Setting your rates. It’s one of the biggest challenges that comes along with freelancing. Aim too high, and you’re worried the client will write you off with a quick, “Whoa, no thanks, money bags. See you later!”
But, set the bar too low, and you fear you’ll be working like a dog—yet still eating beans out of a can and searching for rent money in your couch cushions.
There’s no denying that pricing services has freelancers across the world tearing their hair out. And, unfortunately, far too many of us rely on a pricing method that looks a lot like closing our eyes, spinning in a circle, and then pulling a random number out of the air.
Well, no more! There’s a better way. Let’s take a deep breath and look at a few more logical tips and structures for setting your prices. Because, honestly, that whole blindfolded approach will likely only end in disaster.
Market Pricing vs. Perception Pricing
When it comes to pricing, there are a bunch of different structures you could use to get started—although, again, we don’t count pulling a price out of thin air as one of them. Instead, it’s best if you consider one of these two main business models: market pricing or perception pricing.
When using market pricing, you set a price for your services based on the market around you. For example, a freelancer in a larger metropolitan area—where the cost of living is much greater—will likely charge a higher price than one that lives in a rural small town.
Pricing based on the market is a good option if you want a more straightforward, data-driven approach and are willing to do your research. “In this case, you’ll also have to research based on external factors, such as location and experience level,” we explain in our book, Welcome to Your Independence, “Rather than just bare-bones cost of goods and target profit margins.”
Perception pricing—also commonly referred to as value driven pricing—is quite different. “Value driven pricing is when you base a product or service’s price on how much the target audience believes it is worth,” our ebook says.
Using this model, you create a business case that essentially outlines the impact your work will have for an organization. The website you redesign will lead to a significant increase in revenue, or the articles you write will result in a significant growth in their audience, for example.
This model is great for freelancers who have already established a reputation and some expertise in their fields. However, make sure that you’re armed with some case studies or recommendations to backup your price—clients will want to see that you don’t just talk the talk, but also walk the walk.
Tips for Setting Your Prices
Regardless of which pricing model you decided to go with, there are a few important tips you’ll want to keep in mind when setting your rates. Let’s dig in!
1. Work Backwards
Time and time again, freelancers fall into the same trap: Settling on a price based on what sounds fair to the client, rather than putting in the research to determine what they actually need to earn to sustain their businesses.
But, that really only sets yourself up for failure. You wind up working all hours, only to earn less than you need to survive. So, instead of trying to land on a price that won’t send a prospective client running for the hills, work backwards.
Set an aim for how much you need to earn each month. Then, when quoting a project, take a look at your existing workload to determine what you need to charge for this new project in order to meet that goal.
Of course, you’ll still need to use some logical reasoning here—you can’t charge $4,000 for a single article just to meet your quota. However, this backwards approach will be undoubtedly helpful in making sure that you price based on what you need, and not necessarily on what sounds good.
2. Define an Hourly Rate
For many freelancers, it can be helpful to come up with a flat hourly rate. Even if they bill per project, this hourly rate is still a great asset in helping them to determine how much to charge for the project as a whole.
You likely already have a pretty solid handle on how long things take you to complete. So, if you’re looking at setting a price for a website redesign for a business, you might be able to estimate that the project will take you between 20-25 hours.
If you’ve settled on the fact that you charge $75 per hour, then you know you need to quote the client somewhere in the ballpark $1,500 to $1,875 for the project.
Remember, don’t assume that just because you don’t charge by the hour means you can’t set an hourly rate. It can be a beneficial piece of information to help you ensure that you’re keeping your prices fair across the board.
3. Gather Feedback
Of course, prices are something that vary widely based on geographical area (remember the market pricing concept we talked about earlier?) to expertise. And, because of this, it’s something that you shouldn’t hesitate to gather some input or feedback on.
Connect with other freelancers to find out how they would price a project. Freelancing can be competitive, but there’s also a great sense of community—people are typically willing to bounce ideas around with fellow freelancers.
You can also use the feedback of your different clients to continuously tweak your prices. Are you met with a, “That’s out of our budget!” objection every time you share your price? That could be a sign that you need to take things down—or, alter your ideal client to target larger businesses with less strict budgetary constraints.
Do clients immediately accept your price without so much as a second glance? Well, maybe you want to try raising your price a little bit—you could be leaving money on the table, so to speak.
4. When in Doubt, Aim High
If you find yourself torn on how to set a price, don’t hesitate to aim a little higher. After all, you can always negotiate down—but, it’s tough to jack the price up after you’ve already put a number out there.
Setting your freelance rates is a learning experience, and almost nobody gets it perfect right out of the gate. So, continue to do your research and gather feedback, and you’re sure to land on a number that works for you and your business—no spinning in circles with your eyes closed required!