Why I Believe in Pricing Work Based on Value
For freelancers, the question of how to price your services is always up for debate. Should you charge by the hour or per project? What should your hourly rate be? What type of payment terms should you require? The answers to these questions will vary based on your industry, your reputation, and your personal preferences for your business. But there is one thing that I believe should factor into every pricing decision you make:
Price your services based on value.
More specifically, base your prices on how valuable your services are to your client. Not how easy or difficult it is for you to perform those services. Sure, time and overall project scope will likely play a role in how your determine your price quote, but before sending off that proposal, take a step back and assess the value from your client’s perspective. Is what you’re delivering worth more to them than it is to you?
Pricing Your Work Based on Time
As you progress in your freelancing career, you inevitably become better and better at what you do. This usually means you get faster and more productive. For me, I can design and code a WordPress theme in half the time it took me to do so one year ago. My skills have become sharpened over time. I’m more experienced using my tools so I know how to get the most out of them.
Does the fact that I work much faster now mean that I should charge less for what I do? No. If anything, I should be charging more (I’m able to meet tighter deadlines than I was before).
Pricing Your Work Based on Difficulty
How many times has a client asked you, “How hard is that?” As a web designer, I get asked this question all the time. Client’s don’t know how to design and build websites. They don’t know about the complications involved in various browsers and whatnot. So they ask me how difficult it is for me to deliver what they need.
I think many of you would agree that most of what we do comes natural to us. That’s why we’re good at what we do. We might not call our work “easy” because it may be very complex, but I wouldn’t necessarily call it “difficult”. There are challenges and we meet them. That’s the nature of Web Design (and likely your industry too).
Does this mean I should undercharge for my work because it comes natural to me? No. I price my work based on the value it brings to my client.
Pricing Your Work Based on Value
Most of the time we’re in the business of serving other businesses. We should always assess the value that our services bring to our client’s business.
For example, a client may want an E-Commerce website to promote and sell their products. With the right design, marketing, and execution, an online store can bring an excellent return on investment for my client.
I have designed and built quite a few shopping cart websites. With each project, the time it takes to complete goes down while the quality goes up (as my design and technical skills improve). Since this work has become more efficient, would you undercharge for this type of project?
Of course not. We deliver quality expertise and provide value for our client’s business. That value should be met equally on both sides.
What Do You Think?
Do you price your work based on value? Please share your experiences and tips in the comments section.
AUTHOR: Brian Casel is a New York-based freelance web designer and entrepreneur. His businesses are ThemeJam (WordPress themes and templates) and CasJam Media (web design services). You can follow Brian’s personal blog at briancasel.com and connect with him on Twitter @CasJam.
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You also get your best bang for your buck when pricing by value. Along with that, everybody comes out of the business transaction happier – the buyer gets a great site for an honest price, and the designer feels good knowing they charged a fair price for their work and gave the client a great piece of art.
I couldn’t agree more. Value based pricing is the only way a freelancer is ever going earn more (potentially significantly more) than their hourly rate.
Value based pricing also allows the freelancer to take on interesting projects for small clients who could not afford to pay for the project if priced by the hour.
Brian,
Excellent article. Indeed, my project time has been steadily going down as my skill level is going up (Even now I shake my head over my work a year ago and how terrible it was). I have been trying to justify my price increase starting May 1st not to my clients, but to myself. This article did away with all of the questions in my mind that my skills and services are indeed worth it, because my service IS valuable to my clients. Thanks a lot!
Glad you found this helpful
Price increases are always tricky. If it will involve a change for existing clients, I’d suggest giving them some advance notice (announce it 1 month before the increase goes into effect). Clients will appreciate this.
Hi Brian, great article! I’m a huge proponent of value-based pricing. In addition to what you’ve said about freelancer skill and speed increasing with experience, there’s also the issue of expectation and negotiation.
When billing by the hour it leaves too much up for grabs on both sides. And the “negotiation” is ongoing. It also encourages contention, suspicion, and debate: The client benefits by micromanaging and questioning every minute and every activity. The freelancer benefits by being less efficient. Neither of those situations improves the work or the relationship. And when both parties are constantly thinking about whether they’re getting the bigger end of the stick, neither is focused on the desired result: a great product.
Value-based pricing is the respectful way to conduct business. It eliminates billing surprises and allows both client and freelancer to focus on their parts of the equation without billing getting in the way of a great product and a positive relationship.
I like this concept, It’s a way to keep your prices updated too, since your working time goes down and you can prevent prices from falling too. Nice!
