6 Reasons You Need to Charge More

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6 Reasons You Need to Charge More Posted: 08 Feb 2012 11:30 AM PST Posted by Dr. Pete I’m a reluctant Capitalist. I didn’t grow up with a lot of money (my dad was a country preacher, and my mom was a schoolteacher), and the transition from academia to building a start-up and then running my own consulting firm has been rocky at times. The one thing I still hear almost every week is “You need to charge more,” and I preach the same message to new SEOs even as I try to remember it. This post is a reminder to myself (and to you) of why what you charge matters, and why it’s not just about greed. 1. It’s Not All Billable Almost every new consultant, freelancer, and even agency makes a critical math error. Pay attention, because this mistake could could haunt your business for years to come. It goes something like this: I need to make $37,000 to pay the bills, and I’d like to make $50,000. A year is about 2000 work hours (50 weeks x 40 hours), so if I can just charge $25/hour, I’ll easily pay the bills and make my $50K goal. I sincerely commend you for doing the math – it’s important to know what you need to pay the bills and to figure out what that means on a daily and hourly basis. Here’s the problem – in a 40-hour week, especially starting out, you’re going to spend half that week pounding the pavement (or more). You need to network, build your site/portfolio, blog, make phone calls, write proposals, and on and on. Once clients come in, you’ve got administrative work to do – somebody has to send the invoices, pay the taxes, and buy the toilet paper. So, at best, only 20 hours of your week will be billable. Now, your $25/hour just netted you $25,000. You not only fell short of your $50K goal – you didn’t even pay your bills. 2. Delivery Kills Sales But wait, it gets worse. That 20-hour billable week assumes that all of your pavement-pounding actually gets instant results. When it does finally pay off, what happens? You get a nice, juicy contract, pour all your time into delivering it, and then realize that you didn’t actually keep selling while you were doing the work. So, after you get that check, you go a month with no work at all while you rebuild your lead pipeline. Ultimately, you’ll be working a 20-hour billable week about every other week, especially for the first year or two. So, you’re averaging 10 hours per week and your $25/hour just netted you a $12,500 bottom line. 3. You Have New Costs This one’s mostly for the freelancers and independent consultants. Revenue does not equal salary. Even being a consultant costs money – it’s not a high-overhead profession, but everything’s coming out of your pocket now. Some things that you didn’t think twice about when you were employed will suddenly seem shockingly expensive. Want to go to an industry tradeshow? With the full-conference pass, airfare, car, hotel, and meals, that’s about $2,000-3,000. Need a copy of Photoshop? You can’t just pop down to IT anymore – Adobe CS5.5 starts at $1,299. Suddenly your old boss doesn’t seem like such a cheapskate. That doesn’t count the perks you’ve lost. You’ll hear all about the amazing tax breaks of self-employment from your friends who dream of self-employment but don’t actually have any idea what they’re talking about. Sure, you might be able to write off half your phone bill or a corner of your condo as office space, but meanwhile you’re paying both halves of your employment taxes, your own health insurance, and you’ve got no 401K. Even if you hit that $50K revenue goal, it’s probably more like a $40K salary. The $12,500 you barely squeezed out in the realistic scenario above is more like $10K, and that assumes you skip health insurance, which will run you roughly that entire amount. 4. You Set Your Value People are funny – when we discount our prices, we expect the buyer will understand they’ve gotten a bargain. When we pay discount prices, we think we’ve walked away with something of less value. Let’s say you go to a fancy restaurant with a 50% Groupon – a month later, do you think “I should go back to that place, since I got such a great deal last time!” No, you think – “If I go back to that place, I’ll have to pay full price. That sucks!” My wife would rather die than go to Bed, Bath and Beyond without a coupon, and it’s entirely their fault for sending us 11 a day. They’ve set their value, and the message is “We don’t have any.” What’s worse is that you send a broader message that that discount rate is your value to the market, and you even begin to believe it. Unless there’s an amazing opportunity and you’re 100% clear that this is a one-time deal, don’t even start. The legacy of discount pricing could haunt you forever. 5. Your Time Is Finite We tend to price future work based on past work. On the surface, that makes perfect sense, but the problem is simple – the cost of 10 hours/week when you have nothing to do is a lot less than the cost of 10 hours/week when you’ve already got 40 hours booked. You only have so many hours in the day, and as you run out, they become more valuable. Think of your time like any marketable resource – with more scarcity comes higher prices. Your time is like MegaBus. When the bus is empty, you may be able to charge $1 for a seat, but that last seat should fetch a premium price. People naturally want to book every available hour, but there’s an opportunity cost to being left with no time at all. Once the hours start to book, it’s time to raise your prices and protect your most non-renewable resource. 