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| [statue of Icarus*] |
The question of when is a price proposal too high is quite complex. Last
week, I submitted a bid for a specialized service to an experienced
professional. In my proposal, I took into account my investments in terms of
time and energy as well as my assessment of his perception of value and ability to
pay for and appreciate the result. I would like to say the negotiation ended in
agreement but, alas, he wrote to me that I was far too expensive. My responding
email providing further justification of the amount elicited a respectiful but delaying reponse.
This process of guestimation is present in all price negotiation. The
service provider needs to consider all the inputs, including the cost of
living, time involved, material,
paperwork and a factor for the difficulty involved in the work. On the other
hand, since the value of any object is what another person is willing to pay
for it, the service provider wanting to maximize profit must somehow guess based
on known factors the amount beyond which the proposal is not relevant. For
example, in translation, these factors include status, i.e., agency or end
customer, price expectations of the location, e.g., Germany vs. India,
competition, and personal loyalty, e.g., does the customer know and trust the service
provider. To explain the last term, the expression better the devil you know
frequently applies to price choices. In most cases, the provider does not
actually know the budget or actual price proposed by other bidders. Thus, the minimum
price reflects all the costs while the ceiling is the assessment of the
customer’s definition of value and ability to pay.
Even with experience, it is difficult to accurately make that
calculation every time. Sometimes, it turns out that a higher bid would have
been accepted. Other times it appears that that the proposal was too high,
either after receiving a response stating that message or by the lack of any
response at all. The best strategy is to respond to a price complaint is to
explain or restate the benefits and ultimate value and possibly provide a small
discount as a matter of good faith, especially when dealing with people whose
culture involves negotiation, such as in the Far and Middle East. When a
proposal is tacitly or explicitly rejected without explanation, it is good
business practice to invest a few minutes reviewing the bases of the proposal
and ascertaining which lessons, if any, can be applied in the future. No
service provider wins them all.
Most of the time, individual cases without full knowledge of the reasons for the rejection create a poor basis for changing pricing policy. First, it is
often impossible to know if price was the actual issue. Secondly, even if
lowering prices in future bids does lead to greater volume, the resulting jobs may fill the calendar, often making it impossible to take on higher paying work, a
phenomenon called opportunity cost. Instead, a better long-range
strategy is to imagine, identify, locate and market to customers that can and
will pay the desired rate. Granted, in the short term, it may mean less income
but, in the long term, it greatly increases the chance of success on high bids.
As an example, luxury car manufacturers market to potential customers with the
relevant income, not young couples. While immediate needs may require a reduction
of rates, it is a risky strategy over time.
In practice, it is necessary to emotionally accept failure. No service
provider wins 100% of its bids. Furthermore, it is often impossible to
understand the factors involved in the final decision, which may only partially
involve price. To survive as independent, it truly helps to believe that a
great project is right around the corner. Admittedly, such a belief requires
faith but also is the product of a solid client base and consistent marketing,
two elements that the entrepreneur does control. It should be noted that some clients do later
return to the ‘high” bid when they discover that price and quality sometimes
correlate. As a positive factor, the failure to attain a job can mean more time
for children, family hobbies, and mushroom picking, to name just a few
pleasurable activities. All work and no play do not make for a balanced and
happy life.
Every freelancer occasionally reaches for a bridge too far and proposes
a price too high. Such events may be disappointing but help us grow and even
prosper. To apply that famous line by Tennyson (not Shakespeare), it is better
to have bid and lost than not to have bid at all.
* Picture subtitles help the blind access the Internet.
Picture credit: Image by <a href="https://pixabay.com/users/reinhardthrainer-10943633/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=5269657">Reinhard Thrainer</a> from <a href="https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=5269657">Pixabay</a>
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