What Do You Charge For?

I've written about my journey to learn how to charge a fair price for building a website before. But even after landing on a strategy, there is still a question that remains unanswered. What should I charge for?

Are you charging the price for the product itself? As in, the very cost for building a website? Or are you charging enough to make a living? This question applies to any field, whether you are a consultant, a mechanic, or a private chauffeur.

I once worked with a company that built websites for non-profits. Their price tag? $35,000 for a standard WordPress site. Lucky for me, I got a first-hand view of their price breakdown because they were trying to expand their reach to smaller customers. They needed to figure out how to lower the price, so they invited me to the meeting.

Every single person in the room was involved in building the website. The standard time frame to complete it was 6 weeks. So, the manager named each person, their title and how much time they spend on the project. There were the designers, the copy writers, the consultants that gathered the information. There were the sales people who started the process, the 2 developers that included me. Everyone at the table was indispensable. Then he gave a ball park estimate of salaries using glassdoor standards, and the price jumped to 35k. It was completely fair.

"What if we have Ibrahim as the sole developer on this tier?" the director asked. "And we use only one designer, and we can reuse copy." The manager crunched the numbers and we were still going to charge 25k. "What if I don't get involved at all in this tier?" the manager removed the director's name from the list. He contributed only a couple of hours of work, yet the number went down to 22k.

I originally thought $35k was an astronomical amount for a website, but their breakdown showed it didn't even include profit. The salary costs alone ate up the budget. The actual profit for the company came later, from managing the marketing campaign.

This is Cost-Plus pricing. You add up what it costs to make the thing, and that becomes the price. It feels logical, but it relies entirely on your costs, not the value you provide.

But then, there is another way. The market-based pricing.

Take a car, for example. A vehicle costs $35k because that is what the market is willing to pay for that specific make and model. The materials and labor to build the car might be significantly cheaper, or on occasion even more expensive (Rivian) than the sticker price. The price is dictated by the buyer's perceived value, not just the manufacturer's receipt.

This method became clearer to me after I started consulting. When I would get a new client, I initially tried to price based on the old model of calculating what I thought my time was worth from a salaried perspective. I later found that the recruiting company I worked with was charging clients $78 per hour for my services, while paying me $40. The market (or the recruiter's markup) was valuing my time at nearly double what I was charging myself.

Then, there is the wild card method. I've been the unlucky guy who finds himself out of town with a flat tire. I stop at the first tire shop I can find, and the worker doesn't size up my car; he sizes me up.

He decides how much to charge based on how desperate I look.

In those misadventures, the price has ranged anywhere from $20 to $150. I'm usually in no position to argue when I'm stranded on the side of the road. But how do they decide on those numbers? Are they making a profit? Or are they just charging whatever they think fills their quota for the day? This is opportunistic pricing, highly effective for a quick buck, but I don't think you can build trust like that.

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All these methods for charging have their pros and cons. My goal isn't to tell you which number to pick, but to encourage you to decide how you pick that number. My advice, in the simplest terms, is this: Be consistent.

Once you choose a method, it becomes your standard. Do not deviate. If you charge based on value today, but switch to charging based on your mood tomorrow, your clients will never trust your pricing. They will always wonder if they are getting the "real" price or just the price you felt like charging that morning. They will start looking for other consultants.

Pick the method that works for you, stick to it, and let your clients know exactly where they stand. Personally, I apply a value based pricing with my clients, where the cost is tied to their specific needs and the time required to meet them. It's a method that requires trust and communication, but it can be the most fair and profitable for both parties when applied consistently. When they end up with an obscene bill, at the very least they are prepared.

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