I want to share with you a story. The story is of two designers.
Both designers make roughly $6,000 per month.
Both designers have equal skills and capabilities.
Both designers have a similar portfolio and quality of work.
Yet there is one massive difference between these two designers.
One designer is working 60+ hours per week while juggling a ton of clients.
The second designer is working 20-25 hours per week while handling just a few clients.
Both designers are similar, but one works significantly more than the other.
How does this happen?
The difference is in the pricing.
I know this because those two designers are both me. The first designer was me at the start of my freelance career. I was handling my pricing in all the wrong ways and working around the clock on many different clients to make a good living.
The second designer is me 6 months later. I implemented new pricing strategies into my freelancing career and my life changed as a result of it.
I was the same person, with the same skills and quality of work, yet I cut the amount of hours I worked by a third.
My goal with this series of posts is to share with you some of the changes that I made in how I priced myself. These changes helped me earn more income in less time. If you implement these changes then they can help you do the same.
With pricing, its not just about the money. It is about the quality of life.
As you see in my example, I still made the same income. I simply worked less hours which gave me more time to enjoy life, to write and create meaningful things.
You can use pricing use to increase your income and decrease the amount you work.
How most freelancers start out pricing
I started out my pricing like most freelancers.
I charged an hourly rate for the time that I worked.
A client would come to me and I would either estimate the number of hours that a project would take, or I would utilize the time tracking software inside oDesk. This would literally track my computer activity as I worked on the project.
When getting started, this isn’t a bad way for freelancers to price themselves. You are compensated for the time that you work. If the clients scope creeps or the project takes longer than anticipated, then you are compensated for that additional time.
Ultimately, this method of billing is limiting.
When I started pricing myself hourly I started with an hourly rate of $30hr. Over time, I kept raising my rate from $30 to $50, $60 and higher.
Yet somewhere around that $60 per hour range I noticed a major shift in my mindset.
At $60 per hour, I was beginning to start working with higher quality clients who had decent budgets. Yet I was still compensated hourly.
This all culminated in one specific project that completely changed my mindset on pricing.
An example of hourly pricing at its worst
A client came to me via oDesk at my $60 per hour rate. I was happy as it looked like a great client.
He provided all the assets, the scope of work, the site map and the content up front.
He gave everything to me and then I plugged it into a new website design.
I finished the website in 3 hours…
And worst of all, the website looked freaking good.
I had just created a high quality website for this individual, and I had only been paid $180 for it.
The client was ecstatic and happy that I had finished so quickly, and we both parted ways after the project.
That was a tipping point in my mind where I realized something was wrong.
I knew the site that I just created for that client was worth far more money. I knew people were charging thousands of dollars for sites of equal scope.
I knew I had to change my pricing.
Why project based fees are better
After the 3 hour web design project, I realized that I was doing myself a serious injustice by billing hourly.
I was getting good at my craft and I was working fast.
If I could start charging based on the project, and not the time I worked then I had a huge potential to earn more income in less time.
And that is the beautiful thing about project based fees.
When you charge based on the project, you are tying the price of the project to the client’s end result.
The end result is all that the client cares about.
Clients don’t care if it takes you 20 minutes or 20 hours to complete the project. Clients care that the work is done and it is done well.
Just 30 days after my incident with the 3 hour web design project I came across another client. This client wasn’t through oDesk and had no preconceived notion of my pricing.
They needed a website for their business, and I was happy to provide them with an estimate.
This time I quoted the project based on a predefined scope of the work included.
I emphasized the end result of the project, and not the amount of time that I worked.
I ended up selling the project for $4250.
The website took me roughly 5 hours to build.
And this is the thing, the client walked away happy and ecstatic about it. They loved their new website.
Shifting the focus of my freelancing away from the time I worked and toward the value I delivered, changed everything. It completely changed my income potential and how much I made.
It was at this point onward that I realized that this was the proper way to go. I began pricing everything on project based fees.
Project based fees helped increase my income while working far less time.
But the bigger question is: How do you come up with a price point for these projects?
Determining how much to charge
While moving toward project based fees sounds beneficial, there is still the question of how much should you charge for a project.
This is a challenging thing that many creatives mess up early on.
Often creatives set their project based fees on a few misaligned criteria.
To set project based fees, many creatives estimate the time that they will spend. They look at the scope of a project, estimate the number of hours, and then multiply the hours by their hourly rate. They add a few extra hours for buffer and send over a quote.
This is the wrong way to go. If you are going to do this then you might as well just bill the client hourly. Utilizing this method puts more risk on your end if the scope of the project begins to creep.
While you never want to bid a project lower than the time it would take you, charging based off a time estimate is the wrong way to go.
Another problem is that many creatives base their pricing off of what other people charge. They know that this person charges this much for a project, so they charge accordingly and match their rates to the market price.
Both of these methods of pricing do nothing to help you make more money in the long run.
Both of these methods of pricing still keep you stuck in the same grind of low pay for a lot of work.
How much do you charge?
How do you come up with a price point that the client will buy and will increase your income?
The truth is much simpler than you think.
It comes down to one simple method to determine your pricing.
Make it up
You make up your pricing for every client.
There is no formula, no rules, and no perfect way to do it.
Instead, your pricing is made up based on a handful of criteria that I will explain in a moment.