Funny, but I was having this conversation with a colleague the other day. He was under the impression that if he did work for one client and then had a second client wanting the same work that he should charge less for it because he’d already done it and it would take him less time to deploy a second time.
I pointed out the value aspect and the fact that as a result of having a framework in his back pocket, he had experience and expertise that he could pass on. Not to mention the fact that he may have lost money on doing the project in the first instance. Although it looked like the second client was paying for extra time etc. incurred by the first, overall, it averaged out and by creating something that was reusable everyone won.
A renowned painter once told me that he “didn’t sell art by the square inch.” His point was that it took him just as much effort – sometimes more – to tell a story on a small canvas as it did a large. Sometimes clients think that getting me to write a slogan, corporate tag line, or headline should cost less because it’s “just one sentence.” I tell them the story of the painter and give them a value-based price.
Great analogy!
I wrote an article on my blog a few months back and got a lot of feedback on design by value http://www.jameslarkin.ie/2010/02/14/what-should-i-be-charging-for-webdesign/ I was writing about how to come up with estimates on hourly rates though and how to apply them to larger projects.
You’ve to take into account what the market will take as well when pricing things … your reputation as well and .. ultimately how desperate you are for that next job you’re quoting on.
I completely agree. My proposals always indicate that my overall prices are based on “the amount of hours involved as well as the value of the deliverables”. Perhaps not that exact wording, but I make it clear that it isn’t a simple hourly equation. Some design processes take less time for me, but that doesn’t mean they’re any less valuable. So I charge accordingly.
But this goes both ways. Sometimes when tackling an altogether new idea, it may in fact take longer than expected to complete. But in this case I don’t charge extra simply because it’s “difficult”. The value I get out of projects like is an education on a new idea.
Overall, however, I’ve become consistently more efficient in my design career. The bottom line is, if your clients are happy with your work, and they’re making a profit off of the work you provide, then your costs are justified. How many minutes or hours something takes isn’t the right approach. I’ve made absolutely gorgeous logos in two hours, I’ve also struggled for 20+ hours on logos I wasn’t as proud of.
Most of our costs are for our ideas, not our time. It’s awkward to price for, but make sure you don’t sell yourself short if you start becoming faster.
Keep up the great posts about pricing! A lot of younger freelancers need to know they’re worth it!
Excellent points, Rob.
I’d add that part of the value we’re providing is not only the work hours put into the specific task, but the many hours, weeks, months we’ve spent learning our skills.
Good post and I agree with pricing based on value.
One of the best post on FS in a long time (sorry for honesty here, FS team).
When it comes to pricing for time (and sometimes there’s no other way) the best approach is to avoid hourly rates and go by weeks or months.
Simply compare how much do you need to make a month, how many sales you had so far for that month and how long you think the project will take you. ANd bang, there’s your (minimum) price. Of course you can adjust it to your liking there but at least you have your base price ready.
I guess charging by the week or month might be considered working on a retainer. This can be a good situation for many freelancers (if the price is right).
I’ve even heard of some freelancers offering their services exclusively to one client at a time. Once they’re booked for a period of time, the rest must wait in line. Interesting concept, though I haven’t ever done this myself.
Precisely. More pricing issues need to be thought of as the exchange of money for value, not work. Too often we work back from a desired annual income to an estiamte of billable hours and some kind of hourly rate and let fixed bid projects become merely the equation of “I think it will take X hours” times “and I want to earn Y dollars per hour.”
Think of what you deliver as a product. If your customer could go shopping and buy what you’ll deliver pre-packaged right off the shelf… does it have less value to them? Of course not.
However, you need to be able to estimate the value of what you’re doing TO THE CLIENT. Not to you, but to them. If you build them a new website with a new ecommerce capability and they’ve not sold online before you can estimate incremental sales, what they’re gross profit on that revenue might be and price from there… A well done ecommerce site for a $1m business that generates and additional $100k in sales at 30% gross margins brings in $30k of new gross profit in the first year. If they work at it and expand online sales to be more than 10% of existing sales it’s more. What’s that worth? $3k? $6k? What’s fair (in market terms)? If they can get work comparable to yours for $1.5k, charging $6k will be hard and, if they find out you overcharged so much, they’ll feel cheated. If comparable work is $4k you can perhaps justify the extra $2000 because of quality of work, service, responsiveness, etc.
“you can perhaps justify the extra $2000 because of quality of work, service, responsiveness, etc.”
IMO – You hit on the core point right there. Sure, the value of the ROI comes into play, especially for E-Commerce web design, but it’s the intangibles that will ultimately set each of us apart from our competition.
