The art of pricing has killed many would-be entrepreneurs dead in their tracks. Price yourself too high and you might turn customers away. Price yourself too low and it's likely that you won't survive the first year in business.
In my experience, the pricing game has less to do with the numbers and more to do with self-esteem, self-confidence, and self-worth.
That being said, most new entrepreneurs advertise these self-doubts in the way of underpricing themselves, and sadly, they do so to the extent of their detriment. Even worse, this experience of failure often reinforces the doubts they held about themselves even more.
If you don't know much about me, I'm a serial entrepreneur, founder of StartupCamp.com, national bestselling business author, and leader to over 1 million people who follow me on social media. I'm not sharing these details to brag. Rather, I hope it brings credential and authority to this article and this topic.
For me, determining wise pricing as a freelancer is made up of three elements:
- Your expenses
- Your quality
- Your industry's rates
Supporting these three areas are also the concepts of fairness, value, capacity, and desired lifestyle.
As new freelancers, your income must be capable of covering your expenses and turning a profit. For illustration purposes, I'm going to lay out a fictitious web designer's pricing model. Let's say his name is Jake.
Jake is an incredible web designer. He's worked for Nike for the past four years, but he's now ready to go out on his own. He's creative by nature, so he struggles with the logical side of business. During the setup of his company, he determined that it costs $1,800 per month to run his new venture. These expenses are made up of rent at a co-working facility near his home, project management software, a part-time virtual assistant, a monthly fee to his bookkeeper, and a variety of subscription-based software and tools to run his business.
Now Jake knows he's a good designer. He's not new to web design, and he's aware that his quality is stronger because of his insight on conversion, user experience, and branding. He also knows that the going rate for four and five-star web designers are between $100-$200 per hour.
Exciting news! Jake received his first inquiry. It's a big project with 15 pages needing to be designed for both desktop and mobile platforms. But Jake is struggling to price the project correctly. Here's what I (Dale) would tell him:
- Define Your Hourly Rate: This will be the foundation on which we will build your pricing. Let's say it's $125/hour for Jake.
- Estimate The Total Hours To Finish This Project: Remember, this isn't only design time. This time includes phone calls, emails, revisions, and final wrap-up details most new business owners forget to include. Let's say this project estimated at 100 hours and gives Jake a project estimate of $12,500.00
- Build In Your Profit: Most freelancers simply trade their time for dollars—it's this reason why I don't consider freelancers entrepreneurs. However, if you follow this step, you'll get to join the club. To do so, simply add a 10% profit margin on top of your current $12,500 bid. In this case, it would be an extra $1,250 bringing Jake's project total to $13,750.
You might think that's a bit crazy. But building a sustainable business requires us to make a profit. Meaning that as a freelancer, you must learn to earn some portion of your money without doing any work.
Remember, you didn't start your business to be an employee of your own company. You started this venture to build something bigger, to eventually add other team members, and to provide a sustainable income (without stealing all of your time) for your family, lifestyle, and freedom.
4. Your Bid Presentation Can Change The Game: A professional email with a template invoice has never impressed anyone. I would tell Jake to create a beautifully branded estimate PDF with a written project overview, a breakdown of expected hours, a list of expectations and benefits to the customer, a simple one-page client agreement, a payment schedule (if that applies), and a matching invoice for their first payment. When you bring your A-game to the bidding experience, it provides an instant look at both the level of quality you offer and a tangible justification for your price.
Bottom line, correctly pricing yourself doesn't have to be a guessing game. But more importantly, it doesn't have to stem for your own personal doubts.
Listen to me when I say this, a cheap price screams low quality and an uncertain entrepreneur. You're worth more than you think and people are often willing to pay more than you'd guess.
Be prepared, be organized, be confident and allow those measures to drive your doubts away and to put together a fair, profitable, sustainable pricing model.
Go One Step Further
If you're a new freelancer or considering going out on your own, join the thousands of dedicated students building their dream with our step-by-step coaching curriculum here at StartupCamp.com. You can learn about our entire program in the video below.
What are your thoughts? Are you struggling to price yourself well? What's helped you in the past? Let me know in the comments below.