Why my genius business idea was not as brilliant as first thought
I launched my web design company almost exactly two weeks ago. I had been working on the web page to showcase it for several weeks before in my spare time, but I finally announced it to the world (i.e. Facebook) just two weeks ago.
There is always a fear that comes before announcing a new venture. It’s the main reason we don’t do it as often as we should. What if people criticize it? What if it fails?
But I was pleasantly surprised by the amount of support I received from friends, family, and even people I didn’t know so well. I am grateful to all of them – at pivotal moments like these, every bit of support makes a big difference.
The Genius Idea
The vision behind my company is to systematize creativity. To do it in the most efficient way possible, thus saving time and money for the both the creator and the client. This is based on my own biggest strengths – a creative approach to life with an analytical examination of all processes and systems.
So I had developed a concept called “The 1 Hour Website.” The idea was to build websites as quickly as efficiently as it would take you to order a hamburger – to systematize the process, fix the cost, and grow the business based on an economy of scale. Genius idea, right? I thought so too.
I had originally set the price of a one hour website at $500. This is a very good price to pay for a professional website to be built for you. But quickly, several issues became apparent:
The Price is Wrong
People don’t want to pay $500 for an hour. For anything. No matter what you offer them, there is virtually no service that the average person will pay that much for. Especially not the small business owners, service providers, and non-profit ventures that I was motivated to empower and cater to.
So created a survey and posted it online. First off, once again, I was pleasantly surprised when close to 30 people filled it out anonymously, and I am grateful to all those who did. I asked people to take a look at a website that I’d built and tell me how much they’d be willing to pay for it.
In retrospect, I realize there were two issues with this approach. First, the website I had them go to had already been “modified” by the client, and not in a good way. Part of the benefit of the platform we use to build sites is that it is very easy for the client to modify themselves. This is good when they need to update their email or their prices. It is not as good when they take a stab at “design” and try to encapsulate a nouveau all-caps look.
So the site was not at its best when the survey takers visited it.
Couple that with a more fundamental mistake – the very concept of asking people in advance how much they’d theoretically pay for something. The issue goes both ways: either they underestimate the effort and skill involved and underprice it, or quote a higher price to make you feel good but never come through when they actually need to pay it.
The survey results did not bode well for me: the average survey taker was only willing to pay about $300 for a similar site. And several friends who seemed interested in my services voiced similar concerns.
As a result, I lowered my price further.
I tried unbundling my service so that for $300 you’d get a basic website, and maybe would pay some more for more advanced features and functionality.
By this point my service had hit the rock-bottom of the food chain (design services using similar platforms start their most basic package at $1000). And as I continued interacting with potential clients and networking with other businesses, I realized that I had made a few critical mistakes.
The Price is Still Wrong (or: lessons learned)
Here then, after that very long introduction, is what I learned from the experience. I refer specifically to web design, but a lot of these insights can be applied to any service-related business.
People don’t want their website built in an hour – people are OK with buying a hamburger for $5. But a website is something that is much closer to people’s hearts. Closer, probably, than they actually realize. It represents their values, the cause or business that they worked so hard to build. It’s their digital business card, on display for the entire world to see (and most people who build a site imagine all of the internet coming to visit it as soon as it’s launched.)
So offering to build them a site in an hour is like offering them a 3 minute psychological consultation. Even if it were possible, people want the things that are important to them to be given, well, more importance.
Interestingly, in the survey I sent out, most people indicated that having a site built in one hour would neither detract nor add to the amount they’d be willing to pay. It just wasn’t a factor in the value we need to deliver to be a successful business.
I can’t build a website in one hour – don’t get me wrong. I can, technically, build a website in one hour. It’s a pretty cool skill, and I wouldn’t have promised it if I wasn’t capable of it. But I did not factor in the process of working with other people.
Even after closing with a client (next point), they often don’t have the clarity or focus to knock everything out in an hour. And frankly, because of the previous point, they are probably not interested in doing so. They want it to be a process, and they want to be involved.
The price doesn’t cover basic business costs – I knew this principle intellectually, but it was eye-opening to experience it firs hand. For every client I close with, there will be four that I don’t. The price may not work for them, they may need features I don’t provide, or they may find someone with a better haircut.
