How to Push Back on High Quotes or Pricing
A proven technique to get the best price for any proposal or win any negotiation
In this article, I will be discussing how to push back on high quotes or pricing. The technique I will be describing is one that I have used over and over while running my own marketing agency as well as throughout my career and it works exceptionally well. To set the stage, it is important to first provide a little bit of context on the 3 models that are commonly used to determine pricing for anything:
#1-Cost Based Pricing: Pricing based on how much time or effort is required to supply the service. Commonly used in hourly pricing. For example, "I bill at $50 per hour, this will take me 5 hours, so I will charge you $250."
#2-Value Based Pricing: Pricing based on how much something is worth to the end buyer. Commonly used in rev-share pricing. For example, as a marketer whose clients are law firms, you might say, "If every lead is worth $10,000 to you, I would like to receive $2,500 as a fee for each sale I drive. This is win-win for both of us."
#3-Competitive Pricing: Pricing based on what the competition is charging or what it costs for comparable projects. For example, "Mike did a more complex setup in the past for $150, this is slightly easier, so $100 seems reasonable" or "Mike quoted $100, but I received 10 other quotes and the average of those quotes is $60, so his quote is too high."
The key idea is this: sellers usually try to promote Value Based Pricing, buyers usually try to promote Cost Based Pricing, and the presence of Competitive Pricing and transparency of the market usually determines who ultimately wins out.
With the original list of pricing models, you could also consider adding a fourth type of model, “Monopoly Pricing”, where a single company or small set of companies owns such a large percentage of the market that they can exercise extreme control over prices. Some historical examples include Standard Oil with oil, De Beers with diamonds and Microsoft with software. However, I would argue that even Monopoly Pricing could be considered an extreme example of Value Based Pricing, since even with a monopoly, you cannot charge more for a product than the value it provides to a prospective buyer. Furthermore, over the long-haul, the monopoly will eventually either get broken up (e.g. the anti-trust cases of Standard Oil and Microsoft) or competitors / alternatives will enter the market (e.g. with De Beers) and you will then be constrained by Competitive Pricing.
To provide a practical example of how a typical negotiation might shake out, let’s say that I own an agency running marketing campaigns and you are a law firm owner that I am trying to enlist as a client (this example is equally applicable to consulting or any other business negotiation):
"You are spending $10,000 per month on ads now, I can drive $40,000 per month in revenue for your business. Given that I will be producing a $30,000 profit for you, my fee is 20% of that, $6,000 per month."
This marketer is trying to do Value Based Pricing, and almost every TikTok and Instagram Influencer who promotes starting your own marketing agency says that this is the ‘hidden secret to get rich’.
However, in reality, a savvy business owner will say something like:
"$6,000 per month? I saw on your website that you charge $100 per hour for your services. Do you expect this to take 60 hours per month of work, and if so, can you explain to me how those numbers break down?"
This step, as discussed, is an attempt by the business owner to hold the marketer to a Cost Based Pricing model. In doing so, they are also asking the marketer to break down the work involved in the project and provide some preemptive forecasting on how those hours will be spent. Of course, the marketer does not give up so easily, and says:
"I don’t sell my time for money. I only operate on a retainer model, and if you are not willing to pay the $6,000 per month, I do not think we are a fit for each other."
The lines “I don’t sell my time for money” and “I only operate on a retainer model” are becoming increasingly common in the marketing and consulting spaces and are strategies used to attempt to force a Value Based Pricing model. They are also typically only used by marketers or consultants who have a lot of confidence in their value and who believe they can press the matter without causing you to immediately end the conversation. While choosing not to work with such people is an option, a better way to conclude the conversation is:
"I have taken a look at your years of experience, client track record, and testimonials. While they are impressive, I have done my market research, and here are five other companies with equal or better track records whose average retainer is $4,000 per month. I like you and I would appreciate the chance to work with you, but if you cannot match their price, I am going to have to work with them instead."
Some marketers or consultants will follow-through on their initial threat and say, “I will not work for under $6,000 per month, I will have to pass on this opportunity” but most will reply with something to the effect of:
"Okay, I don’t usually do this, but I like you as well, and I would be willing to work for $4,000/month, but just this one time."
This is basically the most lengthy back and forth pricing discussion or negotiation you can expect. I have had cases, especially for design or technical projects, where I was able to lower the price by 50% or more by simply invoking the Cost Based Pricing model. One scenario was a relatively simple technical project I hired a team in India to complete. I was quoted $3,000 for it, and when I asked them to explain what would take 150 hours of work at their rate of $20 / hour, they immediately said (with more than a hint of embarrassment) that they could do it for $1,500. I have had plenty of other cases where I received a quote that I thought seemed too high, I posted the job on UpWork or Fiverr, and within 2 days, I had 5-10 competing quotes that I could use to negotiate down pricing.
The key is that these are comparable quotes, with similar track records and skillsets; you should not be comparing a CMO with 20 years of experience to what someone overseas with 3 years of experience charges. But, if you do follow these guidelines, you should be able to quickly assess the validity of prices you are charged or quotes you get and pushback easily when needed.