Setting Your Freelance Rates? Make Sure You Understand the Psychology of PricingBy Charlie Kasov August 25th, 2014
For freelancers, that question probably triggers an overdose of anxiety. Setting prices for work is one of the more abstract tasks related to running small businesses. Too high and clients turn us down. Too low and we diminish the value of what we do.
Of course, we all want to make more than whatever the market dictates. And when a client or an editor determines our rate, then we can only counter. But when we have the opportunity to set our own rates, it’s like staring at a blank canvas. Where exactly do we begin?
The good news is it’s possible to squeeze out extra dough, as long as you know a few psychological tips. Subtle and sometimes counterintuitive pricing strategies can have meaningful effects on sales, and whether you’re a copyeditor for hire or a newly enterprising designer, understanding how to get the most out of your pricing is one of the few freelancing areas you can always control.
Math is more about emotion than you realize
The human brain doesn’t always make the best decisions for the human wallet. Our brains love to pick up on bargains, even if there aren’t any in the first place. That’s what accounts for the success of the left-digit anchoring effect.
When confronted with a price of $3.99, consumers are more likely to make a purchase than they would at $4.00, both because the decrease in value of the left-most digit and the presence of nines in the price. These little tricks implicitly signal to consumers that somewhere along the line, a price was slashed, and thus a bargain is to be had.
The same doesn’t necessarily hold true, however, for a price change from $3.70 to $3.69. As TipTap Lab explains:
“As we look at numbers we translate and map them onto a mental number line. This encoding process may occur before we even process all the digits of a number and thus our brain sees $3.99 and maps it close to 3 since that’s the first digit. In the case where the dollar-place does not change, more digits are required to make an accurate mapping (since the first digit is the same) and thus a more accurate assessment in the difference of values is made.”
The number nine is so powerful, in fact, you can enjoy higher sales at a higher price, provided the higher price ends in a nine. According to Terry O’Reilly at CBC Radio, “One American clothing retailer experimented by changing the price of a dress from $34 to $39 dollars and increased sales by over 30%.”
Keep that in mind when outlining your rates on a personal website. If an illustrator charges $149.99 for an image rather than $140.00, there’s a good chance a client will bite on the higher price.
The ramification for marketing is clear: Consumers’ perception of value is more important than their reception of value. Remember that the next time you’re waiting at the gas station.
Creating value through deals
Bargain hunters are nice, but as KISSmetrics noted, the right price point will attract value-seekers as well. “With appropriate pricing in place, you can offer customers options that fit their budget, while at the same time influencing ‘on the fence”’customers that your more premium offerings give enough benefit that their extra price is justified.”
To attract value-seekers, you have to create value, or at least the perception of value. Kissmetrics referenced a fascinating study by economist Dan Ariely about how consumers can be incentivized to select a more expensive option—and thus more profitable—option with the right cues.
The Economist had the following three pricing options:
— A web-only subscription for $59
— A print-only subscription for $125
— A web + print subscription for $125
At first, Ariely thought the second pricing option was “useless,” since who would opt for “print-only” if “web + print” was available for the same price? Besides ironic Luddite hipsters and defiant grandparents, no one would.
However, when Ariely ran the deal without the middle option, fewer consumers opted for the more expensive deal. The second price is a hollow price, but its mere presence inflates the value of the third.
Since we all like deals, why not motivate a client to pay a little extra by adding some incentive to a bundle of services you were going to offer in the first place?
Fussy details are worth the fuss
Using psychology to set optimal prices is an art form, and a good artist weighs the merits of every detail. According to a Carnegie-Mellon study covered by Ruben Gamez at 99U, listing a shipping cost as “a small $5 fee” instead of “a $5 fee” increased the desired response by 20 percent.
This tactic could even work when negotiating with an editor for a one-time assignment. If he wants to pay you $200 for an article and you ask for a “small” increase to $215, as opposed to just stating $215, you’re framing the terms before he even has a chance to think about your request.
When setting your own prices, maybe you feel adding a word like “small” makes you sound too solicitous or pushy, even desperate. Or maybe you think the addition is too trivial to make a difference. However, you don’t need a degree in psychology to take advantage of these pointers. As Gamez wrote, “Using words like ‘small,’ ‘minor,’ and ‘low’ might not seem like a big deal to you, but they matter enough to clients to justify higher rates.”Image by MARK LENNIHAN