But each of those potential clients cost me time, which becomes part of the cost of running the business. Realize this: when you purchase from a business, you’re not just paying for their time and effort and their electric bill. You’re paying for all the client’s they don’t have. Those are also part of the business.
And the clients who do close with me? They take even more time to make the decision, before we even get to the actual “1 Hour Website” building phase. Closing a business deal that is more complex and expensive than buying a cup of coffee will always take more time; it takes time to develop trust and consult with your partners (how come every business seems to have so many stakeholders?), and that cost also needs to be factored in.
Ultimately, I needed to raise my prices just to justify running the business – even if no one comes to me as a result, that is still my only viable option.
My actual customers can pay more – when I launched, there were many interested friends and survey takers who told me I was charging too much, which is why I lowered my prices.
But when I examined the clients who actually came through and with whom I’m in serious discussion with (remember, these things take time), I noticed something interesting. They were happy with my prices.
Even if they were a small business, they had a budget to build a site. They were actively looking for someone to build it for them (enough to mention it to other people who referred them to me). They understood the value that a site could give them, how quickly it could pay for itself if it brought in more clients.
In our survey, only a few people said they’d be willing to pay a higher price for my site. But I noticed an interesting correlation: these people were also more likely to rate our websites as more attractive. The conclusion? It’s this smaller percentage that represent our ideal customers – people who value what we can provide and have the resources to pay for it without haggling.
I’d be very happy if 1 in 5 potential customers proved to be a client like that.
People don’t want to buy too cheap – I had bent over backwards to accommodate people with my prices. And then, the feedback I got from my more serious clients and co-business owners was “how can you be so cheap?” There was something fishy about it. It didn’t convey value. It didn’t make them feel good about their purchase, or confident in the person they’d be working with.
I’ve done a lot of online research, and it seems that pricing yourself too low can be at least as destructive as going too high. After raising my prices, it’s interesting that even I feel more confident in the service I provide. I’ve conveyed value… to myself.
I should never price myself by the hour
This is the most fundamental, and the most universal. I knew the idea intellectually, but I’m grateful to Akiva Ben Ezra of SEOKings who helped me work through this emotionally.
Pricing yourself by the hour distracts from the value you are providing. It becomes a technical commodity, not a service that could potentially bring huge profits to a business. People will instinctively judge you based on their own (inaccurate) assessments of how much time it should take.
I know a great graphic artist who produces excellent work at an incredibly affordable hourly price. Yet every month he needs to argue with his primary freelance client about whether the design should have taken as long as it did – a client who has no clue how long these things actually take.
In reality, we should be pricing ourselves based on the value we give customers. How much money will this website be making you in the long run? The theory here would have a real estate listing site be a lot more expensive than a non-profit website, but there are other considerations, like the amount of work required and general market prices which serve to equalize rates.
We often price our work by hour because we are afraid of projects that drag out. There are two solutions for this: quantify the amount of revisions included in your initial per-project rate. Most graphic artists designing a logo, for example, provide an initial design and two follow-up revisions. Following that, they charge an additional sum per revision.
Second, add a buffer to the price you quote. Calculate how much time it should take, multiply it by your hourly rate, and then add another 50 to 100% to that sum. This will allow you to make more from the clients who are quickly satisfied, and at least break even with more difficult clients. Always convey the value you are giving to your clients, and at the very least, add some buffer time to your per-project price quote.
I don’t want to be looking at my watch worried about how much time it’s taking (the initial fee promises a working website and is not actually linked to a time), and I don’t want my clients looking at their watch either worried about how much it’s gonna cost them (follow-up services are charged by the hour).
I updated my prices to better reflect the value I’m giving my customers. I give my webdesign clients marketing strategy, copywriting, design and coding; why bunch all of that into a time constraint? I renamed my service The Four Phase Website, to better reflect the different aspects that go into building it, much more than just design and coding.
I still believe that I can systematize creativity, but I will let that be an underlying value behind any service product I create. I don’t mention time outright: let me be as efficient as I can behind the scenes. I’ll save myself money and deliver an amazing product quickly and painlessly. But the only time-related discussion we need to have is when you need your website by.
The biggest benefit I see from launching and running a business is the experience it gives me. And businesses of every size struggle a lot with pricing. So I’m glad that I’ve been able to learn so quickly from my own experience, and have the flexibility to change my strategy on the go.
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