Nine Factors to Consider When Determining Your Price
Collis Ta'eedThis article has been translated into Italian by Giuseppe at GL SEO Blog, and into French by Céline at NakedTranslations.com
Part guesswork, part experience, part number crunching - how ever you look at it, determining your price is a difficult task. Here are nine factors to take into consideration:
1. Your Costs
If your rate doesn’t include enough just to break-even, you’re heading for trouble. The best thing to do is sum up all your costs and divide by the number of hours you think you can bill a year. Whatever you do, DON’T think you can bill every hour. You must account for sick days, holidays, hours working on the business, hours with no work and so on.
Also make sure you factor in all the hidden costs of your business like insurance, invoices that never get paid for one reason or another, and everyone’s favourite - taxes.
2. Your Profit
Somewhat related to your costs, you should always consider how much money you are trying to make above breaking even. This is business after all.
3. Market Demand
If what you do is in high demand, then you should be aiming to make your services more expensive. Conversely if there’s hardly any work around, you’ll need to cheapen up if you hope to compete.
Signs that demand is high include too much work coming in, other freelancers being overloaded and people telling you they’ve been struggling to find someone to do the job. Signs that demand is low include finding yourself competing to win jobs, a shortage of work and fellow freelancers reentering the workforce.
4. Industry Standards
It’s hard to know what others are charging, but try asking around. Find out what larger businesses charge as well as other freelancers. The more you know about what others are charging and what services they provide for the money, the better you’ll know how you fit in to the market.
5. Skill level
Not every freelancer delivers the same goods and one would expect to pay accordingly. When I was a freelancing newbie I charged a rate of $25 an hour for my design, when I stopped freelancing recently my rate was $125 an hour. Same person, but at different times I had a different skill level and hence was producing a different result. Whatever your rate, expect it to be commensurate with your skill.
6. Experience
Although often bundled with skill, experience is a different factor altogether. You may have two very talented photographers, but one with more experience might have better client skills, be able to foresee problems (and thus save the client time and money), intuitively know what’s going to work for a certain audience and so on. Experience should affect how much you charge.
7. Your Business Strategy
Your strategy or your angle will make a huge difference to how you price yourself. Think about the difference between Revlon and Chanel, the two could make the same perfume but you would never expect to pay the same for both. Figure out how you are pitching yourself and use that to help determine if you are cheap’n'cheerful, high end or somewhere in between.
8. Your Service
What you provide for your clients will also make a big difference to your price tag. For example you might be a freelancer who will do whatever it takes to get a job just right, or perhaps you are on call 24-7, or perhaps you provide the minimum amount of communication to cut costs. Whatever the case, adjusting your pricing to the type and level of service you provide is a must.
9. Who is Your Client
Your price will often vary for different clients. This happens for a few reasons. Some clients require more effort, some are riskier, some are repeat clients, some have jobs you are dying to do, some you wouldn’t want to go near with a stick. You should vary your price to account for these sorts of factors.
Give it lots of thought
The more you think about your reasoning behind your price, the easier your quoting will become. Like all these things there is a large amount of trial and error and often you will find yourself constantly changing up your pricing and gauging the ratio of jobs lost to jobs won.
Scott Carpenter
May 26th, 2007
Further to Industry Standards (4.) and Who is Your Client (9.) is being aware of the average rate within the industry the client is a part of.
For example the same skills and experience will generally earn you a higher rate in the banking and financial sector (say) than to non-profits.
Rajesh Shakya
May 26th, 2007
Very valid judgments. What if your opinion on the rates you see on the freelance job sites? Such a cut-throat competition. Where will this lead the market?
RajeshShakya.com
John Brougher
May 26th, 2007
I’d add something FS has mentioned before (and I found in a book by Alan Weiss) which is value–how much value will be gained by your product or service. This is a key justification of your rates. I haven’t really been able to employ that yet, as my main client currently is a public agency and so can’t pay the big bucks (nor do I feel comfortable charging them the big bucks), but it’s definitely something worth mentioning.
