Most new freelancers underestimate the importance of key business components such as lead generation, sales, and accounting.
Pricing is another factor that doesn’t get enough attention, largely due to the absence of a concrete framework around it. Without knowing exactly what to charge, freelancers derive an hourly rate from their previous income or just use an arbitrary number (which is either too big or too small) and rarely accurate.
When you don’t put the right price on your freelance services, you’ll find it difficult to close deals, which will lead to frustration, anxiety, and self-doubt.
That’s why it’s imperative to have a framework to determine the right price of your freelance services.
The Goal of the Project
As a freelancer, you should have a clear understanding of why you want to accept a particular project. Earning more money is not always the goal. At times, you may want to work with a specific client because it adds a lot of value to your portfolio. Other times, you might be interested in a project because it lets you experience a new industry in which you haven’t worked before. That’s why clarity on the project objective is paramount. You have to not only consider what the client wants and what profit you can make, but also the experience you want to have and the value the project can add to your own career.
Source of the Lead
The source of the lead is another key factor that helps you understand how qualified the lead is and how you should educate that potential client about the value of your work.
Friends and Family
When anyone from your friends and family circle approaches you for work, a strong trust-based foundation is already established. This is usually a high-quality lead. With that strong foundation, you can easily educate them about the work, its complexities, and the value you bring on the table (just be careful not to overwhelm them too early on).
Since many friends and family members may not have a proper budget for your work, this will help them understand the value of the price you quote and you’ll avoid surprising them with higher prices than they were expecting. If there are still any disagreements, you can consider lowering your price (within reason) because there may be value in that network connection and you may get you more work in the future.
If the lead comes through a referral such as a past client, the referrer has most likely done quite a bit of selling for you already. This perhaps the most qualified freelance lead you can get. Educating the potential client about your work and the value of your services will be easier and it’s likely they already have some idea of what you charge. If their needs align with your services, it’s likely that you’ll get the project, so you can price the project more confidently and increase your rates slightly in this case.
Other Channels (Website, Social Media, etc..)
These are usually (but not always) unqualified leads. Typically, they don’t know you and you don’t know them. They’ve likely only spent a short amount of time looking at your website or social media profiles and don’t fully understand the value of your work. If the lead is serious and the project objective aligns with your freelancing goals, you can invest the time to build trust and educate them about your work and services. A custom contact form on your website is ideal for qualifying this type of lead. In the next section, we’ll talk about gaining the trust of a potential client.
When the lead isn’t qualified or has objections to working with you (price, timeline, bad experiences, etc), gaining their trust is the first thing to do. Many times, you can just have an honest conversation with them about their objections. They will respect you for listening to them and understanding them, which will establish trust. Most freelancers aren’t effective communicators so this will help you stand out.
Having a great portfolio website that shows your best work and explains your services is a key factor in helping potential clients overcome their objections — many of which are associated with pricing. You can also propose doing a smaller paid project for the client. For example, you can offer to design just the homepage of a website instead of the entire website. In this case, deliver high-quality results on time to gain the client’s trust. On a larger project, you can even sell a strategy workshop, which is essentially a method of getting paid to plan the project.
Once the client has invested their time and money with you, you can further educate the client about the value you bring and your chances of landing another deal increase dramatically when someone has previously invested in you.
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Hourly Pricing vs. Fixed Pricing
It’s an ongoing debate about whether freelancers should use hourly pricing or fixed pricing to determine the price of a project. In reality, there’s no right answer. However, the following guidelines have widely been proven successful:
- If the scope of the project is well-defined and there is a definitive structure, use a fixed price billing method.
- If the scope of the project is not well defined, and the processes and structure can easily fluctuate, use a time-based billing method such as hourly, daily, or weekly rates.
- Even if you have some scope or structure defined, you can typically use fixed-pricing and keep hourly pricing for everything else which was not a part of the original scope.
In many ways, fixed-pricing is better since it’s more efficiency-driven, prevents the client from micromanaging, and you’ll be able to communicate the value to the client more clearly.
Cost-Based Vs Value-Based
When selling a product, it’s fairly easy to determine an appropriate cost for the product, define a markup, and set a selling price.
But many freelancers get stuck at step 1 itself — setting an appropriate price for their services. Office rent, laptop, internet, profit, and wages are all necessary to consider when determining your price. You need to establish a minimum rate or project price that it wouldn’t make financial sense to go below. This will help you quickly determine if the client has an appropriate budget for the project. However, making this assessment can be difficult.
Instead, freelancers should try to determine the value of the service it holds for the client and if it’s above their minimum project threshold. It’s easier said than done, but with experience and more discussion with the client through a strategic line of questioning, it can be determined.
Pricing your freelance services is not easy. Even large companies struggle to put the right price on their projects to recover costs, generate profit, and remain competitive. As a freelancer, you’ll have to keep iterating on your pricing based on the points above as your business continues to grow and change over time.