The Origins of .99¢ Pricing

Matt Homann over at the [non]billable hour has a post citing a study on the psychology of odd-numbered pricing. Matt then suggests you might want to set your hourly rate at $297 per hour rather than $300.

As you can imagine, there are several flaws with this. Here’s the comment I left on Matt’s post:


I’m surprised you’d advise to still have an hourly rate?

In any event, this study is specious. Odd-numbered pricing was not originally designed because people think $19.99 is cheaper than $20.

It was put in place when cash registers were installed, so employees would have to open the drawer to make change, usually with a loud bell attached so the owner could mentally count how many times sales were rung up.

Odd-number pricing was designed to prevent employee theft. This happened around the 1880s. There is little economic evidence odd-numbered pricing influences people’s buying decisions.

Why odd-numbered pricing still exists is a more complex question, given our technology advances (and sales tax). Inertia? People think other people think it’s cheaper, etc.

Disney stopped odd-number pricing in its retail stores in the theme parks after their pricer heard me explain the origins at a pricing conference. Even numbered pricing (including $4.50, etc.) actually sends a quality signal to the customer.

But the most important question: Why would you want customers to think your price is close to your cost? You should be nudging them to think of your price compared to value, which has nothing to do with your costs.

It is surprising how much staying power this myth has, but once you trace it back to its origins you see how specious it is.

My colleague Ed Kless loves to tell the story of one of his partners who will quote a price such as $100,000.17. Every one asks right away, “How’d you get the .17¢?” completely ignoring the $100,000.

I’m not advocating this, but it may partly explain the staying power of odd-numbered pricing.


  1. Hi Verasage,

    I note you quote GK Chesterton – what a great writer he is – don’t forget the maniac who believes in himself!

    Now I subscribe to fixed pricing and we embrace it vigilantly within our firm – but I cannot agree with trashing the timesheet for the following reasons:

    1. It tracks time spent on bad clients – ie it tells me who I should be looking to disassociate our firm with.
    2. It is a traditional measure of costing used extensively within the ‘accounting’ genre and should not be simply discarded because an ex big 8 (big4) employee one day decided that this onerous task was simply not right for him because of his belief in himself and his opinions (refer Orthodoxy by the author mentioned above)
    3. It can sometimes be used as an effective management tool to reward hard working and effective employees.

    Now I would object to being called a skeptic/dissenter because I simply love value pricing as espoused by the Baker. What I am suggesting is somewhat of a truce between the old and new. Consider Jesus, born a jew. Sure is said he would destroy the Temple, but he also said that he would rebuild it in three days.

    I challenge Verasage to consider the rebuilding of the temple as opposed to the complete destruction of it. Now the Roman empire only exists in the books of history, but the Jews are still here. Surely we would want the long term prosperity and survival of this peculiar animal called the accountant, of which costing has played its part in its development and current position.

    Do not trash the timesheet!

  2. Ron Baker says:

    Hi Rod,

    Thank you for your comments, and I’m certainly glad you’ve embraced Value Pricing.

    There’s no way I can respond with justice to your defense of timesheets. I’ve written 5 books that refute every one of your three premises.

    Here’s how firms without timesheets solve your 3 issues:

    1) I suggest you know who your bad clients are without looking at any financial information, let alone timesheets.

    2) Timesheets are not the only way to do cost accounting. There’s ABC and, even better, After Action Reviews. Without getting too technical, the problem with timesheets is they perform average costing, not marginal costing, and they only provide information on costs after the fact. The important point is performing cost accounting before you do the work. This is how Toyota has operated without a standard cost accounting system since its inception. I simply did not decide “one day” that I didn’t like cost accounting. In fact, I used to have your view of the world until facts and empirical evidence changed my mind.

    3) Timesheets are never effective management tools because they are lagging indicators. Plus, they don’t measure the most successful traits of a successful accountant. And again, I bet you know who your hardworking and effective employees without looking at timesheets.

    Let me make the most important point: There are 500+ professional knowledge firms around the world, in every sector–from accounting and law, to IT and advertising–that don’t do timesheets. Why should they go back to the old Temple if they’ve found more effective methods?
    Isn’t it our duty to constantly improve our profession?

    For a deeper explanation of why timesheets are not needed, just look at our Trailblazers section, or check out these posts:

    The timesheet is dead, Rod. You can bemoan all you want, but we’ve proved, conclusively, it is not needed.

    How can you refute the firms that are out there doing it?


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