Press This: The Psychology of Pricing: A Realistic Approach to Pricing Agency Services with Brian Rotsztein

Welcome to Press This, the WordPress community podcast from WMR. Here host David Vogelpohl sits down with guests from around the community to talk about the biggest issues facing WordPress developers. The following is a transcription of the original recording.

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David Vogelpohl: Hello everyone and welcome to Press This, the WordPress community podcast on WMR. This is your host, David Vogelpohl. I support the WordPress community through my role at WP Engine, and I love to bring the best of the community to you here every week on Press This. As a reminder, you can follow me on Twitter @wpdavidv, and you can subscribe to Press This on Red Circle, iTunes, Spotify, or download the latest episodes at wmr.fm. In this episode, we’re going to be talking about the psychology of pricing, a realistic approach to pricing agency services with Brian Rotsztein Brian, welcome to Press This.

Brian Rotsztein: Thank you. Thank you for having me.

DV: I’m so glad to have you here to talk about this topic. People who’ve listened to the show maybe over the years know that I ran a WordPress agency and pricing strategies were a big part of how I thought about operating the business. I’m really interested in unpacking your view of this. But for those listening, Brian is the author of an upcoming book at least is the time of the publication of this episode, called the psychology of pricing WordPress edition. And in this interview, Brian is going to share his thoughts about the essential pricing models and their shortcomings as well as including tactics and strategies for overcoming some of the shortcomings and I know pricing strategies with freelancers and agencies is an endless topic in so many areas you can get right, of course and an infinite regress that you can get wrong. And so really interested in unpacking the story with you here today. Brian before we kick it off, though, and ask you the first question I ask every guest, could you briefly tell me your WordPress origin story?

BR: Sure, so back in 2005, I had already been building websites for several years. And people would call and ask for what was basically a content management system and terms like content management systems were very common back then, but that’s what they wanted. And I have recently discovered WordPress as a blogging platform. And I knew this blogging software, and I’d offer it to them to people calling in and some people like had heard of it and they’d be like, Well, isn’t that logging software like we don’t want that and then they would basically you’d like to brush off the phone and go elsewhere. But once in a while, somebody would say okay, whatever, you know, you’re the experts or sell off that. And I started selling WordPress websites like that, like, you know, 17 years ago, when the rest is history.

DV: Excellent. Well you know, to be fair, in 2005, I would say we’re in present was a blogging platform and a lot of ways right like widgets and shortcodes come out in 2007 custom post types, not until 2010. So it sounds like you’re a little ahead of the curve there and leveraging WordPress through this notion of making a CMS website with WordPress.

BR: Oh, I truly was I actually I consider myself to be one of the first bloggers on the planet. I started blogging in the late 90s. And back then I literally use the blog manually and add a link and description to the homepage of my site that you could click to read the rest of the post. It was like very labor intensive, because there was no automatic way to do it.

DV: So you basically effectively had like a hand coded site you’re exactly or nice or you were using an editor of any kind Dreamweaver or

BR: Yes, Dreamweaver. I was using dream I started off with AOL press for those like, you know, really old and and eventually switched to Dreamweaver.

DV: I didn’t even realize AOL had a web page builder. That’s interesting.

BR: Yeah, that’s actually what I first built my first website I built my first website, April 1 1997. With AOL press is pretty crazy.

DV: Ah, very interesting. Yeah. I remember those days. Well, I did read the AOL press though. I’ll have to look into that a little more. I’m very curious. Now. There’s some antiquated copy out there. I could even play around with for fun. I’ve been very very boring life right.

BR: Don’t say that. I hate hearing that. I wonder exciting life and I hate when friends are boring. To rely on me to give them stories.

DV: I just teasing that I like you know, antiquated website. Management Systems and like play around for fun. All right, cool. So I understand. You’re with a company called uni SEO in addition to the book, but could you tell me a little bit about uni SEO and what your role is there?

BR: Sure. So actually, I tend to pronounce it uniceo Even though most people read it as really SEO, I guess it was an oversight. When I named the company. There was actually my second web company. My first one was redstone online communications or redstone x.com from back in 1999, which is more general offering General Services and in 2004, I was like, You know what? This SEO thing seems to be taking off and I took a gamble and I started one of the first ever companies dedicated exclusively to SEO. And so that’s all I did in the beginning for the first few years and I had like calls from around the world and it was i Seo did very well and it worked well and things were great. And eventually as social media came along and so on, so forth, everything expanded. And so now we’re like a full service, small agency. So we build websites for small medium sized companies. We do WordPress maintenance, work plans. We focus on SEO, content marketing, do a lot of training, consulting and coaching, especially for enterprise level companies. A lot of times they have new employees, and they’re like, Okay, well, we need to get everybody up to speed on what’s going on in the Content Marketing World. So I give a lot of content marketing workshops, and like intro to SEO workshops, things like that. But I’m also I’m always looking just the quick plug. I’m always looking for fresh talent. So if anybody listening needs work, then hit me up.

