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“How much is this worth?”
It seems like a simple enough question. If the question is about a product, it likely comes with a price tag; if it’s a service, chances are it has an accompanying rate. As a customer, you either think it’s worth the price listed or not.
When a customer answers the question of what something is worth, economists call it “perceived value,” and this mental notion of how many dollars they would trade for a good or service can be shaped and expanded — by the product’s environment, how it’s marketed, and the story we’re told about it. If you’ve bought caffeinated brown liquid at a Starbucks, you know something about that.
Of course, the idea of “worth” is actually a lot thornier than it looks, especially when it comes to pricing yourself. So what might we call the opposite, the provider’s perception of their own product’s or service’s worth? Economists I asked couldn’t give me a satisfying answer. So I might call it “internalized value,” what we feel our time and knowledge are worth. Within a range, of course, of market norms, this concept can also be shaped, expanded, and contracted, blown up like a balloon or dented and mangled by the world.
More and more people are tasked with putting a price on what they do in the ever-growing gig economy, outside the constraints of corporate pay structures and even preset rates on apps such as Uber. You may hear us called gig workers, independent contractors, or freelancers; people who, like myself when I decided to write and coach writers full time five years ago, are thrown out into the capitalist wild. We release the rope of a job and the health insurance it may provide, and bet on ourselves to do what needs to be done so we and any dependents can live (and retire) with dignity. Before new freelancers discover organizations, communities, and mentors, they have few pricing resources as a guide, aside from the random inspirational Instagram post that says “Know your worth.”
For myriad reasons, humans are very bad at this.
Which is why, these days, I so often find myself harassing people online. It’s not trolling, exactly, more like exhibiting a familial trait one might call being “militantly helpful.” While part of my mind mouths “Wrap it up!” my fingers continue typing in another writer’s DMs, trying to convince her to charge more, feeling that ever-tightening tension between minding my own business and rectifying a trend I see everywhere: undercharging.
I wouldn’t have known I was undercharging if I had not an experience most independent contractors never get. In 2016, an essay I wrote about women and money went viral. I was just a writer who was bad with money and assumed I’d never make much. But then, through the attention this essay threw my way, I met and got to spend time with the Suze Ormans of my generation, who saw my outfit, took pity on me, and had the kinds of conversations with me that I now feel compelled to have with damn near every other financially struggling contractor I come across.
On a retreat where I remember thinking that I’d never heard women, never heard writers, talk about money like this, they convinced me to double (double!) my rates. Which I did. And I still got gigs.
The 25.7 million Americans who run a business by themselves, according to the US Small Business Association, can’t afford to undercharge, whether for house painting, bookkeeping, cleaning, caring for children, or fixing leaky pipes. We have to pay for our own insurance, plan and fund our own retirements, and plug any gaps in our ability to work due to vacation or sickness. So I contacted some money and psychology experts to ask: Why do we so often undercharge?
Our minds can play tricks on us when it comes to pricing, especially when we’re new in a business, said Brooke Struck, research director at the Decision Lab, a behavioral design think tank. The lack of experience ramps up three cognitive biases that increase the likelihood of undercharging: the winner’s curse, the planning fallacy, and a scarcity mindset.
The winner’s curse happens in the moment we quote our pricing out loud, a moment in which we might buckle from what we told ourselves we would charge. This is because we want to win the contract, but that desire can undercut us in the long run.
“In an auction, the person who wins is the person who puts in the highest bid. This increases the chances that people overpay for what they get because we switch from focusing on getting something at the right price and instead end up focused on winning,” said Struck, mirroring a phenomenon I remember from my eBay problem of 2002. “The same thing is likely happening with independent contractors. They’re so focused on getting the contract that they are likely to forget (not completely, but at least to have less salience) that the object of the exercise is to get good financial return on the investment of time.”
This can be especially true when you factor in the planning fallacy, which the Decision Lab defines as “our tendency to underestimate the amount of time it will take to complete a task, as well as the costs and risks associated with that task.”
“The planning fallacy is a fault in your intuition about anticipating how much work is going to be involved and what the pitfalls might be,” said Struck. “Someone who has more experience and gets good feedback will be less susceptible to the planning fallacy. Their intuition will be improved.”
To a new contractor who hasn’t built out a network of clients, it can also seem like there’s not enough work to go around, which triggers what’s called a scarcity mindset.
