Stop Competing On Prices - RD176

Lowering your prices can hurt your design business.

I was talking to a fellow designer recently who is concerned about competing on prices. He asked me what I do if a client says they can pay less for a logo at Fiverr, Upwork, 99 Designs, or any other discount design platforms.

This isn't the first time I've heard this concern from a designer. You may have experienced this exact thing with your clients questioning your prices compared to discount design sources.

The fact of the matter is, competing on prices is a no-win scenario. There's no way that you can compete with the prices these places offer. Ok, maybe that's not true. Sure you could lower your price to their level, but what would it accomplish? You would be selling your services for a pittance, and cementing yourself in a rut that would be difficult to escape. Competing on prices is not a sustainable way to run, let alone grow, your design business.

I'm going to make this a two-part series. Next week I'm going to explain how I respond to clients who say, "I can get it cheaper elsewhere."

For now, I want to explain why competing on prices is a harmful and unsustainable way to run your business.

It all comes down to this. If you offer rock bottom prices, you will never be taken seriously as a designer, let alone a business owner.

If you try to match the pricing found on places like Fiverr or Upwork or 99 Designs, You'll end up developing an unfavourable reputation that will be extremely difficult to overcome. You'll have a tough time trying to raise your prices in the future, which you will need to do if you plan on making a decent living at this design life.

Are you familiar with the concept of a "dollar store"? There's probably at least one, if not many around where you live. The premise of a dollar store is that just about everything they sell costs between one to three dollars. They're known as cheap discount stores.

Dollar stores have a reputation for selling cheap merchandise. Not just in price, but in quality as well. After all, just how good can a $2 butcher's knife or a $1 mini speaker be? And These stores are ok with that reputation. They make no claims that they are anything but what they are. Dollar stores don't make their money by selling quality products; they make it by selling quantities of products. They make their money one dollar at a time.

Could you imagine if all of a sudden a dollar store decided to sell a crystal wine decanter for $50? Their customers would question the validity of that product. There must be something wrong with the decanter, or it must be sub-par in some way. Nobody would take them seriously, let alone believe the decanter is worth $50. It's a dollar store, after all. And their reputation for selling cheap merchandise for low prices would hurt them.

That's what happens to your design business when you try to compete by lowering your prices. Nobody will take you seriously as a designer, especially if you later decide to raise your rates.

So how do you deal with discount designers taking clients away from you? The answer is easy; stop competing with them. In fact, and this may sound weird to you, but if you feel discount designers are your direct competition, the best solution is to raise your prices.

Wait; what? How can raising prices help in this situation? I'm glad you asked.

I talked about this in an early episode of Resourceful Designer. In it, I explained how Raising your prices can lead to getting better graphic design work and more committed clients.

Recently I was listening to Tom Ross's Honest Entrepreneur podcast, episode 87, to be specific. Tom is the founder of Design Cuts. He was on episode 155 of Resourceful Designer where we talked about supplementing your income by selling design products.

Tom mentioned an excellent point in episode 87 of his show. The biggest issue with pricing low is that the lower your price, the more designers you're competing with.

Tom permitted me to use this image, depicting his idea.

Looking at this hypothetical chart, would you want to be competing against 10 million designers for a client that will pay you $10? Or would you prefer to compete against 50,000 designers for a client that will pay you $1,000?

Because there are so many designers charging lower prices, a client has more leverage over you. If they're not happy with what you're offering, they can very easily find a different designer for the job at the same or even lower price. And since the cost is so little, the client doesn't care where they get it from, as long as they get it.

However, clients with a $1k or $10k budget have much fewer designers from whom to choose. So when they find one they like, they tend to stick with them.

As you can see, offering low prices not only diminishes your income, but it drastically increases the number of designers you're competing with. Why would you want to be in that situation?

By ignoring all the discount designers and raising your prices, you diminish your competition, increase your income, and you earn the respect of those clients who hire you.

Paraphrasing what Tom said on his podcast,

"Increasing your prices goes way beyond just earning more money; it makes everything else about running and growing your design business easier."

Now you know why you shouldn't be competing on prices, and why, if you find yourself doing so, the answer is to raise your design prices.

Unfortunately, your clients don't always understand these same reasons. Next week, I'm going to share how I handle it when clients bring up the option of discount designers. And I'll give you a little tease. You may be surprised by what I tell them.

Have you ever raised your prices and discovered you had less competition and better clients.

Let me know by leaving a comment for this episode.

Resource of the week Resourceful Designer Community

The Resourceful Designer Community is an active community of designers with a common goal, a goal of improving and growing their design business.

The Community is for designers of any levels. Current members include designers just starting their business, members with agency experience, members with knowledge of web design and print design, all willing to share what they know.

The Community interacts via a private and very active Slack group, with new conversations happening every day.

There are also regular video meetings. These video chats are where the magic happens. By seeing each other's faces and interacting directly with each other, members become closer and more invested in what each of their fellow members is doing with their business. If a member can't make the live video chats, they can view the recording which is archived for members to watch at their convenience.

If have your own design business or are thinking of starting one, regardless of your skills as a designer, and you are looking for a tight-knit group of designers to help you by being mentors, confidants and friends, then you need to be part of the Resourceful Designer Community.