6. Cheap Attracts Cheap Some people may take offense at this, but experience has taught me over and over (and by “taught” I mean “beat with a bat and left me for dead in the alley”) that the people who fight you over price will never stop fighting you. It’s easy to think that, since you gave them a discount and gave into all their demands, they’ll appreciate you more and manage their own expectations, but that’s never happened to me in almost 15 years of working with clients. It’s almost never about the money – there are some people who just think vendors are meant to be beaten. If you win, they lose. Unfortunately, that means they’ll never see your relationship as win-win. Learn to recognize those clients during negotiation, and get out while you can. There’s one exception – if you really want to help an organization and you know money is an issue for them, consider doing the work pro-bono. Scope a one-time project and donate your time. There’s nothing wrong with helping people. Where you go wrong is when you start letting other people define your value. So, How Much Is “More”? That’s the Million-dollar question, isn’t it? According to our SEO pricing survey last month, the most common hourly rate is between $76-$200 US. That’s quite a range. I think it comes back to that math in Reason #1. The trick is to do the math realistically. Be realistic about your costs and the number of hours really left in the day after sales and marketing are done (and you need to do sales and marketing every day, even when you’re working on deliverables). Maybe more importantly, decide what you want long-term and be careful about setting your value too low just to land a few clients. Today’s discount “just to pay the bills” could set your price for years to come. Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. 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Using blekko's SEO Data to Evaluate Web Directories Posted: 08 Feb 2012 06:10 AM PST Posted by davidzimm This post was originally in YouMoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of SEOmoz, Inc. If you haven’t tried it out yet, blekko.com is a unique search engine. Along with allowing you to customize your own search results (or view results customized by one of its editors) it transparently provides a plethora of data showing why it ranks sites in the search results. The best part is, even if you aren’t trying to increase visits from blekko, their SEO data is very useful. Getting blekko’s SEO data It’s simple to get the SEO data from blekko. First you need a blekko account. Then all you have to do is type a URL into the search box, hit the spacebar, and add /seo (what they call a “slashtag”) at the end of your search string. One of blekko's most distinctive pieces of data is “Host Rank”. This is not so much a ranking of websites but a measure of website authority- like Domain Authority or PageRank. Unlike these other metrics, Host Rank is on a linear scale rather than an exponential scale. Typically a linear scale is a little easier to wrap your brain around. For example, while you might be tempted to think that a website with a PageRank of 4 is only a little bit better than a PR 3 website, we need to remember that this is an exponential scale and the former has a significantly higher authority than the later. In other words the difference between a Host Rank 30 and 40 website is simply 10 points but the difference between websites with Domain Authority 30 and 40 is not 10 points, it is 10 to the power of X points (it is an exponential scale- what's the exponent? ask Mr. Fishkin). Host Rank also avoids a maximum value on its scale unlike the coveted PR 10 website (or comparatively strong DA 100 website). There's much more to blekko besides another number to compare websites. The /seo slashtag also provides a nifty pie chart outlining what countries the links tend to come from. Although there is nothing wrong with a link from India, for example, if a website is based in the United States and the audience is primarily in the United States, the origin of the links can be indicative of some (shall we say) risky SEO techniques. I also find the “co-hosted with” list at the bottom of the /seo page very interesting. Does this website have dedicated hosting? If not, that’s not necessarily bad thing but if it is co-hosted with some (shall we call them) questionable websites, that might be a neighborhood you wouldn’t want to be associated with. Blekko’s data gets even more specific. You can also slashtag a URL with /domainlinks to find a list of inbound links (you can also access this from the right sidebar of the /seo page). Now this list of links most closely resembles the defunct Yahoo! SiteExplorer in that it provides a very long list of links that you have to manually filter through to be useful, but it does a good job giving you an indication of the source of this website’s link authority. I also like to take a look through a websites /sitepages. This gives a list of all the pages on a website, as sorted by Host Rank. This is a great way of seeing how Host Rank (and presumably PageRank or even Domain Authority) flows throughout a website. Of course, the homepage of any website will always have the most authority- but does any authority flow to interior pages on the website? Let’s get a little more concrete with this data. We can use blekko’s SEO data to evaluate a couple of web directories to see if we should submit our site to them. Starting with SEOmoz’s directory list, let’s take a couple of authoritative directories (as measured by Domain Authority) and a couple of low authority