“How much should I charge?” The dangers of working for free.

20 Comments

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I get a million questions about how much to charge for your services. This is a lot of fun to talk about since pricing is deeply rooted in psychology. Also, most of us have crippling beliefs that cause us to dramatically under-charge.

I say this from experience: I’ve worked for free, I’ve charged $25,000 for a half-day of consulting, and I’ve created ebooks/courses that range from $4.95 to $12,000.

I would have never expected the things I learned along the way.

To start, read this fascinating article about how WW2 veterans don’t like the Red Cross.

What happened? The Red Cross originally gave away donuts for free, but later, when they tried to charge for them, people hated it.

What can we learn from this?

First, people hate having something taken away from them — like a free service. Whenever companies originally start off as free, then later charge, there will always be an angry contingent of pitchfork-waving people who are angry that the service isn’t completely free any more.

I catalogue these whiny freeloaders here.

Second, it’s not always bad to work for free! I’ve done it many times. The key is (1) working for free strategically, and (2) always communicating why you’re doing it.

Example:

You work for free to build your portfolio so that when you charge, you’ll have something to show prospects. Ramit’s judgment: Good

You work for free because you think that later you will magically be able to charge the same client $100. Ramit’s judgment: You are dumb

You work for free because you know that the person has a huge network, and if you impress him, he will introduce you to all his friends. You make this explicitly clear up front. Ramit’s judgment: You are very savvy

A good phrase to use when working for free:
“My normal rate is $55/hour, but since I really like what you’re doing, I’m willing to waive my fee for the first 2 weeks. Assuming I do an extraordinary job, after two weeks I’d like to discuss my normal rate. Does that work for you?”

If you guys are interested, I have a lot more material on pricing and marketing. Sign up here to get it free: www.earn1k.com.

 

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20 Comments

 
  1. Charlie Hoehn’s Recession Proof Grad is a great free ebook on how working for free can lead to great gigs. He has worked with Ramit, Tucker Max and Tim Ferris.

    • Agreed, Charlie’s thing was awesome

    • @john thank you for the link.
      Charlie explains (17 minute video) that there is a limit to the free work (2 weeks) and there must be that understanding when starting the free work.
      This pairs with what Ramit wrote:
      “You work for free because you know that the person has a huge network, and if you impress him, he will introduce you to all his friends. You make this explicitly clear up front. Ramit’s judgment: You are very savvy”
      Setting those expectations is key.

  2. We did exactly one free demo movie on the way to our seven figure business. It’s called anteing up. And we will do it again when we move into the next phase.

  3. The idea you mentioned about waving a fee for the first two weeks then going to a normal rate is pretty similar to what they use in real estate rental prices. They know it can be tough to offer similar units at different rent prices so they offer promotions like “first month free”, “reduced deposit” or the like.

    I think deciding what to charge is what can be difficult for most people. I like the idea of building a portfolio or offering value to someone (especially upfront) in return for access.

  4. I recently spoke to a friend that expressed the same concern. In her case, she underpriced her services and later wanted to charge more (for the same services). Her clients complained that they wouldn’t work with her any longer because they didn’t understand why her rates went up.

  5. Figuring out how much to charge can be a slippery slope. It’s not good to start too low because it’s always difficult to RAISE fees. It’s not good to start to high because then you’ll struggle finding clients or customers. I like your method of offering things for free during a trial-type period.

    • I agree, it’s a very slippery slope and several factors need to be taken into consideration. I think being clear with your approach from the beginning as to what your price currently is, and how much it could increase like Ramits point about working for free for 2 weeks, and then revisiting is a great method. This will allow you to showcase your work without having your customers ask why your prices suddenly increased.

  6. You know, I was just having this conversation with my girlfriend in the car today. I think one of my biggest struggles is realizing that as my skills have greatly improved, so has my earning potential. I shouldn’t fidget at quoting someone an hourly rate of $100+. The difference is that, as opposed to working for low, crappy wages — you really have to deliver when you’re charging premium prices. Much more responsibility when people but dollars behind you.

  7. I coach runners at teachtorun.com and as experiment to improve my services with fresh voices and gain new potential clients I did a promotion for a months worth of free coaching. I’m in the second week now and still have a few free slots open and will report back later here if anyone is interested.

  8. Hey Ramit

    Personally i think it would depend how much time you’re willing to deliver that particular service, for e.g i know you spends 12 to 18 hours writing a single blog post. If it were i would charge between $100 – $200, but at the end its a catch 22 situation. What do you think about it?

    • Listen to Bill Cosby. If you want to rise in economic status in this world? You have to learn the statust dialect. I’m dyslexic and make horrible typos. You? I have no idea what you are talking about.

  9. I think it really depends on the situation. I know on websites, when they offer free stuff like an ebook, app, or download people love it and usually end up becoming subscribers and readers of the websites. Later on, the website can offer other products at a charge, and people will often buy.

    However, I have also seen blogs that had no advertisement, and as soon as they posted advertisement people got upset. They weren’t even charging, but the fact they put advertisements up upset many people.

    Also, in stores they give demo’s of food all the time. No one expects to get the whole product for free.

    I think in the end, it comes down to COMMUNICATION. If you are clear that the discounted price is a one time offer, and list/explain your usual prices, people will be more understanding. Also, if you offer something free make sure its clear it’s a special offer.

    I think before you begin any venture you have to figure out what fair price you will be offering for your services on a regular basis. Than, you can lower the price as a “special” to get customers. Make it a very special offer, and it might just work out for you.

  10. I am offended by your arrogance ignorance. The citizens of this country contribute to the Red Cross to provide services not charge for them. My stepfather was wounded/shot during the Korean conflict by North Koreans and being transported by airplane for care. The Red Cross said he could have a blanket to prevent shock if he paid for it. He had no money so no blanket to prevent shock. Vets are not offended so much by donuts as by the lack of true service by the organization that American citizens expected for their contributions. .

  11. “”How much should I charge?” The dangers of working for free.
    - I Will Teach You To Be Rich” was indeed a extremely
    pleasant article, . Keep publishing and I’ll try to keep on viewing! Thanks for your time -Garfield

  12. [...] Should you work for free? (iwillteachyoutoberich) [...]

  13. this is a dilemma i face constantly in my “online business” activities. because most of what i do / provide is free, i go back and forth with the idea of “charging”.

    that said, i am fortunate to be doing very well with ads and affiliate sales. the more i give away for free, the more comes back to me. that said, i have no way of comparing that to the results had i charged for products and services all along.

    the only way to know is to test, which i have started doing on some of my websites. should be an interesting revelation – but i do expect results to vary significantly from one niche to another (different audience types and personalities)

  14. Business owners are often caught in a dilemma. You you discount your price to get additional sales or charge a premium to earn more income with less effort?

  15. Hi Ramit, I just Want to add some details. I work for free, to develop my réputation and my authority in my field. But it Can définitive makes you crazy to do it too long. You havé to say stop one day, havé the confidence in what you do and charge for it. Thank you for your great advices.

  16. Sometimes, without a track record to evidence, the only way to go is to prove your worth by offering something up for free. Be it a half day’s consultancy or a couple of hours of coaching, for example. You stand more chance of them paying your normal rates once they have experienced what you have to offer. Makes sense.