While there are some criteria to consider, it is important that you understand that there is no formula and are no rules to pricing.
Pricing is an art form that you perfect over time. As you get better you will begin to make more money in less time.
3 Criteria for making up your pricing
Criteria #1 - Do I like this client?
This seems like a ridiculous way to base your pricing but it is one of the most important criteria.
When a client comes along, you are letting that person into your life. You are going to be collaborating with and helping them for the next few months if not years of your life.
Thus, how much you like a client is extremely important.
If a corporate client comes along, they may have a large budget for the project that does not look creatively stimulating. It is not wrong to charge boring clients higher rates just because the work is not as enjoyable.
On the flip side, sometimes an artistic client comes along. Maybe they are a musician or a visual artist. The assets and vision for their project is creative, yet their budget isn't that large. Often I may take these projects on a lower rate for the creative enjoyment that comes from them.
Other times, it comes down to the personality of the client. Sometimes clients can be picky or have a strong attention to detail. While these aren't bad traits in clients, they are worth noting if you get these vibes from them early on. If it is the kind of client that is going to be tweaking every little thing, then you need to base your pricing with that in mind.
The simple question of, “Do I like this client?”, goes a long way in determining a price point for the project.
Criteria #2 - How much do I expect this client to be willing to pay?
This one gets a bit tricky on the ethical side, but it is the most important criteria of all.
For example, lets say that two prospects come to you with similar needs for a project.
The first prospect is Startup Sam. Sam has a cool business, a creative idea for his project and seems enjoyable and easy to work with.
You discuss the scope of Startup Sam's project and he has a $3,000 budget.
After looking at the scope and budget, you decide that you would be happy to take this project on for $3,000.
The second prospect is Corporate Tom. Tom has a large established business. He has a great idea of what he is looking for and seems enjoyable and easy to work with.
You discuss the scope of Corporate Tom's project and he has a $7,000 budget.
Both clients have similar scopes of work, yet both have different budgets in mind.
Ethically, you would think that if you are going to charge Startup Sam $3,000 for a project, then you should charge Corporate Tom the same amount for the project.
This seems like the right way to handle things, but this may actually hurt you.
If you approach Corporate Tom and say, "I know you have a $7,000 budget, but I can do this project for $3,000", then you are undermining the value of our work.
When you underbid the client’s expectations, you are sending signals to the client that say "I'm not that good", or, "My work isn't high enough quality."
Charging based on the scope of the project seems ethical and like a right idea. In reality, charging in line with the expectations of the client’s budget is a safer way to go.
Clients go into a project with a budget in mind. If you can align your pricing with their expected spending then you will improve your income and your chances to win the project.
How to figure out the clients budget?
There are two simple ways that I recommend figuring out the clients budget.
- When the client first inquires about the project, I always ask a series of questions (See page X on Qualify the client).
One of the questions I always ask is, “Do you have a budget set aside for this project and is it over X?" This first weeds out low budget clients, and often clients will respond and let you know the budget that they have available.
- The ballpark question - Often clients will ask you for a ballpark quote for the project. Whenever I get this question I answer with a wide spectrum.
I say something like, "It could cost anywhere from $1,000-$8,000 depending on the scope. Did you have a budget in mind that you were looking to spend?"
Just asking for the budget goes a long way. The client won't always reveal this but if you don't ask you will never know.
Criteria #3 - How much value am I providing this client?
The third and final criteria to base pricing off of is how much value you are providing the client.
Many blogs and books refer to this as “value based pricing” and it has become quite the popular buzz word in the freelancing industry.
With value based pricing, the idea is that you anchor your price point against the value that you are providing to the client.
Sometimes you can quantify this value in specific numbers. Other times the benefits may be intangible.
If you can emphasize the value that you provide to the client in your proposal process, then you will begin to see your income grow as a result of it.
For example: You are doing a website design or branding project for a client, then you are providing them significant value. You are helping them improve their online presence and you are improving their brand perception. This will help them drive more sales and increase the income of their business.
Another example: Lets say you are working with a client on a product launch. Maybe you are writing the sales copy for their website, maybe you are designing the cover for their book. You are providing value to them that they will earn back when they launch the product and make sales. Focus on the fact that your service is going to help them make more money and anchor your price against that value.
The great thing about value based pricing is that it doesn't take time into account. If you can make a change to someone’s business in an hour and it provides significant value to them, then you can be paid a large amount for it.
Recently, I had a client approach me for a simple fix to the home page of their website. They needed to implement a feature that would completely change the landing page for their website. They were an online business, so their homepage was a huge deal for them.
They had no idea how to make the change, but in about 20 minutes I was able to fix the problem. I charged them $500 for the change and they were happy to pay it because it was of huge value to them and they could not do it on their own.
Pricing based on the value you provide is a great way to increase your income while reducing the amount of time that you work.
There is no formula
As you can see, these three criteria offer no formula or perfect way to calculate pricing. Instead, they are intangible metrics to base your pricing off of.
When figuring out pricing look at these metrics and consider them, but always remember that with pricing, there are no rules.
There is nothing unethical or wrong about charging one client more than the next. Try to remember that the client always has the decision to hire you. Just because you present a price doesn't mean that they have to accept it.
With pricing, the worst that can happen is the client says no.
Experiment a bit, try things out and start charging more. You will be amazed at the results.