directories. The Yahoo! Directory (Domain Authority 100): http://blekko.com/ws/dir.yahoo.com+/seo Anyone with (shall we say) the means to afford $299 a year has probably submitted their website to the Yahoo! Directory. For a while Google’s Webmaster Guidelines even suggested it. Is it worth the cost? What will we get out of this listing? Let’s use blekko’s SEO data and find out. /seo With a Host Rank of 2,054.9 we clearly see this is a very authoritative website (at least in blekko’s mind). Although this number doesn’t mean much in itself, I bet it’s higher than your personal website. Most of the links are from the United States (64%). Not to be so Amero-centric here but there’s nothing in the geographical distribution of the links that would make me concerned here. This is an international directory, after all. The site is co-hosted with (wait for it) Yahoo!. Even though it’s been a while since I’ve used Yahoo!, that’s a neighborhood I wouldn’t mind being associated with. /domainlinks Websites actually link to the Yahoo! Directory (who knew) and these seem to be authoritative and clean. It seems like a legitimate and natural backlink profile to me. /sitepages Authority seems to flow very quickly into the directory listings and the Host Rank doesn’t seem to drop-off very fast. If your website falls into one of these top ranked categories you’d definitely want to be listed there. One of the top-ten pages, according to blekko, is the list of newly submitted websites. FTW! The Better Business Bureau (Domain Authority 99): http://blekko.com/ws/bbb.org+/seo Got a brick-and-mortar along with your website? Why not submit it to BBB.org? /seo This site, according to blekko, actually has more authority than the Yahoo! Directory. It has a Host Rank of 2,948.4. This is tempting! It makes sense that 86% of the links come from the United States- this is for US-based businesses, that’s how it should be. WOW! What a list of sites are co-hosted with the BBB! Well, it’s co-hosted with pearljam.com so it’s gotta be a good neighborhood! (By the way, did you see Pearl Jam 20? Highly recommended) /domainlinks Sites linking to the BBB seem to be very similar to the Yahoo! Directory and they are all from legitimate and authoritative websites. You wish you could have a backlink profile like this site! /sitepages Unfortunately the first business I found was on the 6th page of blekko’s /sitepages results. Most of the authoritative pages are designed to get you to sign up or are content pages. Getting a listing on this directory won’t pass much authority to your site. Clearly the authority of the homepage does not transfer well to listings. The first business listing has a Host Rank 1/100th of the homepage. Sure, you might get some eyeballs from a BBB.org listing, but I wouldn’t count on it for link building efforts. Sporge (Domain Authority 33): http://blekko.com/ws/sporge.com+/seo With a name like that, who wouldn’t want to be in this directory? (I’m not much for branding but I’d recommend a name-change in this case). Still, it might be worth something. Let’s see /seo The Host Rank of this website is 20.2. Now you start to see the value of a linear website ranking scale- the Yahoo! Directory is 100x more authoritative that this directory. The geographical distribution of the backlinks is actually fairly similar to the BBB’s website. Nothing unusual here. Also similar to the BBB, there is a massive amount of websites co-hosted with the Sporge directory. Most of them seem benign. /domainlinks Most of the links to Sporge.com come from other web directories. Could this site be part of a directory network. Is there any value of submitting to this directory as opposed to any of the others? If I submit to this directory, should I even bother to submit to any of the others linking to it? /sitepages The Host Rank ends very quickly, but there’s not much authority to this website to start with in the first place. At least what little it has is able to get to the directory listings easily. The Brick Wall (Domain Authority 22): http://blekko.com/ws/thebrickwall.com+/seo This is the least-authoritative directory, according to SEOmoz’s list. Is it even worth the 10 minutes it would take to submit your website? /seo The Host Rank is a whopping 4.3. This is another good illustration of the value of a linear ranking for websites. If you only looked at the Domain Authority of this website (as compared to Sporge- why do I blush when I say that?) you might think, “hey, that’s not so bad,” but blekko doesn't think very highly of this directory. The links to this site come from four “other countries.” I can’t seem to find that on my globe. This is a little fishy. It’s co-hosted with a few other UK-based websites. Nothing seems too bad among these websites. /domainlinks There really isn’t a large number of links to this website. Where is it getting its authority (what little it does have)? There it is! Many of the links to this directory are reciprocal. /sitepages This little directory doesn’t have much authority to share, but if it did it seems it would get to the directory listings fairly efficiently. Now blekko’s search market share is (shall we say) still growing, but the data they provide can help you do SEO in other search engines too. As with any third-party tool, you wouldn’t want to rely on this data exclusively- obviously neither Google nor Bing are using this data to determine how they rank webpages- but this information can still be a big help to any SEO attempting to evaluate websites for potential authority and value. 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