Last issue asked you to pick one job and cost it out, (Direct Costs, Overlooked Costs, Overhead Costs), then look at what you charged and ask whether you were above or below the Floor.

If you came out above, good. If you came out below, that's worth saying plainly. It happens more than people admit, and it usually isn't a judgment call you got wrong. It's the Overlooked and Overhead costs doing what they do, which is stay invisible until someone makes you add them up. That's the whole reason we started there.

Either way, the number itself isn't the point. The point is the distance between your Floor and what you charged, and that distance is the other half of the equation.

Your Cost of Delivery + The Value You Add = Price to Charge

The Value You Add is everything sitting between your Floor and what the client actually paid. And it isn't unlimited. There's a point where the client stops seeing a deal and starts feeling overcharged. I call it the Ceiling. (The naming isn't going to win any awards.)

Your price lives somewhere between the two. The Floor is set by your business's books; the Ceiling is set by your client. And almost no one has worked it out (including your client).

Here's the shift that makes it solvable: Cost is about what you did. Value is about what changed for them.

When I ask an owner what they delivered, I get a list of activities: Hours, deliverables, meetings, materials. When I ask their client what they got, I get something else entirely.

• A problem that stopped being their problem.
• A deadline they made.
• A decision they stopped losing sleep over.
• Something they never had to learn how to do.

The distance between those two answers is where your Ceiling lives. Which brings up the most common reason owners price low: they don't appreciate the value they provide, because the work is easy for them.

If you or your team take two hours to complete a project, it is thought of as a two hour project. You calculate your Floor, add a percentage to make a profit, and feel good about it.

But it only takes two hours because of the years of experience behind it. That approach ignores all the mistakes you've made, and learned from. It ignores the efficiency with which you can operate. It ignores your judgement. The client isn't buying two hours, they're buying all those things.

The other thing that falls out of this is that two clients can buy the same job and have completely different Ceilings. Some clients plan ahead while others wait until the last minute. For some, what they need represents the culmination of months of build out, and yet for others, it's simply a housekeeping matter. Same work. Same Floor. Nowhere near the same Ceiling.

Which is why raising everyone the same percentage gets all of them wrong. Some of those clients had far more room than you gave them credit for. Some had almost none. One number can't be right for both. So what typically happens instead is owners guess what a client is willing to tolerate.

Now the uncomfortable part: You cannot precisely calculate the Ceiling. You can only estimate it, and you will be wrong sometimes. But you don't have to guess, either.

Guessing is what happens when you look at a client and try to work out what they'll tolerate. That question doesn't have an answer, because it's about their patience rather than their situation.

Reaching an answer starts somewhere else though. You're not looking for a number, you're working out what the job actually did for them, and a lot of the time you can just ask.

Not “what's your budget.” That tells you what they've already decided to spend, which is the smallest number in the room. Ask about the outcome instead.

What made you decide to deal with this now? What happens if it doesn't get done? What have you already tried? What is it costing you to have this problem?

People answer those readily, because you're asking about their business instead of your invoice. If you sell product rather than time, the same answers are sitting in why people buy and what they say after they do. What they're paying for was never the work, but rather what's true after the work is done. Once you know that, your range stops being a guess and starts being a conclusion.

Let's pull out the number you wrote down after the last issue, but let’s answer a different question about it. Not what it cost you, but what changed for them. What they were able to avoid. What would have happened if they'd hired someone else, or nobody at all. What it was worth to them to stop thinking about it. And if you're not sure, that client is still a phone call away.

You won't land on a precise number, and you don't need one. Get to a range, then look at your price again. Your Floor was the least you could have taken, and their Ceiling was the most they'd have paid.

Which number were you actually pricing against?

~ Nolan