“How much should I charge?”
“How do I figure out what I’m worth?”
“What if I’m too expensive?”
“What if I’m not charging enough? How do I know? I see others talking smack about people who devalue their profession by competing to be the cheapest, but I need work.”
These are some of the most difficult questions for entrepreneurs and freelancers to answer. I don’t pretend to know all the answers, but I do know the three most common mistakes I’ve made and see others make:
Charging by the hour
Guessing how much the client will pay (and bidding based on that guess)
Calculating value based purely on time spent and not on results or years of experience
Charging by the Hour
This will vary with the industry, but I always encourage business owners to move away from billing hourly whenever possible. Why?
It’s a pain to track hours. Some people find that being under time constraints can sap their creativity or put pressure on them that keeps them from doing their best work.
It’s tough to estimate ahead of time. If you underestimate, you either have to tell your client the bill is higher or you take the loss. If you overestimate, that’s great but unusual. Most of us underestimate by at least one third.
Hourly billing can lead to unpleasant surprises for a client when a project goes over time and thus budget. I like to bid per project so they know exactly what it will cost (and I know what’s coming in).
That said, when I’m working on a quote, I do estimate how much time I think things will take. I do this to make sure I don’t overcommit. I also do a quick calculation to make sure that based on my rough agency hourly rate, the numbers I’m coming up with make sense. But I don’t ever lock myself into clocking in and out.
Guessing What the Client Will Pay
This is the fastest way to run out of money. It’s important to realize that you will be too expensive for some clients. In fact, you should be if you have experience, training or some other form of credibility in your business. If you can deliver what you promise, you get to set the price.
Those who want the cheapest option, or worse, something for nothing, are NOT the clients you want. The customers who start out nickeling and diming will keep doing so. As my project manager likes to remind me, when someone shows you who they are, believe them.
I think everyone makes the mistake of under-pricing themselves in order to make the sale at some point. And we all regret it. Repeat after me: I am not competing to be the cheapest.
Calculating Value Based Solely on Time
Your brain, your wealth of experience and all the time you spent becoming a professional in your field makes your value much higher than an average wage per hour. People aren’t buying your hours. They are buying everything that got you here. And they are buying the solution to their problem.
When you talk to clients, ask them about what isn’t working. Then ask them what it would mean for their life (or their business, if you support other businesses) to have that fixed. That’s your value.
Setting rates in a service-based business doesn’t have to feel like a guessing game. Ask around to get benchmark prices from others, seek out rate guidelines for your industry, and be willing to talk numbers with prospective clients. I like to explain my process for solving their problem, give a rough ballpark of the cost, and ask if we are close enough to keep talking.