Also, if you’re a web dev, my uninformed opinion is…charge through the nose. The amount of people that are looking for web devs right now is through the roof. If you’re a PHP/Ajax/Rails wiz, you’re in the right place at the right time. Take full advantage.
Michael
May 26th, 2007
For number 9 I would add that with some clients you will not want to work at all, even if they pay a lot! The only exception is that you get payed hourly not for project as a whole.
Dor
May 26th, 2007
For # 9 I think I have something to add: Also, when the “client” you are doing to job to doesn’t necessarily means it’s a single client. Meaning in other words, the price of a single client business compared with the price of a company should be different. Am I making myself understood?
Benek
May 26th, 2007
Another thing to ad to #9: How much value does that client provide to you? Will this project provide good word of mouth or a lot of exposure? Will it be a good portfolio piece. Is it in an industry that you’d like to break into? In some cases it might be worth lowering your rate to be sure you get the job if you think it will provide extra value to you in the long term.
I think this article in conjunction with the rate calculator is an excellent resource–provides everything you need to consider.
James Tadeo
May 26th, 2007
“Money is what you pay, value is what you get.”
I read that in a forum when members were discussing rates and money. For me, I will charge out a project cost and then tag on an hourly rate if anything goes beyond the project scope. This is typical with most of the projects I work on. In terms of a rate, my fees are commensurate with what the industry is charging and my experience.
…sip…
Joel Laumans
May 27th, 2007
Great article, I think all ‘newbies’ should give this a read. I think we all have struggled with pricing our first few clients. But just remember, dare to deliver, and then you can dare to demand.
++recommend
Iuse Ono
May 27th, 2007
Hey there,
what if you find your price above the market average even when calculating with very modest earnings after the bare expenses, avg paying morals, realistic but rather bad-to-worst-case billable hours, etc.?
Agreed, one would recalculate but my question is rather how do I make it all fall together? There is a market, a demand, I offer nothing genuinely new apart (maybe) from a certain passion, a personal touch and my integrity. Qualification can be seen as a given.
I hail from the Eurozone and reading that someone bills 25$ / ~18€ would just make you make ends meet — no taxes or social security or insurances, that is … That would work fine if you had a day job to provide for the former but without you suddenly find yourself at a good 2.5 times that price… which would translate into 1/3 above the market.
What to do?
To foreamrm for a lot of questions, for a good strategy to sell myself or to recalculate, lower the price “because the bulk of suppliers does it for less(see implications above) and so should you”?
I’d be happy to hear your view.
Thanks in advance!
Feral Worker
May 27th, 2007
It can be tempting to lower your rate “just this once” to get a gig that would look good in your portfolio or win you a client you want. The problem is that the client will expect that rate to apply to all repeat work. So if you reduce your rate to get your foot in a door and the door opens, you’re now stuck with a low-paying client who might resist when you try to get your rate up to its normal level.
Also, “introductory” pricing sends the message that your time isn’t really worth what you normally charge for it, since you’re clearly willing to work for less. This opens you up to more price haggling and potential commodification.
Jermayn Parker
May 28th, 2007
I think you can also add the complexity of the project, to the reasons why you charge what you do…
If its something you can do in a week without raising a heart beat, you would charge less than something that will cause you sleepless nights
Robert
May 28th, 2007
Even if it’s a complex work to be done I stick to my (with all your points listed and more) calculated hourly basis. Just because it’s complex doesn’t mean I have to charge more. It depends on the view: for me complex, for a guru (which I’m not…) easy. I have the chance to learn while doing the job, providing me more insight for the next one and supplying me with knowledge to finish the next job easier and faster.
