Pricing Strategy: Set The Hourly Rate You Deserve
February 22, 2016
Do you ever feel like you’re not reaching the right customers, even though some people seem interested in your product? Despite how counter-intuitive it may seem, it may because because you aren’t charging enough for your services.
How did I know that I was under-charging?
Well, it seemed like A LOT of people signed up for my coaching – even those who were not really the right fit for my services.
And eventually, I started to dread providing coaching because I felt that the amount of work I put into each session didn’t equate to the real time I put into each client – preparing for the call, the actual coaching call and the follow up time – was not reflected in the price I was charging.
When I calculated how much I was actually making per hour, it was closer to $35 than the $100 I was charging for each session.
While I don’t know you or your business, I do know that the vast majority of fellow freelancers I’ve encountered don’t have a pricing strategy. And, consequently, they fail to receive the hourly rate they deserve.
Under-charging cheats you and can jeopardize the future of your business. In today’s article, I’m going to talk about the basics of pricing strategy and how you can implement it into your freelance business.
Myth: Under-Charging for Your Services Will Win You Lots of Customers
In reality, under-charging does exactly the opposite.
Charging too little for your services communicates to potential customers that you don’t feel your service is valuable. While this tactic may win you a few clients in the early days, it’s unlikely to bring in the repeat business that drives profits.
Instead, you need to focus on pricing tactics and strategies that will win over the long-term.
Fact: Under-Charging for Your Services Will Hinder the Growth of Your Business
Charging below market value for your services will attract only those clients who are looking for the lowest price, not the highest quality. That type of mindset will make it nearly impossible to grow and scale your business..
Over time, this lack of growth will demoralize you… Instead of loving the business you worked so hard to start, you’ll begin to resent it.
Pricing your services fairly means honestly evaluating your market, clients, living arrangements, expenses and competition.
Here are 5 factors to consider when evaluating your price:
1. Your Market
Where do you do business? A freelancer in New York can charge a higher rate than someone living in a small town because the relative expense of the city is higher. Equally true, if you’re the only person in your small town offering your service, you can ask for more.
2. Your Clients
Who are they and what are they willing to pay? If your clients are other businesses, it’s more likely they’ll understand your fair market price. If you clients are individuals and families, you may have to target your offerings to a range they can afford.
3. Your Living Arrangements
Is your income providing for your family and paying the mortgage on a home or are you a single person renting an apartment? Your cost of living is a key factor in deciding how much to charge.
4. Your Expenses
How much does it take to run your business? The costs associated with operating your business, from phone calls to printer toner should be well documented before you set your price.
5. Your Competition
Who is your competition, what do they offer and how much room do you have to compete? You can charge more if you have a speciality few do, or on the flip side, you may have to stay in line with competitor’s pricing otherwise your potential customers will ask why yours are more or less.
Setting Your Freelancing Pricing Strategy
Now that you know what factors affect your price, it’s time to set your pricing strategy. Here’s how to build one that’s fair to you, your business and your customers.
What Does it Actually Cost to Run Your Business Each Month?
If you run your business from home, don’t forget to include a percentage of your power, internet and phone bills, as well as anything you need to run your business from supplies to office products like paper, pens, printer toner and more. Leave no stone unturned.
What’s Your Time Worth?
Decide on a fair hourly wage for your efforts. Consider how many hours per week you really work, how many hours you could be working and what everyday living costs. If you’d like to compare your rates to other freelancers around the world, check out the Payoneer Freelancer Income Survey 2015.
How Many Days Do You Work Each Month?
Think about not only how much time you’re available to work, but also your workflow. Do you have a stable of regular clients, or are you constantly on the lookout for new business?
Moving Forward With Your New Pricing Strategy
Once you understand how much money you need to earn in a month, and how many clients you can and do have on a monthly basis, you can use BeeWit’s hourly rate calculator to determine the best rate to charge.
After you’ve got a number that feels good, try testing things out by using your new rate in discussions with potential clients. If everyone you speak to seems shocked at your rate, you may have gone too high. In these instances, you’ll need to honestly evaluate your data to ensure your business and personal expenses aren’t too high.
After you’ve confirmed you can sell prospects on your new rate, it’s time to roll it out to your existing clients. The easiest way to do this is mentioning it a couple of months before their contract renewal (if possible). Giving them enough lead time will make sure they don’t feel bamboozled by the raise in rates.
Remember not to panic if a few clients tell you that your new rate is too high– some people just will not want to pay your new rate.
Quality clients – the ones you want to cultivate – will recognize your time and experience are worth the increased cost.
How did you decide the price for your services and how did it work out for you? I’d love read about your experiences in the comments below.
about the author
This is a guest post for the FreshBooks blog. FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.