I believe my clients are fully aware that I’m not the cheapest freelance web designer out there. But they choose to stick with me because I’ve proven to be reliable and deliver quality work consistently. Plus, the price is reasonable for both parties.
““It can’t be that expensive, you did it in 15 minutes”. yeah, I needed 7 years experience to do this in 15 minutes….”
Couldn’t of said it any better, I sometimes find it hard to justify ( well not hard but sometimes they accept the reason others they don’t) why one developer may charge 1/3 of my price to deliver the same product, you get what you pay for. Yes you may be able to get this application built for far less, but was it structured correctly, was it extensible ?, will you have to do a complete code rewrite in the next 6 months? These are some question that we should bring up when trying to justify our prices ( same goes for designers ).
Most recently a previous client from 2years ago returned back to me wanting to develop the SAME application that I quoted on 2 years ago. This time I have to say it went a bit better
.
The trouble with pricing by the hour is that there’s always someone cheaper. And the price shoppers aren’t the least bit hesitant to run off and find that someone.
Then, later on, after they’ve been burned by these cheapies, they may come back your way. But don’t hold your breath. Better to sell your value, rather than your hourly rate, from the get-go.
I think you have a good point, although I also think it’s really hard to quantify value to an illustration client.
This is exactly what I tell beginning freelancers. You can charge by the hour if you stink at what you do, but if you’re really good at what you do, you can really mess yourself over by charging hourly. In fact, I would be charging less than 1/3 of what I do now if that was the case. You also can’t charge as much either. If were to tell a client that I charged $200 an hour, they’d freak. But if I said, sure I can do X,Y,Z that for $400, they’d accept that, even if it comes out to be the same amount of money.
Ty for this.
Charge by hour => beginning
Charge by value => advanced
That’s a great point. How you present your proposal is very important. You’ve got to frame it in such a way that the client will see the value in what you’re offering.
Certainly, Amber hit the nail. It’s just a perception issue.
These last six months i’ve been trapped in the “per hour stuff” because most of my current work consists of fixing other people’s stuff. That is my current job: fix other people’s mess. Fixing code by the hour is safe for me, because a bugfix can be 15 minutes or six hours, and I don’t give estimates when working on other people’s code. I do it this way and track the time using Kimai, so I can give my customers accurate time reports.
BUT…
…in those customer’s minds, I work by the hour, so now that they’re moving from “bugfixes” to “new features”, they expect to be charged by the hour, plus they want an estimate. It’s new work under my control, I can do an estimate, right?
How the hell do I justify to customers that a code done by me in 15 minutes is more valuable than six hours of the crap they gave me? “It can’t be that expensive, you did it in 15 minutes”. yeah, I needed 7 years experience to do this in 15 minutes….
I always start by a time estimate. Of course my hour rate goes up as I become better. But reaching a figure, I then think about value just like you suggest.
Sometimes the simplest and quickest ideas are the best, and many times the hour rate doesn’t reflect how much the product is worth.
But this works both ways. Considering the value I sometimes think the hour-rate-based figure is cheap, but sometimes it’s too expensive. This brings my feet back to the ground and makes me reflect on whether I’m selling something that’s worth the investment or not.
I sometimes tell a client “you don’t really need this, I have another idea that will cost less and fills your needs much better”. They love hearing this.
There’s some definite food for thought here. I’ve been assuming billing based on an hourly estimate was the way to go for a while now. Thanks for showing an alternative.
It does sound more fair to charge based on value, but is the value of my work the same in my eyes as it is in my client’s eyes?
I’m currently still pricing based on time, mostly to cover the range of personalities I work with. It’s hard to foresee which clients are clear on their goal, easygoing, or fickle-minded. Even if I’ve gotten more efficient at designing/illustration, the hours occasionally do rack up due to all the “tweaks” some clients require. I’ve always told clients that the bottom line really depends on them, and walk them through the process so they can see themselves where the value/hours are coming from–this keeps both parties honest.
On a related note, are there any tips on how to set that “X” amount for the hourly rate? I remember when I first started, I researched on “industry averages” hoping to find a benchmark. However, freelancing is so fragmented as an industry, it’s been hard to find resources. Any suggestions?
I always liked the story of the guy who repaired steamship engines. One job he was on, he walked around the ship for 15 minutes, then pulled out a wrench and tapped it on a pipe. The engine sprung to life.
Upon receiving the invoice, the client asked for an itemized version to explain the $15,000 charge. The repairman gladly obliged, and his invoice read as follows:
• Inspecting the ship and tapping the wrench on a pipe: $15
• Knowing where to tap: $14,985
TOTAL: $15,000
In my mind, it’s not the time spent that should be paid for because with my experience and as someone who takes my own time to learn my tools in depth and refine my skills , I *can* work faster — because I know what I am doing.
