Pricing strategies for freelancers
What is your time worth?
How much to charge as a freelancer is another tough question. You are still worrying about closing the deal on your first customer and now you have to decide how much to charge so you can send them a quote.
I've done some research for you, here is a list of links and a summary of strategies.
- Jake Jorgovan for Career Foundary Good overview of available strategies.
- Tom Rankin for GoDaddy Some what not to do perspective.
- Jenny for Digital Nomad Girls More pricing strategies and some freelance pro-tips.
Pricing strategies for solo-entrepreneurs
There is good variety in how people charge for their services. (Some even turn their services into products which is another model to consider but we will save that for another post.) Here I summarize the common ways freelancer's structure and price their offering and discuss some pros and cons of each.
This is well known to be the most common pricing strategy for new freelancers. It is easy to start with hourly pricing because you know what you are making at your job doing the same work. The downside is you get paid less as you get better at your work, and it also runs the risk of unhappy customers if you exceed your estimate significantly.
If you do elect to charge by the hour, charge more than you are making as an employee. Not only to account for added costs of self employment, but you will also spend time finding customers and administering your business and that overhead has to be paid.
Though similar to hourly in that it is fundamentally time based it is a bit better option. Charging for larger chunks of time is somewhat easier to account for and your work time may be less hectic as you can focus on a single customer for a block of time.
It also has the advantage that you benefit a bit from working efficiently, if you finish your work with time to spare you still get paid for the week.
Still in the time based category, but moving toward more beneficial terms for everyone. Give your customer a discount to sign them up for a longer period of time. If they don't use all of the time they bought for the week you still get paid, and this can go a long way to smoothing out volatility in your business income.
Cost plus profit
Estimate your full cost, add some profit on top. This is potentially the worst thing you could do. After all you aren't working for the government. (Are you?)
This sort of thing can work for services that involve lots of materials, but you risk undervaluing your expertise.
Quoting a fixed price based on estimated time is another popular approach. It insulates the customer from small errors in estimating scope or carrying out the work. This could be a problem because accurately estimating how long it will take to complete a project is notoriously difficult, especially when you are first starting.
Big risk of underpaying yourself initially, but over time you could benefit greatly as you get more efficient at completing work.
This is essentially project based, however, instead of a fixed price based on time the quote is based on value to the customer.
This is not a common practice when starting out because you really need to know how the customer will benefit from your work. Charging based on value is a good long term goal since it will make you the most money while making your customers happy.
Make it up
LOL. Just price your service based on whatever you feel the customer can afford and deserves.
This might work, but ultimately it is hard to justify your quote if they push back.
Charge roughly what the market is charging. It will require some research, networking, and chats with friends who freelance to come up with a good estimate of the going rate. Once you know you can adjust a little above or below average for your level of expertise and desire to sign the client.
It is good to know what the market rate is when setting your prices and negotiating with clients. You can't just take their word that everybody else is charging less. Let's not let this be an excuse to charge less than what you are worth though.
Your services are worth closer to the value you provide the client than they are to the market average, and that will depend on the individual project and client.
So how do you charge?
Ultimately, it is up to you to weigh the pros and cons of high value vs steady work, and you will probably change your pricing strategy a few times as your business grows.
I'll continue to do research on this topic to find more resources for setting rates, see you next time!