agreeable scope that precludes an absurd amount of time.

I'm not saying that will fix all your problems, but if it helps, I've never encountered this issue with this formula.

That's good advice, but I don't think getting paid to produce a specific result is anchoring to "free". I guess it depends on how precise the scope is. If it sounds vague and up to the client's discretion, that they just want free work on spec, then run away. But if it's easy to define and measure, then it's a useful way to signal competence and avoid anchoring to a rate instead of the business need.

Anyway, I'm happy to say that I avoided this customer (and others that care excessively about timesheets) and I have no regrets.

Anchoring is a different effect than you might have thought. In breakthrough research, it was shown that when people were asked to write down completely random numbers (such as the last four digits of their social security number), before taking a guess at the value of a home (say; might have been something else), it had an absurdly strong effect on the value of their guesses. (People with coincidentally high last-four-digits wrote much, much higher ones than people with coincidentally low last-four-digits, even though it's obvious they wouldn't have even thought twice about it. If I asked you to think about the last four digits of your social security number, what that happened to be would impact any other valuation you were making immediately after.

The mere mention of a number - any number - "anchors" psychologically in an absurdly strong way.

So in that sense, the statement: "I offered a fixed-price 'no win, no fee' rate" includes the literal mention (like the social security ending digits 0000) of "no fee" -- so it doesn't matter what the sentence is. The sentence could read "Obviously I wouldn't be able to do it for no fee" and it would anchor to $0, whereas, if you said, "I obviously wouldn't charge a hundred billion dollars" it will anchor it to a hundred billion dollars.

These effects are incredibly bizarre. I'm not an expert salesperson but I do know about them.

---

I guess I should give a reference: http://www.nytimes.com/2011/11/27/books/review/thinking-fast...

Is a good introductory article. Daniel Kahneman is the name most associated with this research, or at least reporting it, and he won a Nobel prize* in Economics in 2002 for his work.

* (the Nobel Memorial Prize in Economic Sciences by the Swedish National Bank)

FWIW the phrasing I use with clients is "fixed-price for successful completion of the following objectives" so it's a bit of a moot point.

I do think you're overstating the research though. Many studies of unconscious priming haven't been replicated, and psychology as a whole is very subject to publication bias. [1]

Anchoring is a real effect, and I'm a fan of Kahneman (especially prospect theory), but the evidence about "incidental" influences is very weak.

[1] http://www.nature.com/news/over-half-of-psychology-studies-f...

(the research I read about was way stronger than just statistically significant, or something like it. I would be pretty shocked if it failed to be replicated. It's a very strong effect.)

The phrasing you say you actually use isn't an anchor. But you can still try different ways of phrasing it!

Extremely subtle differences in phrasing can have huge effects on people's reactions. If people are not reacting reasonably, try a slightly different phrasing, as well as different offers :)

> Charge daily or weekly, not hourly.

This can work for the provider of a service, in certain circumstances.

But my opinion is that it is always better to charge a price that reflects the value delivered, no matter how long it takes to deliver that value.

There is a (possibly apocryphal) anecdote I read once in which a consultant was brought in to service a machine with many parts. He replaced one part and invoiced (say) $10,000 for replacing a part worth $1. When asked why his bill was so high, he said: "I charge $1 for the replacement part. The other $9,999 is for knowing which part to replace."

As knowledge workers, those who are skilled must remember that "hours spent sitting in a seat" is not a valid measure of their productivity and should not permit clueless managers/clients from judging them in that way.

Yep, I agree. Part of my philosophy in charging weekly is to abstract away the cost from an hourly metric and anchor it closer to the project itself.

When I was freelance I noticed that some consultants got the big checks without question whereas others got nickled and dimed for the same work. I think the key is to be able to "talk business" with the business people. It's a skill to have. I didn't :-(

The blame also needs to fall on those who came before us. Everyone has been burnt to some degree by benefits being poorly forecast.

A bit of business advice my sister got for her hair salon recently was to double the prices overnight. They were skeptical but were out of options so they gave it a go. Now they have less customers but they can give they ones they do have more attention and a better experience and the ones they lost were the troublesome customers anyway, so now they make more money from less customers.

It was an interesting example of how it's best to not try and please everyone.