DV: Excellent. Excellent. I see you’re taking your pronunciation of the brand notes from SEMRush with Yun SEO in SC ADDYs uniceo. And this year, got it got it. made up a word that’s like Pepsi, right?

BR: It’s like universal SEO, I don’t know, unique SEO, like whatever. It’s just native.

DV: It’s the pronunciation of initialisms are at the whim of their creators. So more power to you there. Okay, so let’s let’s talk about the book. It’s it’s coming up as of the time of this episode initially being published. Could you tell us a little bit about the title of the book and what’s in it?

BR: Okay, so it’s called the psychologist Right to Work First Edition, as you mentioned, and it’s actually three books in one. I spent like over six months almost as a full time job writing and writing and writing. It came out to 600 pages. It was crazy. I gave it to a couple of editors. With all of us, we cut it down to about 400 pages, and it’s both Okay. Well, the first book is basically the first few sessions are our covers like pricing mindset and client psychology, pricing tactics and strategies, for example, negotiating with clients, and it’s about pricing activities surrounding pricing. And the big focus is focus is on getting the price that you want to keep a repeat like it’s about getting the price you want. Sorry. So like I keep repeating, like, if you want to get the price you want know this and do this and do that and whatever. So I’m constantly giving like tons of advice on what to do. The next part goes into like, great detail about the different pricing models, pros and cons when it’s best to use each of them how to calculate costs, and so on. And then the final part or the final book that’s going to squeezed in there is an introduction to pricing for content creators, theme developers and plugin developers but it’s it’s a very basic intro, but it’s just to kind of get you thinking about it in case that’s something you’re interested in.

DV: Like a product focus, and vision and pricing, and it’s kind of what I’m hearing in there. I mean, maybe the content piece threw it off a little bit, but is that a fair assessment of the third section?

BR: Yeah, you can you can look at it that way. Yes. And I actually have in the description of one of the pricing methods is productized services. And so and that’s I talked about that as well, because I think productized services is something that is very underused in our industry. And I think that it could do really well for people, if they would look more into it. And even looking up online, there wasn’t that much information. So I just drew on personal experience and wrote up a huge chapter about it.

DV: Is this productized services like maintenance and care plans are like more than that?

BR: Yeah, that kind of thing. If you want to run hosting needed care plans, like making like a little bundle, a small package you know, like five page website with one photo one hero image, what have you things like that, just to give people ideas about how they can make like a standard product to sell.

DV: I get it I get in the near leveraging maybe technology behind that to make those things go faster.

BR: Exactly. That’s exactly. So so and just so you know, like, there aren’t that many books on this topic. And I couldn’t understand why like there’s tons of blog posts and articles and what have you, but just have a lot of books on it. And I realize it’s because it’s because of the topic itself. It’s like I mentioned this was a book on taxes like no one wants to read a book about taxes. So when it comes to pricing, like nobody wants to think about pricing, either, you know, they’re thinking about it all the time.

DV: Maybe they’re just not realizing there’s there’s ways to go about it that are not obvious to them in the moment.

BR: Yes. Okay, fair enough. And, you know, and there’s no perfect solution. And so I took my 25 years of experience and put it all together and I still flip between different approaches all the time, depending on the situation but later on, I’ll tell you more about getting

DV: I want to talk to you about this approaches and kind of where people might typically come at it from Maybe different ways of thinking about it. But we’re gonna take our first break and we’ll be right back.

DV: Everyone welcome back to Press This the WordPress community podcast on WMR. We’re talking about the psychology of pricing for WordPress freelancers and agencies with Brian Rotsztein. Brian right before the break you were telling us a little bit about your book that it has three sections covering basically the pricing mindset and tactics, pricing models and then kind of an intro to pricing. I’m gonna maybe describe it in the wrong way but around products and productized services. And so I want to kind of get a little peek though and help me help me in the audience understand a little bit about how you think about it. But what do you think is the like maybe we’ll start with like what do you think is the big issue that prevents people running businesses like freelancing and agencies from paying more attention to their pricing? Like what what’s preventing them from changing or considering change?

