There are times you have to be careful when hiring help -- social network influencers, for example. You can pay too much for too little. And cutting costs can be important, like the restaurant chain that found ways to slash expansion costs by 25 percent.
But while a tight hand on the purse strings can be a sensible business trait, being overly cheap can backfire. One of the best examples is when companies turn to contractors or freelancers to get work done and then want something for next to nothing. They often think they're being wise by looking for reams of work to be done for chump change. But it's ethically and practically wrong.
Trying to screw people is wrong
Some will argue, "If people are willing to do the work for that price, then they're making an informed choice." Actually, they very well may not be. Many of the people who have started to freelance have done so out of necessity. Jobs disappeared and they were left to make a living. Lord love 'em, they're trying to do it on their own, at least while between jobs. But few understand what is needed to run a business before they find themselves inadvertent proprietors, and they're probably desperate to bring in some cash.
Can you probably drive down their prices? Sure. You could also pull all manners of minor cons on people who are stuck. If that's the sort of person you choose to be, there's likely little to say, although I'd point out that this type of attitude tends to show up everywhere in business and, ultimately, leaves customers looking for better companies, because you try to shortchange them as well.
A business owner may think the offered dollars per hour a reasonable payment. But freelancers and contractors can't charge only for the time they work for a person. Their business requires all time to be covered, not just the few hours a client wants something done. It's like any business. You don't price a product to cover only the cost of manufacturing. The total revenue has to cover personnel, health care, facilities and other overhead, and every other cost of the business. Pushing down on prices asks providers to cut back on their business.
And there are other considerations as well.
You get screwed
Think of the following: You've taken on work or a production run and, for some unfathomable reason, you charged too little. Far too little. Now you start to get desperate over the bad decision and need to walk it back somehow.
You could try to negotiation, but you know that wouldn't do much good -- you already made a deal -- so you do the next best thing and scale back energy and attention. Work is rushed through and you don't take the time to do your best work. Important resources that might made a difference get redirected to more profitable and, therefore, important work.
Do you think you're the only one who does this? Inexperienced freelancers and contractors will do it in a second if they perceive they're being screwed, even if they agreed to the terms.
In general, you want vendors to make enough money to gain a reasonable profit because you'll want them around in the future. Plus, you'll want them to be interested in your wellbeing. When a crunch or problem comes, who gets the extra attention and help? The cheapskate or the good regular client?
Cheapskates get something else, though: a really bad reputation among people who could help them make more money.
You miss a better class of help
If you could, it would be instructive to hear a group of professional service providers -- whether writers, artists, graphic designers, programmers, carpenters, electricians, or denizens of some other occupational niche -- talk about clients and offers of business. The topic is typically mentioning some absurdly low rate with all the professionals laughing or being derisive.
You may bring in help at low rates, but you're likely closing the door on experienced practitioners who have often been paid well, repeatedly, by companies. The reason for the high pay and return by clients is that these people can deliver something that provides the value the companies need. Maybe it's finding the right voice for a particular audience or a style that works well with a brand image or an electrical installation that not only meets code but considers future needs and plans for them, lower total costs.
Paying someone more doesn't mean their abilities or professionalism will increase. But paying less almost ensures that the quality of work you get will never improve, and that only hurts your company.