The hardest part for me is the “how big is the company” question: although huge compannies have a bigger budget for advertising why should I demand a higher price (I find it somehow cheap to do so, my work is not better just because I can charge more)? Or: just because a one person company has almost no money but still wants the top notch design - why should I charge less? These answers are difficult for me each time and I didn’t come to a satisfactory answer for myself. I try to reach a price with my calculations which lets the client and myself “live” on a respectful and clean basis…
no.e
May 29th, 2007
I say set your hourly rate and stick to it. Invariably if you shortchange yourself on a rate or project basis, you will end up either hating the client or hating the project… Either you will think you screwed yourself or the client will see it as an opportunity to take advantage. The exception might be a non-profit type situation where you have an understanding in regards to the price. Even in that situation, I would propose that they credit you with a “donation” (tax write-off) to make up the difference.
A lower “introductory” rate does equal a lowered rate for the life of that client, unless you can up that charge diplomatically.
If you stick to your rate, regardless of client, you will end up working at the rate you want and need, on projects where you are truly valued and not slaving away at a low rate, unable to handle those better-paying contracts when they do come along (or you seek them out).
If people can’t or won’t pay the rate (hourly or project-based) I would suggest negotiating based on their situation and project - reduce the scope, extend the schedule, break it into stages, priced separately… Do anything but lower your rates. If you don’t get the job, move on to the next that’s willing to pay.
Iuse Ono
May 29th, 2007
Thank you for the feedback (and sorry if it looked as if I wanted to hijack this thread).
Your comments are appreciated and I hope other avid readers of this blog can profit from the Qs raised here aswell.
Thanks.
Alex
July 30th, 2007
Good write up that helps a lot. I’m starting to realize how much I undercharge people
Mark
August 21st, 2007
Thought-provoking list, but I do have to comment on one of em.
Adhering to industry standards, while “safe” (debatable) is also a good way to get the same or similiar results everyone else is getting.
That’s seldom the entrepreneur’s goal, and not the way a freelancer stands out.
Venkatesh
October 23rd, 2007
You have covered all things… Have pointed out points that i have to improve so much. Thanks.
Will Kenny
December 5th, 2007
Keep prices high for either clients or activities that you don’t want to deal with. Clients will have you do basically menial or inappropriate work as part of a larger project if it saves them hassle, especially if you let them have this “less important” work for less money.
Basically, I’m happy to sharpen pencils or make client for the client IF they will pay me my top consulting rate. When they realize that they are wasting money taking the easy way out, they go back to having those things handled by their own people, and leave us to do what we were hired to do. (I’m a big fan of using one rate for whatever I do, rather than charging less for some activities than I do for others.)
And similar thinking goes to bad clients. Smart banks commonly raise interest rates on businesses that are looking like higher risk, and higher maintenance, clients. They manage to get rid of these less desirable customers without kicking them out, and sometimes make a better return on those arrangements while the borrower is thinking about moving on.
In other words, I calculate a higher “nuisance” rate for the clients who are always a hassle. If they pay it, I make more, and if they don’t, it’s a non-adversarial way of terminating an unhealthy relationship so I can replace them with someone better.
Elena Popova
February 7th, 2008
Hello -
Just wanted to let you know that I’ve translated this article into Russian. I’ve posted the translation to my blog at http://elenapopova.ru/2008/2/7/9-factors-to-consider-when-determining-your-price. Thank you for publishing such an interesting article!
Regards,
Elena
Elena Popova
February 7th, 2008
sorry there’s a full stop at the end of the link, it should be http://elenapopova.ru/2008/2/7/9-factors-to-consider-when-determining-your-price
Southern Media Web Design
February 9th, 2008
Nice tips!
I believe the best to do before anything is to analyze your industry and see who you are competing with, then offer a new, differentiated way to provide your service, adding value to it.
There are millions of freelancers out there, but just a few are really professional. Adding value to what you do, and improving clients’ experience is how you will make the difference.
It’s all about marketing
Vijai
April 4th, 2008
this is what the area i mostly get strucked with my clients in y business.. really it would help me for my further proposals.
thxs collis…
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