BR: Okay, so there are a few issues and I’ll just go through them like one at a time here. So the first one is there’s a huge lack of realistic information out there. So you can look it on the blog posts and articles and you might say get some basic explanation. You know, everyone just says you know, know your numbers know your costs, whatever. But I couldn’t find a realistic approach. In my searches like you know, do people know what their objectives are as a business, you know, short term, medium long term? I find that no one’s talking about that, but even more so. I touch on things especially because I’m talking about psychology things like do you know your own temperament? Do you know about how you are dealing with clients, you know, like there’s so many other factors involved. And so, sometimes, you know, you need to hear something in a certain way or, you know, click on your mind or even hear something for the first time. And I said, You know what, I’m gonna write a book on it so people can get that information. And so the book is meant for beginners in general. If you’re more seasoned professional, you will read a lot of and be like, Yeah, I already know this, but there’s still a lot in there for people who are more experienced and you know, I see patterns of people always asking the same questions. And even I fall into that at some point wondering certain things so I wrote the book on it. Now the next issue is red flags and qualifying potential clients alike. If you want to get the price that you want. You can’t treat all clients the same, you need to filter them you need to qualify them. And what I find is all these pricing models, models ignore that. So for example, I describe a whole bunch of different people that you want to avoid or types of people that you want to avoid. One of them I call, I name things a lot. So one of them I call like the 4:59pm. Friday caller. So what’s the problem with this person? Well, most of the time, there’s somebody sitting around the office 4:59pm On Friday, and he calls you and he’s like he’s just brainstorm an idea. Like, I need a website for my business. And you have this whole great conversation. And, you know, Monday morning comes around and you’re putting together a proposal. And it’s 11am you give them a call and you’re like, yeah, hey, it’s it’s Brian from you know, we spoke on Friday. Just want to clarify something for the proposal. And, you know, the guy would be like, well, they don’t even remember you. Like, he’s like, it’d be like, I don’t really remember that conversation. You know, like, they don’t remember you like the guy you spoke to at 4:59pm. Friday is not the same person that you’re speaking to Monday at 11am. And so, you know, that’s the kind of person to watch out for, like people who call late Friday afternoons. Forget about it, like, most of the time. They’ve been a waste of my time. And obviously, I’m giving anecdotal experiences. But this is the kind of filtering that I suggest and I have a whole list of detailed explanations about, you know, who and why you might want to avoid if you’re trying to get the best price you can. The next one, and this is a huge one is the confidence problem. There is a gigantic confidence problem in our industry. And so what I always ask people is what do restaurants and cell phone companies and your landlord have in common? And the one thing they have in common is never apologize for asking, paid and or giving you a bill or you know, getting the rate that they want, and you shouldn’t feel embarrassed for asking to get paid at the rate you want. And you know, embarrassment can’t be the thing that stops you. And so I have a gigantic protection on competence on on building competence. And so here I’ll give you like a couple of quick examples. So one is the most empowering thing you can do when someone catches you off guard during the conversation is use the whole you know, like, you’re in the middle of negotiations, or discussions and you say, Okay, it looks like there’s gonna run you $3,000 and the potential client says, Can you do it for 2500? Your instinct is to say yes, yes, no problem. You want the work. You don’t care what’s 500 bucks when you’re getting 2500, right? It’s like, you get excited, but it shouldn’t be that way. You know, like, you don’t you shouldn’t panic. And so you say you know what times but you want to quit cold. I have never in 25 years had a problem with someone say no, you can’t put me on hold. You put them on hold. You take a deep breath. And you say okay, you know, like, I can’t get this guy this discount and you get back on and then explain to them, okay, I can’t give you this discount. 3000 is a fair price. Take it. Now another one is what I call the politician method. And that is if you want to build confidence in your pricing negotiations, make sure you have your talking points ready. It’s super important.

