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Pricing for Entrepreneurs: What About Fairness?

In business, prices are a vehicle for exchanging one thing for another - i.e., money for a product or a service. When you interpose moral ideas about “fairness” into that process, you muck up these exchanges and turn business into an outpost of religion, politics, or charity. If you want to run a morally governed operation, fine - just be forthright about that to yourself and to your customers.

I’ve seen a vague desire to charge “fair prices” keep business owners on a stressful treadmill so they are unable to take time off or pay for a decent place to live.

I have also seen people putting up their dukes single-handedly against the dynamics of supply and demand, which doesn’t work out so well, either. If you want to object that the market price for what you’re selling doesn’t seem “fair,” considering X, Y or Z, you are shouting into the wind. You should neither cheat yourself nor try to enrich yourself in the name of “fairness.”

All of the following statements, for instance, exemplify confused thinking about this issue:

  • “Since I spent 130 hours creating my new course, it’s worth thousands of dollars.”
  • “I am not living in India or the Philippines, so you shouldn’t expect to pay me what you pay them.”
  • “I would be greedy if I charged more - even though I’m struggling to pay my bills on what I’m charging now.”
  • “So many people in my industry rob the clients blind. I charge fair fees.”
  • “This car has such sentimental value for us. You couldn’t possibly expect us to sell it for only $700.”
  • “He only makes $10 an hour and has five kids to support! It’s unfair to charge him the market rate for your services.”
  • “Admission is free, but we expect you to make a donation of what you feel the performance is worth to you. That’s fair, isn’t it?”
  • “I invest 220 hours and $3,400 in expenses a year in keeping up with professional trends, and as my client, it’s only fair for you to pay your share of that.”

Once you try to live up to someone else’s sense of what fair prices are, or try to explain how your prices are fair in your own worldview, you’ve entered a non-business zone.

Instead of appealing to fairness, explain the value. Value means the benefits or advantages that the user will experience from your product or service. For example:

  • “Because I invest 220 hours a year in keeping up with professional trends, as my client you can feel confident you are creating plans in accordance with the latest regulations, advisories, and trends.”
  • “When you hire me, rather than a freelancer in a third-world country, you get someone who knows the culture you’re operating in, can grasp your requirements, and will communicate with you understandably by phone or email.”
  • “We deliberately keep our expenses low and pass along the savings to folks in the neighborhood, keeping you healthy at prices you can afford.”
  • “This car is destined to become a collector’s item. Take good care of it, and in 10 years you can sell it for more than you paid for it.”

Most likely, those statements come across as reasonable. Notice that they do not make moral appeals. As I said, though, if you want to bring ethics, religion, or politics into your pricing, be explicit about the principles you are operating by.

Have you ever lowered your price even before someone asked because you assumed something about them? That’s the topic of the next lesson.

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Written by

Marcia Yudkin