3 Pricing Strategies Freelancers Use to Calculate Project Fees
Updated: October 18, 2015
You probably know by now that most freelancers will use hourly rates to calculate the price of your project, but did you know that there other pricing methods too?
Today, I’d like to introduce you to a few common pricing strategies used by freelancers as well as the pros and cons of each.
Charging by the hour is by far the most popular pricing method used by freelancers. They use an hourly rate to estimate how much the project will cost based on how many hours it will take them to do. This leaves room for changes in scope along the way and you only pay for the time they are actually working.
However, hourly rates can set the wrong expectations for you, the client, by causing you to focus on the time they spend doing the work and not the value their solution is providing to your business.
This can result in you feeling like you didn’t get your money’s worth even if they provided the right solution and delivered the work ahead of schedule.
Fixed Project Fees
Fixed project fees are also a popular pricing method, but require that the scope of work is very clearly defined upfront and that it will not change once the project has started. This is often very difficult to do especially with more subjective projects such as web or graphic design.
This project fee is based on the deliverables you receive (design, development, writing, etc) and ignores the time it takes to complete the task. The fee is usually calculated based on an hourly rate, but, as the name implies, it will not fluctuate once the project has begun unless the scope of work changes.
This method can work in anyone’s favor depending on how accurate their estimate is.
One less common pricing strategy freelancers use is called value-based pricing. This method is the most difficult to grasp, but offers the highest return on your investment. Similar to a fixed project fee, the focus here is on the value of the deliverables and not the deliverables themselves.
A freelancer using this pricing method will ask you business-oriented questions to get at the bottom of why you want the project to be done, how your business is currently making money, and how you can make more money with a new solution.
For example, if an average client is worth $20,000 to your business and a freelancer can design a website that focuses on getting you 5 new customers per year, then that website would be worth $100,000 to your business.
Would you pay $10,000 once for a website that could make your business $100,000 each year? That’s 1/2 the value of a single customer and 1/10 the amount your business stands to make in just 1 year.
No hourly rates. No vague estimates. No fancy terms and conditions. Just goals, objectives, and lots of added value for your business.
How would your perception change if I told you it would cost $10,000 for that same website, but only because I thought it would take me 100 hours to do the work? All of a sudden, that seems like a bad deal. Do you really want to pay for my hours? Probably not. What you really want is new customers and that’s what value-based pricing is all about.
I’d love to hear what you think about each of these pricing strategies and which one resonates the most with you. Send me an email to firstname.lastname@example.org to strike up a conversation!