BR: If you if you can’t even answer the most basic questions. Like when somebody asks you some something about pricing. That’s a problem like the first time you’re thinking about potential answers can’t be when they asked you on the spot. You need to like think about this in advance. And the example I use in the book is like on Pawn Stars. So I used to watch Pawn Stars a lot. And I was I was interested in seeing like how they interacted and I noticed that Rick, one of the owners of the store, were offered, let’s say $500 to buy something so person Washington store says I have this antique whatever Rick looks at it, because he can resell it says here’s 500 I’ll give you $500 For a client’s will say actually, how about $600 So, you know, they go up because they you know, they for whatever reason they want more money that they think it’s worth more, what have you, and how does Rick respond? He’ll say, Well, you know what, I could offer you less than $500 How about $400 And all of a sudden 500 Seems like a good deal. And so he has that prepared statement. He already knows what he’s gonna say, to make sure that he gets the price that he wants, and he doesn’t panic. That’s the key. And I think that again, like we have a huge confidence problem in the industry. People tend to panic and when it comes to negotiating for price, let’s say, you might say something like, you know, I didn’t think you know, if the client says that it could be that expensive, then you know, maybe you can say something like well actually look at it as an investment. Don’t look at it as an expense. You’re gonna make it you’re gonna make money with it. It’s a worthwhile investment. And then the last part is knowing yourself, and knowing if you have like personality issues, so I know that like sounds really bad. But here’s the thing, just hear me out here. You’re trying to persuade someone and so you have to consider your personality, their personality and the interaction of the of the two personalities. And I come from a psychology background, I taught psychology McGill University in Montreal, I taught psychology at Boston College, and I used to teach something called the theory of multiple intelligences. And there are kinds there are different kinds of intelligences and when it comes to this type of negotiation, some people are great at interpersonal intelligence and have great interpersonal skills. So they can easily move easily build a rapport with clients, but people have to be aware of their own shortcomings. Like they have to know if they’re introverted or extroverted because you’re going to approach your negotiations differently. That’s type of thing that has to be factored into your decisions and math only or calculation only based approaches to figuring out your prices ignore human nature and your own human nature and that’s a problem. You know, if your personality clashes with a client then you have to know why you’re getting angry and you know, learn to manage your own personality and fix that. Early in my career. I used to be much more abrasive with clients. And then over time, I realized wait, this is a problem I can’t do this way and I became much more self aware. And I strongly recommend people that people become more self aware when they’re negotiating prices, because it’s a big factor.

DV: So it sounds like to recap thinking about like how you view the blockers on people kind of leading into pricing strategy. Is that one they’re not really getting realistic advice and what they’re reading out there and ways that can, you know, potentially materially affect their business. They’re not necessarily, you know, acknowledging or dealing with the quote red flags and qualifying clients, I think, you know, that’s one of the hardest parts of raising prices, I think, is saying no to people. You know, it’s really good to hear that you also called out that confidence problem. I don’t know how many threads I’ve been in where people are like, you know, what should I charge and they’re like, $50 an hour for custom plugin development. And you’re thinking yeah, you could charge more than that. Right. And so but it’s also that confidence problem like negotiating in the moment. And I think that was also what stood out with based on what you said. So like, how you said, knowing yourself and knowing how you work, I would imagine that would also maybe play into the kinds of services you offer like are you going to jam on maintenance plans? Are you super creative, maybe and maybe project based, it’s better for you for that reason. And then I really liked your kind of reference to like, learning where your strengths and weaknesses are and like offsetting that that really, really hit home. I used to not be as personable and I would bring along a personable person with me into the deal so they could you know, where their kids birthdays are and all that stuff. But this, this points really hit home. I think, though, to be a little bit more specific. I’m on the podcast and I’m trying to understand also what you think of the kind of popular pricing models people use and maybe what some of the advantages and disadvantages are but we’re gonna cover that after our last break.

DV: Everyone welcome back to Press This WordPress community podcast on WMR. We’re talking to Brian Rotsztein about the psychology of pricing. Ryan, right before the break. We were talking about some of the reasons you felt were effectively blockers for people running a freelance or agency business thinking or optimizing their pricing. Kind of want to understand like what are the maybe more shortcomings are good or bad of the popular pricing models and how can agencies and freelancers think about their pricing models differently to have a better outcome?

BR: Okay, well, so there are a lot of different pricing models out there. And I discussed a lot of them in the book in heavy detail, but there’s three that really stand out for our industry. So there’s hourly pricing, and one of the main shortcomings there is if you get better at something, you can do it faster. If you do it faster, you don’t get paid more, you get paid less. Because if you’re charging, let’s say $100 an hour and it takes you eight hours to do something. You explain that to the client and they’ll give you $800 For the eight hours of work. But then if you get so good at something that it takes you only one hour and he told the client will take me one hour but it’s going to be $800 There’s no way they’re going to pay that fee. So that’s an inherent built in problem. Then I talked about fixed rates and project fees, which I put together in one chapter. And you know, you run some numbers and you come up with a price and that’s okay. Like that’s, that’s the way to go. And you might ask a couple of questions like, you know, is the client rich? Do I have time for this? Maybe add a few bucks on to the price but that’s more or less and then there’s value based pricing where you need a long standing relationship like I know a lot of people are talking about value based pricing these days, and it is great. But in order to do that, you can’t just do like you can’t just approach a new client and go with value based pricing like, I mean you can but it’s most of the time it’s not going to work especially for like the smaller freelancers and agencies. You know, asking a new client who doesn’t really know like you how you work, how trustworthy you are, the quality of your work, and so on. Like, they might They might even be offended or insulted that you’re asking them you know, how much money do you intend to make with my services? Because I’m going to take a percentage of that.

