If you have ever tried to acquire a new client you have probably heard this sentence:
I know someone who will do the same but half price.
Once you hear it, usually one thought pops up in your mind – I have to give a discount or I will lose a client. As a specialist in your field, you can guess why the price is lower and know that those two offers can’t be easily compared. If you want to acquire a new client and avoid losing most of your margin or even doing that project with a loss your lead has to understand why those offers aren’t the same.
Freelancers come with a Key-Man-Risk
Important projects have to be delivered on time. Each day of delay means wasted money and lost opportunities. People can catch a cold or get sick. The bigger team, the less risk of temporary indisposition. In a company it is easier to find a replacement and someone to whom you can delegate urgent tasks. A company cannot be sick and can be flexible enough in case of unexpected accidents – and they are usually unexpected. While comparing your company to a freelancer clients need to know that lower prices goes hand in hand with the risk when working with small contractors and solopreneurs.
Long-term support and back up
The time when people can efficiently work is limited. The more you work, the more tired you are. Fatigue doesn’t support availability, creativity, and proactivity. Eventually, you hit the wall and need to stop working, need a break. For the sake of this conversation let’s assume that your client’s e-commerce shop requires 10 hours of monthly maintenance. If a freelancer works 50 hours per week it is challenging to ensure another next 10 hours of high-quality support. Your clients should be aware of that.
Similarly when it comes to SLA agreements. The freelancer maintains two e-commerce shops. On “Black Friday” both of them break down due to increased traffic flowing in pursuit of lower prices. Both require immediate reaction. One of them must wait unless there are at least two right people on board. A freelancer cannot offer such flexibility in case of such emergencies. Your company should.
Set of skills
The team does not only mean flexibility. Your company represents a unique set of skills, deep expertise, and different point of views (or at least should). It is impossible to specialize in everything. E-commerce shop we’ve mentioned in the previous paragraph require expertise in software development, UX, PPC, design, marketing, SEO. Such complex and deep expertise can be delivered only during the long-term cooperation with a bunch of specialists. It’s far too much time consuming to manage 8 or 12 freelance contractors. Usually, clients don’t take that into account – help them acknowledge that.
A freelancer’s liability won’t be higher than his net worth. It means that when it comes to big or high-risk projects he won’t be liable. As the company, you can ensure bigger responsibility and in some cases even provide insurance.
A freelancer is a good choice for smaller one-time projects with small risk. What can you screw up? Maybe a logo, only. Switching payment systems on working 10m€ e-commerce shop is a different story. The same thing is with a wrongly composed PR campaign when you launch your flagship product and have just one shot to make an impact. A missed deadline or undelivered project of a business card, logotype, simple website won’t ruin a company. Labor intensive and long-term projects like an e-commerce shop, payment system and a house cannot be cheap. Materialized risk of poor quality, lateness or breakdown are too cost-intensive and time-consuming.
How to win the price war
For a client, in complex and long-term projects high quality and fair price are the only choices.
For you, the only way to win the price war is to get out of it.
That question is a barometer – is your business on the right track? The more often you hear it, the more you should be worried. Maybe projects you aim for are too simple. Maybe you have an issue with differentiation of your services. Perhaps you are not specializing your company enough. If that’s the case I have only one advice: pivot so that you would be more specialized, differentiated and work on stuff that’s more complicated. If you won’t do that you will participate in a race to the bottom price dynamics that you cannot win. There is always a freelancer that has the potential to take less money than a company. Remember: this is a tactical article – it will not fix strategic disadvantages. Usually, those are kinds of issues you won’t be able to talk or negotiate your way out of.