Tuesday, March 18, 2008

How Much Should I Charge? Thoughts on Pricing Your Services

How do I figure out how much to charge for my ______ (fill in the blank: writing, photography, web design, consulting) services?

I’m often called and asked this question by people who are starting out as freelance service providers. There are already many good articles written about this topic. To find them, visit the leading trade associations for your profession and look up "resources" on their respective websites. Professional copywriters, for example, can join WritersMarket.com and find very helpful pricing guides in their members only resource section.

Here are my additional tips to beginning sole proprietors on pricing your services.

Know your target client

Are you interested in landing large contracts with big firms? Or smaller contracts with small businesses? Are you seeking long-term, multiple month contracts? Or short-term, hourly projects?
What types of businesses will most benefit from your service?

Once you’ve answered those questions, think of existing businesses that fit your profile and contact them. Ask the owners what their budget is for the types of services you provide. Ask them if they use contract service providers, and if so, what the typical pay range is for those services. If they don’t use contractors, ask them why not. You may learn some very important things about your prospective clients. (By the way, before you hang up the phone, be sure to thank the person for the information and ask if you can contact them again re: your services in the future!)

Know your competitors

Use the Internet to find service providers who are competing for the same type of work from the same type of client as you. How much do they charge?

Unless you are entering into self-employment with thousands of target contacts in your personal Rolodex and a firmed up deal with a significant first client, you don’t really want to start out pricing yourself on the high end of the market.

Know what others are charging, honestly compare your skills and experience with theirs, and adjust your pricing expectations accordingly.

Explore your value

When pricing, many people automatically default to pricing by the hour. Most people making a living with a growing, thriving consulting practice will caution you against this approach. The reason is that hourly pricing sets a limit for how much money you can make. After all, there’s only so much time in a day that you can actually work, right?

Consider the value you are providing to your clients and price according to project value instead. With this approach, you price by the product you deliver and its value to the client—not how much time it took you to do it.

In my experience, there are two disadvantages to this style of pricing.

First, you may find in the beginning of your business that you are underpricing yourself. While you may charge $500 to create a three-page web design, for example, it takes you 20 hours of work between the phone calls, meetings, and adjusting the finished product to make the client happy. That only comes out $25 an hour! Over time, however, your skills will improve and your work will become faster. You should get better at managing communications with clients and more adept at the work itself. In time, what once took you 20 hours now takes only 12. And then you’ve just earned a 60% pay raise.

The other disadvantage to this style is that clients often balk at it. I initially started out my copywriting and marketing consultation business with only project rates. I soon found that my larger clients couldn’t work in this structure. They compared service providers on an hourly rate basis and weren’t going to consider me if I couldn’t deliver a competitive hourly rate and explain my services in those terms.

My solution: offer both. I post my hourly rates on my web site and explain to potential clients that they have a choice. They can pay hourly as we go, or negotiate a contract with me for the project scope that will incorporate a reduced hourly rate but be more reflective of the actual value the project will bring to the client.

Know Your Differentiation and Explain It

Wherever you set your price, be able to explain it positively to prospective clients.

Perhaps you are less experienced, have a less extensive portfolio than your competitors, or want to drum up business quickly and so you start your business with a low rate. Be able to present your choice in positive, appealing terms.
Explain to customers that you are new to the market and interested in building long-term relationships with customers. Explain that your rates are introductory and that they have an opportunity to get top-tier work for a bargain rate while you build your network.
Alternatively, if you start out charging a rate that's on the higher end of the market scale, be bold in sharing the expertise, qualifications and demonstrated results that you bring to the table.
No matter where you end up pricing your services, be prepared to both market and explain what sets you apart from the pack.
As you’re starting out your new business, I’ll offer this final piece of advice: don't spend too much money on the printing and distribution of your rate information. You’ll likely find yourself modifying your price structure as you develop your business.
You don’t want to have several hundred dollars worth of glossy brochures on hand that include rates that no longer apply. Keep your initial communications flexible, so you are able to experiment and find what works.


What Every Creative Professional Needs to Know About Hourly Rates – Free Webcast

Free Hourly Rate Calculator from Freelance Switch

Graphic Design & Web Design Pricing Guides (not free) from Creative Public

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