Doing Quotes: Pricing vs Effort Dilemma

As a freelancer, business man or whatsoever the term could fit one of the biggest dilemmas I have had is the pricing. You can not give your time, knowledge and effort for free, but while competing against others, I have found that many customers take the pricing as the first factor. So, here it is a way I have found to make this very attractive without hurting my working effort. I hope this will help others as well.

The first thing is that this technique only applies when you are selling products with a scale scheme. For example, giving a course and billing per participant, building a server cluster and billing per server setup, software licensing, it could even apply for support hours if you know how to deal with that, but I wouldn't recommend for that.

The Math Model

With all this said, first I need to state the following facts:

• The effort of doing the first unit it is always the greatest
• The effort of doing the n unit is always less than n - 1

With this, I propose the following formula to calculate the total price of n items:

Pn = P1 * ( 1 + ln (n) )

Where:

• n is the number of items you are billing for
• P₁ is the price you calculate for the first item. In other words, unique price.
• P_n is the total price to bill for n items

An Example

Last week I was asked for a quote to deploy a mail server with some specific capabilities. After doing my pricing, I decided to ask 700 USD for it. However, I got a question about how much would it be for an HA deployment of it. Because the effort of installing one server is almost the same, and after doing the configuration of one the others are pretty the same, I decide to use this model. The cluster will have five servers. So after applying this formula, the grand total was 1826.61 USD.

If you want to see how the pricing changes. Look at this graph:

The blue line represents the billed amount based on a 700 USD price for one unit. The red line represents the increment of the price.

It is possible this cluster example is not the best, but it applies perfectly when you are giving courses. The effort of teaching 10 not that different from teaching 15. There is an effort, but it is not five times greater.

Why is this so attractive?

The question answers itself. Depending on how you present your numbers, your customers will realize that if they ask for an extra unit of what so ever you are billing, it will not duplicate the price. Therefore, they are encouraged to ask for more.

Personally speaking, this worked for me. I remember one time when I did a VoIP course. I was asked for a quote for one participant, but when I sent the quote giving pricing for more participants using this model I got three people attending!

Good luck!