Knowing how much to charge your clients can be difficult for many entrepreneurs and small business owners. Price yourself too low and risk clients not respecting your abilities and working yourself into the ground. Price yourself too high and you might struggle to sign clients at all.
Figuring out how much to charge clients is one of the hardest but essentially one of the most important things you can do. It can also be one of the most stressful decisions to make, and be a constant source of worry for freelancers and small business owners.
Pricing is something that you need to re-evaluate regularly to increase your rates in alignment with inflation and increases to the cost of living, as well as the additional value that you bring your clients over time. So even when you’ve figured out how to price your products and services once, you are guaranteed to have to think about it again (and again, and again).
Fortunately, I have some pricing tips that help my clients, which I think will be useful to you.
Considerations for pricing
There are a few things to think about:
- You absolutely can’t just charge what you would be paid per hour by an employer.
- Consider overheads, taxes, superannuation, allowances etc.
- Accurately estimate how many hours you are really working and the value of the outcome provided.
- IP and client delays may need to be factored in.
- What works best will vary from industry to industry and business to business. Pricing is an individual thing.
- There is no copy and paste solution when it comes to pricing for your business
Pricing Tips: Results driven hints to help you determine how much to charge
Track your costs and your time
Accurate tracking of what it costs and takes to complete a job is important. This is also a good way to figure out which parts of a job are taking the most time (or eating up the most of your time).
You could then look into ways to automate some of these processes so you are not repeating work with every job, or outsourcing some tasks to freelancers who are better value for money at that task than you might be.
Research the Market
Do your research and work out what the going market rate is in your field and your geographic location. Because of the influx of freelancers across the globe, rates will vary MASSIVELY so it is best to compare yourself to locals and people of the equivalent skill level, rather than just anyone doing what you do.
This also includes keeping an eye on what your competitors are charging.
Per Hour or Per Project?
If you charge per hour, the most you can earn is this amount multiplied by the maximum hours you can work. Once you have taken on as much as you can practically handle, you have hit your income ceiling until you increase your hourly rate again, or hire in staff.
If you become more skilled and efficient then charging per hour is not the best way to go.
Charging per project can be more flexible, and if you become more efficient, per project is also more lucrative.
However, charging per project means you need to get very good at estimating how many hours a specific project will take. If you estimate badly, or if something unexpected crops up and blows your hours out of the water then you may end up working for less money.
Agile billing cycles
This is a hybrid of charging per hour and per project but has benefits of both. You charge, in advance, for a cycle of time such as a day, week, fortnight etc. You estimate how many cycles it will take you to complete the job before commencing, so your client has an idea of the budget they will need. You also work out when you will deliver milestones or aspects of the project so that your client knows you are not sitting at home twiddling your thumbs.
This means delays or difficulties brought in by the client can be accounted for. You know that the money will reliably be coming in on time. You can also put into place reasonable ‘holds’ on the contract if the client needs to start at a later date, and use this time for another client.
You can overlap the aspects of the job that don’t take as much time or concentration with other jobs and keep free for one client the ‘cycles’ that you know will require the most intense work and focus.
How much do you need?
Work out the amount of money that will cover all of your expenses, taxes, pay your wages, and allow profit for the business to grow. (Hint: Profit First can help with this!)
This way of thinking offers a simple equation to establish how much to charge that will cover all of your operating costs.
Are you providing something of significant value?
What are your services worth to your client?
This can be worked out in a sort of a ‘cost per wear’ idea. When you are out buying clothes, don’t consider the individual cost of the item, but how often you will wear it, and factor this into a cost per wear dollar value. For example, a good quality coat, well-tailored business suit or good leather shoes aren’t cheap, but if they will look good season after season, they are more worth the price.
Is your product or service of high value to your client?
Aspects that drive high value include products and services that:
- Make clients more money than they are investing
- Save clients money
- Save clients time
- Provide a lifestyle upgrade
- Makes the client/user feel good
- Solves a direct problem (usually one that is costing time or money!)
Are you giving them something that will enhance their business or daily life in any of these ways? If you answered yes, then there is scope to charge a higher price or implement value pricing rather than hourly pricing.
What works for you will depend very much on your specific business, and will likely be a combination of these methods. For tailored help to fix the right price for your business, contact me or book in a Pricing Strategy Session.
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