Our belief was that if we kept putting great products in
front of customers, they would continue to open their wallets.
—Steve Jobs, cofounder, Apple
As a sophomore in college, I cofounded a Latin jazz band called Río Negro with a Puerto Rican friend of mine who played congas. We loved everything about Latin music and soon found other musicians from our school to join the band. After becoming popular on campus, we began to do more high-profile performances around Atlanta, even playing for Super Bowl XXXIV and President Bill Clinton. During those early days, we played most performances for free while we established our name and honed our style. However, as our popularity grew, we began to accept paying gigs from corporations and organizations willing to pay us. We had no idea what to charge or how to charge. As the bandleader I determined our rates and handled the band’s business.
For a long time, we thought that the amount we charged for our performances was standard. The problem was that our standard was pretty low, contrary to the high quality of music we produced. We didn’t learn about how low our standard was until a veteran musician in town called our attention to it. This veteran jazz guitarist had a reputation for being brutally blunt. In fact, he was infamous for kicking subpar musicians off stage at jam sessions. In that characteristic cool and nonchalant tone that all old jazz musicians have, he complained, “You young cats are doin’ big gigs for a few hundred dollars. These are $2,000 gigs, man. You are messin’ with my money!” One of my band members actually got into a spat with the disgruntled man during a commercial break for a radio station interview. They just happened to be there at the same time.
Realizing that our standard was indeed too low and considering that we wanted to make a living from music, I decided to increase our rates significantly. I thought that the change would be as simple as raising the rates and collecting bigger checks. I was wrong: It didn’t quite work out that way. Several of our prospects had sticker shock, hearing the higher rates and almost always saying no thanks. As a result, I reverted to our lower rates, thinking that this was the only way we would get gigs. Before long, we resented the grind for such little pay. It just wasn’t as fun anymore. I decided to try something new: sticking firmly to the higher rates and not giving in.
For months, we didn’t get many gigs, but I stuck to the plan with my band members’ support. I received several rejections, but I would also hear and sense genuine disappointment from those who wanted to hire us but couldn’t. People really wanted our band to play for their events. Some even told me that they would request a larger budget the next year so that they could hire us. Sure enough, the next year several of the companies and organizations that couldn’t afford us before found the money to secure us at the rate we requested. Apparently, telling these clients no built our value tremendously. It was as if they respected us for holding our ground. The strategy seemed counterintuitive at first, but it worked. Our brand and reputation grew as we demanded and received higher pay.
From this experience, I learned a valuable lesson that I apply in my other businesses: Set your price or rate and demand that you get it. This requires you to respectfully say no when prospects ask you to lower your rate, but in many cases they will respect you more for holding your ground and may come back later willing to pay. You’ll also need extra patience, because it will take time to develop the demand for your company, especially if you have to wait for a new annual budget. Sometimes I unabashedly suggest that my potential buyer request more money from their company to meet our prices.
Of course, this strategy requires that you offer the best quality available. You can’t demand top dollar if your product or service can be easily substituted. My band was unique in the Atlanta market, giving us a significant competitive advantage and demand. We played a type of music that not many bands played in our city, and we did it well. No one pays a premium price for poor quality—at least not twice.
Novice entrepreneurs often make the mistake of devaluing the worth of their product or service. While lowering your price may be an effective way to enter a market or to gain customers, it eventually corrodes profitability in the long term. Companies that compete on price alone tend to go out of business quickly. Strive to stay in business for decades like Apple. The most valuable company in the world in August 2012 with a market capitalization of $619 billion, Apple has never compromised on demanding high prices for its products. At the same time, it has never compromised on delivering excellent products. As with Apple and several other premium brands, high quality and high prices can make your company a winner, too. Now that should be music to your ears.