Ethical Pricing: What it is, and what it’s NOT
There’s lots of chatter these days in the online entrepreneur space about ethical pricing, and
YES FINALLY, THANK YOU!
Some people have gotten the wrong idea about what “ethical pricing” is
So let’s set the record straight.
First, what ethical pricing is NOT:
Keeping your prices low for the sake of accessibility is not (in and of itself) ethical pricing. In fact, having your prices too low could be downright unethical (more on that in a sec!).
Charging $5,000 or even $20,000 for a service isn’t inherently unethical. Is it out of many people’s reach? Yes, of course. But having “high prices” isn’t unethical. Even $25 is out of some people’s reach. So let’s stop right there with idea that the discrete price of service or product is what makes it ethical or not.
In fact, let’s change our language a bit (because words matter!). Let’s not talk about ethical pricing. Because prices themselves aren’t ethical or not.
Instead, let’s talk about ethical pricing practices. How we land on our prices, the costs they cover, and how we present them. Because in my mind, that’s MUCH more important than the actual number.
So glad we got that out of the way!
Also: I’m going to skip over the pricing issues that don’t really relate to small business owners, like price fixing (colluding with competitors to keep prices above what is true and normal), predatory pricing (pricing something so low as to drive out competitors), or price gouging (charging more for, say, bottled water directly after a major hurricane), and focus on issues we DO face.
And now I get up on my soapbox.
1. High interest rates on payment plans.
I’ve talked about this before, and I’ll talk about it until I’m blue in the face: be VERY mindful about how much (if at all) you mark up your prices for people paying in installments. Because when you charge more for people to pay over time, what you’re ACTUALLY doing is making the people who can least afford it pay more for your product. Those with the least access to capital, loans, family support, etc. So, as they say, the rich get richer and the poor get screwed.
So ask yourself: why am I charging them more than those who can pay up front? A lot of the time the answer is “because that’s how it’s done”. Well, that’s a crap answer. Actually, Stephanie, steps back and takes a breath no, it’s not. People model the behavior they see. What IS crap is the fact that it’s become SO NORMAL to mark up payment plans that it SEEMS like it’s the only way to do business.
I assure you: it’s not.
Charging more for payment plans is sometimes justified by the “added expense of admin”. To which I say, a. It’s probably not nearly as high as you think it is, and b. So what? It’s the cost of doing business. It’s the cost of ethical pricing.
Also, I’ll leave you this nugget: If you think those paying in installment plans will flake (especially if you extend the payment plans beyond the life of the service (say, an 8 month payment plan for a 6 month course)), what does that say about a. the relationship you’ve built with your clients and the value your service or product provides and b. what your own internal story is about people who need to pay in installments? That they are unreliable? Dishonest? (Yeah, that was a gut punch to me the first time I was presented with that idea. It wasn’t pretty.)
2. Using $997 instead of $1000
We all know about using prices that end in 9 or 7 to get people to buy more. And you know what? I think it stinks. It’s purely psychology and brain trickery, pushing our buttons for the bottom line. It’s obviously not about the $3. It’s about making the offering more appealing to our steeped-in-predatory-capitalism brains. My thought is, the offer should be appealing enough that it doesn’t take a psychological trick to get my potential client to click the “buy now” button. And from a consumer’s perspective, when I see a non-9 or -7 price on a sales page, I most definitely feel a bit more at ease. Like, yes, this person isn’t trying to pull one over on me. (Which, I guess you could argue, is just another form of manipulation, but there’s only so many layers of “but do they know that we know that they know that we know” that I’m able to handle!)
So let’s all put simplicity over pricing tricks, mkay?
3. Not charging enough to pay yourself and your team a thriving wage
A lot of the talk about ethical pricing focuses on lowering prices. Which is great! (Just because you CAN charge a given price doesn’t necessarily mean you SHOULD.) But on the other hand… your prices need to be high enough to pay yourself AND YOUR TEAM a thriving wage. Because we’re not robots in human skin who need money to pay the mortgage, health insurance, and grocery bills. We need downtime, vacation, hobbies, all the things that add that special sauce to our lives. So if you have a robust client roster or making brisk product sales and you’re still not able to pay a thriving wage? You need to raise your prices.
AND TO BE SURE: paying your team a thriving wage means paying your team what would be a thriving wage in your own country.
It’s NOT cool to hire a VA for $5/hour, even if “in their country, it’s a great wage.” (I almost just vomited in my mouth typing that out.) In this interconnected online world, paying someone less because of where they live is simply location exploitation. The value a person’s work brings to your business should be independent of where they live. So if you can’t afford to hire a VA who lives and works in your own country, maybe you’re not yet ready to hire.
Because remember: a HUGE reason American-style predatory capitalism is so, well, predatory and exploitative is that companies aren’t accounting for the true cost of doing business. They aren’t accounting for the damage their buildings and products have to the environment, the climate change caused by emissions of their delivery vehicles, let alone the human cost of low wages, long hours, terrible work environments, and basically ALL THE THINGS.
But when we set our prices high enough to cover the true cost of doing business and then pay yourself and your team a thriving wage it’s a legit political statement.
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A quick note: the above is true, about exploitative capitalistic practices. AND let’s remember: we are not individually responsible for tackling a systemic problem. Can we do our small part to take it down brick by brick in our own way with the resources we have? Yes, absolutely. But it is not our responsibility (nor is it helpful) to shoulder the mental and emotional burden of problems WAY too big for one person to solve.