“It’s going to push you to be more aggressive in your bidding,” said Struck. “When there’s a limited resource, you don’t want to miss your chance of getting it.”
He also points out that it’s much more obvious when we’re overcharging than when we’re undercharging. When we overcharge, clients say no or ghost our proposal. When we undercharge, we, on the surface, get the same outcome as if we’d charged correctly: They accept our proposal, and we do the work. Brewing underneath, however, is the client’s knowledge that they would have paid much more.
In addition to psychology, family history can play a role, says Belinda Rosenblum, author of Self-Worth to Net Worth. As she was growing up, she says, she watched her mother struggle to create a profitable business with what she calls a lot of overdelivering and undercharging. When she grew up to start a business of her own, she realized in her second year that she’d grossed $155,000 and netted only $3,000, keeping just 2 percent of what she earned.
“It makes me want to cry now. But I learned a lot. I was undercharging, without even realizing it. I ended up continuing the pattern, and I think that happens more often than we realize,” said Rosenblum. “Sometimes we take on these approaches because that’s what we’ve seen. That’s what we know.”
Gaby Dunn, who’s interviewed people about money for eight seasons on the podcast Bad With Money, says they notice the undercharging epidemic in one particular group.
“It’s women in their early 20s,” Dunn said, adding that those who identify as women are socialized in a way that tends to make them scared of negotiating. “I think women are really afraid of hitting that $1,000 mark.”
Dunn mostly encounters these conversations on social media with content creators asking about rates for brand deals, and is, like me, compelled to jump in.
“When it’s, ‘This company asked me to do this, this, and this. Is $50 too much?’ — No, no, no, no, no, no, baby,” they say. Dunn lets people know what they should be charging, in discussions that used to be behind the scenes in DMs but now are taking place in public posts. “It’s really gratifying when people are like, ‘OMG, I had no idea!’”
Dr. Anisha Patel-Dunn, therapist, practicing psychiatrist, and chief medical officer of LifeStance Health, says she often works with people in underrepresented minority groups who have trouble standing up for what they’re worth. She says much of what happens in your environment and experiences can affect your internal view of what you’re worth. For example, if someone grew up in a culture where it was considered disrespectful to ask for money and they were penalized for doing so, those memories can affect their ability to both believe they deserve more and to ask for it.
“With our underrepresented minorities, I think that that’s something that is really so deeply rooted and ingrained. We as a society need to do a lot of work here,” said Patel-Dunn. “You have to lift people up. You’ve got to give them opportunities to be in leadership positions and pay them well for that and be equitable. Pay them equally.”
Whether it’s because of your gender, ethnicity, or race, being treated as less-than becomes what you know, what you grew up with, an expectation. You carry with you, says Patel-Dunn, these doubts: Why should I be treated any better? Why should I be treated any differently?
People who have been victims of abuse are also likely to undercharge, according to Patel-Dunn, as they can get emotionally stunted in developmental phases of growth from the period when they were abused.
“So there’s an impact of how you think the world sees you and how you see the world,” she said. “In a lot of my own work, so many people come to get help and so often the theme is of not feeling validated, not feeling appreciated. What’s underneath the anxiety is: ‘What are other people going to think of me? How is this going to be perceived?’ That’s so important to people.”
The isolation of freelancing, she adds, increased by Covid-19 lockdowns, can make it hard for other voices of support and encouragement to get through and combat the internal story we’ve been told about how much we’re worth.
The cherry on top is the increased incidence of depression during the era of Covid-19. And guess what: Depression can also cause you to undercharge.
“Often people with depression can have an amplified sense of feeling insecure, questioning themselves, not feeling motivated to help themselves,” Patel-Dunn said. “When people are feeling depressed, they don’t speak up for themselves. They barely have the energy to get out of bed and do the things they need.”
The isolation has cut us off from the validation we might get from going into work or having social interactions with friends and family, which helps us believe in and advocate for ourselves.
“So I think that’s something that’s so nice,” said Patel-Dunn, “is to be able to share experiences and try to help one another.”
After discovering all these reasons we may be undercharging, I have no more qualms about being Random Lady Raise Your Rates. It’s too important that those of us who’ve had our internalized value damaged rebuild it, too likely that we don’t even recognize how damaged it was in the first place and what it’s costing us. In a country that provides so few social safety nets, we can’t afford to lose the power of our collective wisdom. We have to take care of each other so we can each take care of ourselves.