DV: So trust issues on the agency side to like, are they actually going to pay me this performance based income in the future?

BR: Yes, absolutely. And I talked about that as well, like right on. So there’s a solution for that. So what is the solution? So I’ve come up with with a model that I’ve formalized, that I call relative value pricing and that also takes up like a huge chunk of the book. And just to be clear, there’s, there’s like the wrong sorry, the only wrong price to charge is one where you’re losing money. So there’s no absolute right or wrong. There’s just better or worse, let’s say. So based on years of trial and error in my office, we came up with an approach where we base everything on unique scenarios. So what are unique scenarios, so you have to ask yourself, is it a rush job? Is it a friends and family job? So they’re asking for a discount? Is it a quote for a difficult client? Is it a request for proposal or RFP? Are they looking to partner for your services? Is it a nonprofit organization? Do they have a substantial budget and you know, maybe out of your league, is it you know, pro bono work? And so, you look at the circumstances and I explained in detail, you know, what do you do in each of these circumstances and I have a whole bunch more than just a handful of them. And there’s a chapter on each of them. And they say look, in relative value pricing in a relative value pricing model, you have to examine the opportunities and risks of taking on that client, and that helps you get to the price you want for the scenario. So some examples of opportunities with the client opportunity questions like Is there potential for more work from this client? Can you get referrals, growth opportunity questions like will you learn and gain more skills from the project? Does it give you an opportunity to collaborate, you know, to get experienced there to find people to work? With there? You look at the scenario and project itself and ask questions about that. So is there a timezone issue which will make the project harder to deal with? Is there something about the project that you’re hesitating on? You know, like, are there some last minute red flags that are appearing you know, it’s kind of like your chance to ask it one final time. And then questions about you within this scenario, like, are you ready for this project? Do you have time for this project? And so you go through this, this whole analysis and you build on kind of like the fixed pricing model, and you take it a next step, and that’s what relative value pricing is and I’ll just give you like one quick example. So let’s say somebody calls you and they want a website for a laundromat. So you run the numbers and you say, okay, my price is going to be $4,000. Okay, that’s great. However, the laundromat is owned by your cousin. So what do you do? So that that places them into the friends and family discount scenario? So that scenario has its own unique issues such as family politics, you ask a bunch of questions and consider the potential future problems you may have. So this is these are the kinds of things that I point out. So for example, your mother might give you a hard time if your cousin doesn’t at least get like a 10% discount. So you have to think about that, because that factors in and so, you know, the relative value of the project has now changed. It’s not a $4,000 purchase anymore, because the scenario has had effect an effect on the price. So as soon as I give you

DV: sorry, to say it sounds like what you’re effectively recommending is to take the balances of the risks and the opportunities things like ongoing business in particulars and effectively create your own kind of customers, but relative value pricing structure, that either increases or decreases the price based on the combination of those variables. And what is the like, real sure about like, what is the ultimate benefit of doing this?

BR: Okay, so it’s to account for all the realistic variations. of scenarios that will come up in your in your business life. So for example, okay, so in this in the friends and family discount discount scenario, so you knock off 10% So you lose a little bit but you save face with your family and you know everybody’s happy, but if it’s a rush job, then you I suggest maybe adding 50% do the job and getting it done, you know, within a day or two. And so, you know, you’re getting a higher pay to account for the fact that you’re pushing other clients aside or the fact that you know, maybe there’s something going on in your life that you’d have to put aside so you can finish the job more quickly on top of the lift for the rest job kind of thing and still basically satisfied. This is incredibly interesting. I wish we had more time. Check out the book when it comes out, I guess in the next couple of weeks as in the time of the published date.

DV: Yes, but this was super interesting. Thanks, Brian. All right.

BR: Thank you.

DV: Yeah, of course. If you’d like to learn more about what Brian is up to or to get on the email alert for the publishing of the book, the psychology of pricing WordPress edition. You can visit rotsztein.com That’s our rotsztein.com Thanks, everyone for listening to Press This the WordPress community podcast on WMR. Again, this has been your host David Vogelpohl. I support the WordPress community through my role at WP Engine and I love to bring the best in the community to you here every week on Press This.