It’s all about satisfaction with the final product, the ease & pleasure of the working experience and the support before, during and after that is part of the pricing.
I agree that charging by value works better for advanced professionals, but you still need to know how long it takes to finish up a project. In my case, I deliver great quality in a short time (I track my hours for each project roundes up at 15 mins increments). It can take me only 12 hours to code a wordpress custom theme, so charging hourly can still work if I have the right rate. Based on that I can determine the “value” which is best for me and my clients.
I would add that turnaround time in itself can be of value (and charged for).
As it happens, I potential client approached me this week about a new project. It’s something I normally would quote 6 weeks turnaround time, but they need it done in 2 weeks! Do I reject the project?
No. I offer my proposal, with an added “expedited” fee. It requires some hustle on my part, but it’s a good opportunity to earn a higher than normal fee.
Thanks so much for this post. I raised prices for all my clients across the board today and actually felt quite a bit of trepidation about it. I had to accept that, “Some will, some won’t, and so what?” If they stick with me, great; if not, I free up my time for clients who are more aligned with what I want for my business and my life.
As creatives, we need to remember that whatever we create–images, copy, a website–can generate income for our clients for many years to come. To a large extent, their success is contingent upon the work we do for them, and we sure as heck ought to charge accordingly. Thanks for the great post.
I actually base a project rate on value, time and complexity. Finding a good mix of all three can provide a fair rate to your clients and a decent wage for yourself.
I don’t think you should base your rate on one thing. It would some projects may be easy to you, but the value of it is high or visa versa. It would only be unfair to your clients and you would make less money for yourself.
Well said. In the end it’s all about finding the right balance. The we and client both need to feel we’re getting fair value out of the deal. That’s what makes a solid and long-lasting client relationship.
Wonderful post, Brian. It couldn’t have been more timely for me as I have to submit a subcontract bid tomorrow. I’ve been mulling over the amount of time I think it will take and multiplying it by the rate per hour that I use to calculate bids.
However, as I read your post and thought about the value this will bring to a group at a very large corporation, I feel less trepidation and more confidence in bidding the higher amount I had in mind.
Thanks!
Its certainly an excellent article..the debate about pricing exist since the existence of freelancers both go hand in hand…one more factor i consider during pricing is if the client is old or new…like if u do even small favor to your old client the bondage strengthens and new doors to bigger projects from your client open up…Sometimes freelancing is also about relationship too
My billing scheme is: Charge by the hour, payment due 10 days from invoice date. Those are the real basics.
Beyond that, if a client good or outside service is paid for through my business (ie: I pay the printer, or web-host then bill the client), I add a fee to that, generally between 10 and 20% depending on the item. More expensive items get a larger “sur charge” because it’s more of a risk to me.
This article had me thinking a good deal today. It totally makes sense to approach pricing this way because that’s how clients, at least those who value our type of work, do it. When determining budgets for projects, more money is devoted to those with higher importance, regardless of the actual amount of effort it takes.
What is a good way to answer when asked about your hourly rate?
Great article, I found it very hard to price my work at the start of my freelance career…’is it really worth that?’ is what I’d ask myself all the time. But I had to get it in my head – just because I enjoy my job doesn’t mean I should undersell myself. After all I’m providing a skilled service to my client, which will eventually benefit them.
Excellent article – very valid and strong point raised.
I do basic equations which involve:
Base hourly rate (type of job) + value + time-frame/deadline = Total fee.
But as time has gone on my base rate has increased, as I have gotten faster at doing what I do. So if I began on £20 an hour 10 years ago, it has now increased to £45-50 an hour.
My hourly rate varies according to TYPE of project, so a branding/identity design project has a different rate to that of a CSS/XHTML job.
What I do see is that as you gain speed and efficiency and can deliver more work your hourly rate should go up. Then you should add the value of the project (how valuable it is to client – also I charge differently when it comes to small to medium size businesses, charities, religious and non-profits entities) and then finally the time-frame (how soon the client needs it).
Ultimately the method works best if you continue to improve and provide high quality service. The retainer is your reputation and service. So far, to date, I have not done any marketing – all work has been word of mouth/referral and I am loving it.
This really hit home. I hear ya.
Thanks.
Great article! I have become more efficient with time and it happened to me, that because my client gets a website in 3 days, they think they are overpaying me. Or if I can deliver a brochure in 1 day, the price should not be too expensive, they think: well, you are getting all this money for only 1 day of work… The concept of “value” comes great here. I reply, it doesn´t matter how fast I can make that money, it is all about what good come make my design to your business. (by the way I am a spanish speaker so forgive my bad grammar).
