12 Jul Choosing the Right Pricing Strategy for Freelance Projects
Deciding on how much you will charge for your work when starting as a freelancer is no easy choice. There are many different pricing strategies, each with their own pros and cons. It is important to not just pick one strategy based on someone else’s experiences - it has to be right for your specific services, clients and circumstances. This article will guide you through the most common types of pricing methodologies and how to know which one is right for you.
Before we dive into the strategies, there’s one common mistake to talk about. More often than not, freelancers think that they should use one and the same pricing strategy for all of their clients. This is not only a wrong assumption, but it is actually unadvised to do so. There is no one-size-fits-all solution in this scenario. Each of your clients is different and they don’t need to know what or how you charge the others. Additionally, the circumstances for each project is different as well, so you should always judge them individually when it comes to pricing.
Now that we have that covered, here are some of the most common pricing strategies freelancers use:
Hourly billing is exactly as it sounds: you charge for your time. This is by far the least effective or profitable method for freelancers due to a variety of reasons. For example, filling out timesheets takes on extra unpaid time and hassle, having to estimate every small task in terms of time and justifying why you went over the estimated time. In most cases hourly pricing should be avoided.
There are times when you can justify using hourly billing though. For instance, if you are just starting as a freelancer, it might be a good way to get motivated and see how long certain projects take you. It’s also very simple, clear and leads to fewer disputes, as long as you’re tracking your hours accurately and honestly. Lastly, if you have a project that is very complex and may require a lot of trial and error, such as app development, hourly billing reflects the on-going effort you’ve put in.
Being paid on a daily basis is still restrained by your time, but it can make things faster to calculate. It is important to draw the line between the two though: 1 day is 1 day and it shouldn’t have the amount of hours specified. If you guarantee a set amount of hours, this will be worse than just billing hourly.
This type of pricing strategy is great if you’re a freelancer who is travelling to work in your client’s office - it can somewhat compensate for the commute. It also accounts for you being a fast worker, as you get paid for a day of your work and it doesn’t matter how many hours it will take you.
Project-based pricing involves negotiating a fixed price for an end product. This usually involves discussing the scope of the work carefully to avoid underestimating the time/effort it takes, and receiving a deposit prior to starting. With this strategy, you’re guaranteeing the completion of a project.
This has more scope for profit if you’re an efficient freelancer. Hourly pay is limited by your time, whereas project-based pay can be leveraged by outsourcing, or simply working very quickly.
Value-based pricing is the most tricky, because you have to estimate the value you will bring your clients. This means understanding the numbers behind the work you’re doing. For example, if you can improve conversions on their £10,000 per month Facebook adverts, then what extra profit are you creating for them? You will need to be confident in your negotiating skills to get this point across.
The philosophy behind this is that, if you’ve spent 10 years studying Facebook adverts, which allows you to produce highly effective ones in 5 minutes, why should you bill for only 5 minutes? Your pay should reflect the value of the service, not the time it took.
Retainer agreements are one of the safest pricing strategies that pretty much guarantee you income. When you sign a retainer agreement, it means that you sell a fixed amount of your work hours for each month. In other words, you sell your availability to deliver the services, not your labour. For example, let’s say you charge £20 per hour and offer 10 hours of your work per month - your fixed price is then £200 per month for the client.
There are also two types of retainers: rolling and limited. Rolling retainers mean that if your client doesn’t use up your service a given month (e.g. only asks for 5 hours of work instead of 10) then these will carry forward to the next month. Limited retainers work on a “use it or lose it” basis.
Other things to keep in mind
Besides the general pricing strategies, there are some other things to be aware of when selling your services as a freelancer. Here are some of the most important things to keep in mind:
Estimates are rarely accurate. Whether it’s the time it will take for a project to be done or the cost of the project. From the start, you must factor in contingency to make up for these estimation errors. Ideally, you want to add 20% of the project value to your fixed price, as your safety money. The hardest estimates are often creative and developmental projects such as web and app design, where it’s difficult to achieve the client’s vision first time, and there’s also a bunch of technical hurdles.
There are several things that make up your value: your credibility and availability as well as the benefits you bring to the table. You need to know your USP (Unique Selling Point) and present it in the best light possible. For instance, if you are very experienced and knowledgeable in the subject, make sure this comes across when talking to potential clients. Doing this right will have a significant impact on how much your clients are willing to pay you. You can’t ask for premium prices if your value is not obvious.
Your price says a lot about your work. If you’re one of the cheapest on the market, then you’ll be perceived to be incompetent. However, if you’re asking for too much with not much credible evidence to back up your value, your positioning is way off again. So, you need to position yourself in a way that is right for your circumstances and the market averages you are in.
Sometimes, before hiring you for a big project, clients ask you to prepare a proposal. This is an absolutely fair request. However, make sure you don’t get tricked into sharing too much project-specific information when presenting your idea. Proposals often require quite a bit of research, which is already your used time and value and it should come at a price.
Just like investments, price reflects risk. If you’re seen as a risky freelancer (perhaps you lack experience), then the price will likely be lower. Likewise, use the same logic if the work is risky for yourself.
Your biggest obstacle when negotiating is imposter syndrome; confidence and salesmanship go a long way. However, there are some specific things to keep in mind. Firstly, never start with your bottom line as your price. It’s also a good rule of thumb to negotiate on terms, as opposed to your price. You set the price, not them.
Lastly, you negotiate best when you don’t need the client. So, this means that once you have steady work already, you can begin asking for more money elsewhere without being scared of not converting those leads.
Prices also reflect scarcity. This is as true for jewellery as it is for your time. If you’re always available, then you can expect to be asked to lower your price.
Adversity to fair payment
If a client appears to be more interested in a cheap service than they are a valuable one, they’re often the hardest clients to please.
Working for free
Never. Work. For. Free.
Unless… You have zero credibility. As we discussed, credibility is a factor in your price, and if you have zero evidence to back up your price, you may want to try working for free.
If you work for free in order to build your portfolio, know when to stop. This should be a very temporary strategy.
Understanding each of these pricing methods is essential and, hopefully, this will help you decide on a fair pricing strategy for yourself and your clients. Although there are a lot of things to consider and keep in mind, you should also remember that your situation is unique and it’s only up to your personal preferences and what feels right to you.
Looking for support?
Being an independent freelancer does not mean that you have to decide everything on your own. You can get advice on the business decisions that you feel uncertain about.
At ASfB, we have a nurturing program to help entrepreneurs on their journey. Our experienced team of professionals will support every step of the way, with business development advice specifically tailored to your needs.
Call us on 01202 755600 or drop an email to firstname.lastname@example.org for an informal chat.