Services + market standards + experience + some online calculator tool + expenses = project rate. Right?
As a freelancer or small business owner, putting a price tag on your services is a tricky task. You immediately start weighing out the technicalities—how the proposed project stacks up against your experience. However, what many business owners fail to realize is that project pricing actually requires more focus on one-on-one client consultation than it does on number crunching.
With the help of Brennan Dunn, consultant and founder of Double Your Freelancing—an educational hub for freelancers—we talk value, money, and break down how to present yourself as an investment rather than an expense.
Common Pricing Mistakes Small Business Owners Make
- You believe your rate should equal your annual salary
“I think the mistake a lot of people make is they look at what they used to make as a salaried employee and they reverse engineer that and determine an hourly rate. That’s how I started and that’s what a lot of people do.”
- You can’t back up your pricing model
“I’ve noticed a lot of freelancers don’t really know how to justify what they want to charge, so they just point to market rates, use project calculators, or they’ll take their former salary, divide it and call it their hourly rate.”
- You underestimate your ability to talk business
“I think one of the best skill augmentations you can get is to at least get a basic understanding of how a potential client’s business works. Freelancers should have a business-to-business mindset, rather than thinking subordinate-to-boss.”
Why Your Rate Should Reflect Your Value
By focusing on the technicalities of the job—such as the quantity and how long the project will take to complete—you’re blinding yourself from the opportunity to sell what you’re actually worth. Brennan suggests to think of yourself as less of a resource, and more as a value, then price accordingly.
Now, arriving at that price point is what every business owner really wants to know. And it starts with some in-depth client consultation—with each phase ultimately affecting your pricing strategy.
Your New Formula
Brennan suggests a Socratic questioning method to help lock down on the magic number you’ll eventually pitch to clients:
Start By Listening
“What I do differently is when a client comes to me and says ‘I’m looking for a website,’ I listen and let them tell me what they want. So the first thing to do is allow them to describe to me exactly what it is they’re looking for.”
Here, you’re opening up the conversation by attempting to unpack the project itself. By allowing the client to speak first, you’re keeping yourself from alluding to a dollar figure from the mere technicalities of the project.
Find the Trigger
“Then, where I go from there is instead of getting the technicals, I ask them specifically what made them wake up that morning and reach out to somebody like me. Was it like a specific event that’s affecting the operations of their business? Was it a cumulation of different events?”
At this point, you’ll uncover exactly why they’re firing an old process and implementing a new one—and why they chose to do so, through you!
Identify the Risks (and Its Financial Impact)
“At this point, I’m acting like a doctor in a way—if you don’t heal the wound, what will happen to your business? Their response is usually something more aspirational. For instance, they’re not going to grow as quickly as they wanted to or the lifestyle changes as a business owner. I also want to know what financial impact this will have if it goes unfixed. The only reason I’m asking this is I only want to work on a project if I know I’m an investment.”
By identifying the financial impact this project will have on a client’s business, you’ll also be able to “anchor” your pricing model for later, according to Brennan. For instance, if you decide to charge $10,000 a week for your services and the result of your project will yield three times more in investments for your client, the $10,000 figure will look much more feasible compared to a standalone number.
Uncover the Utopian Solution
“I ask them if the problem they’re looking to solve could just magically go away, what would tomorrow look like and what would be different about your business, your life and everything else?”
At this stage, you can determine what a successful project looks like from your client’s perspective, thus allowing you to decide how to leverage it using your own skillset.
Package and Present the Pricing Proposals
You’re ready for the final step: Win over your client with a stellar proposal—but not just one. From a psychological point-of-view, Brennan explains that if a client first sees a single quote, it’s placed in a vacuum all by itself.
For context, he shares this analogy: “Imagine that you’re out in the rain. You don’t want to be cold and wet anymore, but the problem is you’re cold and wet. Your solution is to not be cold and wet.” The offer—or what Brennan calls the “package”—can be a number of things:
- As a cheap solution, you could put a piece of cardboard over your head; it might stop you from being wet, but you’ll still be cold
- You can get an umbrella; it’s a better solution than cardboard
- As a high-end solution, you could walk inside a really swank hotel with a fireplace, where they give you a robe and a cup of tea
Now, the same can be applied when you begin packaging prices for potential clients. Never provide a client with a take-it-or-leave-it price. “If you only have one option, you’re forcing your clients to simply choose, ‘do I pay or don’t pay? Do I hire, or don’t hire?’”
In turn, Brennan says that dedicating a little extra time towards each proposal will help to build your clientele. You’re providing clients with options—ones that’ll look more feasible once placed in a side-by-side comparison. What you’re also doing is reiterating the needs of the client, as said by them, so there are no surprises. So, start massaging the process from early consultation—you’ll not only be able to increase your project rate, but you’ll also be equipped to effectively justify it to your client.
What’s your pricing strategy for your small business? Let us know in the comments below.
About the author: Megan Santos is a Content Editor at FreshBooks. Before joining the team, Megan was the Editor of a national trade publication and was also a published writer for the National Post, Notable.ca, and Zoocasa.com. In her free time, you can find Megan in her empty, new home or Pinteresting “Home decor inspiration.” Follow her on Twitter @meganssantos.