Thanks for this great advices.
As a web programmer, I charge by the number of modules in the project/app. A web app usually consist of a few modules. So depending on the kind of app the client wants, the number of module will vary.
The price of each module would also vary depending on its complexity. Usually between $100 – $500 per module.
Example:
An online store would consist of the following modules.
shopping cart module – $500
products module – $300
categorisation module – $100
search module – $300
checkout module – $500
order tracking module – $500
admin/misc charges – $50
so I would charge the client $2.2k in total for the project.
I remembered this story from when I was a kid. Great example of being able to demonstrate the value of your skills to clients who can appreciate them.
Giotto was a Florentine painter, architect and sculpture of immense talent. As the artist who first broke free from the constraints of medieval and byzantine art, he’s considered the first genius of the Italian renaissance.
At the start of the 14th century, word of Giotto’s mastery reached Pope Benedict XI in Lombardy. The Pope sent a courtier to Florence to see who this Giotto was, with a view to commissioning some paintings for Saint Peter’s Basilica in the Vatican. The courtier first travelled to Siena to collect designs from other masters. He then went to Giotto’s studio in Florence and asked for a drawing to take back to the Pope. Giotto took a canvas, dipped his brush in red paint, pinned his arm to his side and drew a perfect circle with his hand. He grinned and said “Here’s your drawing”. The courtier, feeling mocked, asked for another drawing. Giotto replied “This is enough, and more than enough.” Although he suspected that he was being taken for a ride, the courtier took Giotto’s drawing back to the Pope along with the other masters’ drawings. The courtier explained how Giotto had drawn the circle unaided, and the Pope and his advisers realised just how much Giotto surpassed all the other painters of the era. Giotto got the job.
Giotto’s proof of his masterpiece was his free-hand circle. It was a concise way for him to demonstrate his enormous technical skill. Watching him draw the circle, it probably looked easy, but undoubtedly it took years, if not decades, of practice to get that kind of skill.
Great article. Pricing is something I’ve been very unsure about since the very beginning ( just over 12 months ago)
>> But HOW exactly would you translate the Value of a project, into currency?
I recently designed a product that made my client around 35K in one 12 hour period of launching, their best seller yet and is still selling to this day. The completed project took place over 3-4 seperate parts, totalling around 1.5k if I remember correctly.
I was unsure about the pricing then, and I’m still unsure now. I’m now just charging a flat hourly rate that is the same for any photography, artwork, motion graphics, animation and compositing that is done. I guess it’s just ‘easier’, and the fact that I dont really know how to do it the right way.
I honestly feel as though I’m worth much more, but I can’t seem to get a grip of my pricing structure and get a method for correctly pricing my projects. I just roll on feeling a little taken advantage of each time, unable to really unserstand how to price my work accordingly.
Any advice would really help. I only have one major client at the moment, I love the work they bring me but I feel things may change if I were to introduce a new pricing structure.
At the moment we have an ongoing hourly rate contract for any work done, even tho all projects should be priced individually. I guess it was just an easy alternative to arranging contracts for each job, signing, sending it back, then starting work etc. I don’t want to lose the work, nor upset the relationship. Feeling a little trapped.
Any advice on HOW to price value and how I should be charging each project?
Thanks a lot to anyone who can take the time to help a little, I’m still learning this business.
Value based pricing does not assume fixed rate pricing. This is clear in the article.
Anything that takes time is not a product and therefore cannot be sold like one.
Personally I don’t see how anyone can maintain a business based on fixed rates. The main problem with fixed rates is that people have no clue whether it takes you 5 minutes or five days.
Clients are suspicious and rightfully so. Craigslist is full of people you claim to be web designers and yet are just reselling templates at an exorbitant price. Other “designers” are just sending work offshore to India for $4 per hour.
My idea of value based pricing is that my time estimates can vary quite a bit. On projects where I can charge more I take the extra time to make it perfect and give it a extra polish. On projects where I can’t charge as much I put in more time than I bill for. My hourly rate rises annually.
This works for me and I think this is probably the most common way we bill.
Your posts are so informative that I always come back for more.
I agree totally, I also try to bill based on usage as well as value. Thanks for the post!
I could not agree more. You cannot charge a person less just because your a master at your trade and it took you less time and effort, if this was the case than newbies would be handing out crappy products for a lot of money. You need to charge for what you are getting, a high quality product done at the producers chosen pace.