Freelancing Mistake #3 - Charging Everything by the Hour
How Successful Freelancers Price Their Services
When we charge by the hour we're actually rewarded for taking our sweet time. When we charge by the project, we risk doing way more work for the same pay. How are freelancers pricing their services in a way that benefits all parties?
I recently asked a handful of the most successful freelancers I know (and some small agencies) how they price their services. These folks work with small businesses as well as national brands, and they all make a good living from their services, so I was really interested to hear what they were practicing.
These people basically fell into three categories:
- Hourly-based fee
- Project-based fee
- Value-based fee
Hourly-Based Fees
For those that bill hourly, the primary reason was convenience for both the client and the freelancer. The freelancer never has to worry about working and not getting paid, and the client has the freedom to ask for more work as much as they want.
For a lot of projects, this makes sense. It doesn’t mean that you have to settle for a small amount either. One of the folks I asked said that they charge a $200/hour flat rate for all of their projects. It can be a great way to run your business, but it’s not the only way.
Project-Based Fees
Some clients don’t like the unknown final totals that might come from hourly-based pricing, so they respond better to project-based fees. With this model, you simply say that you will do this or that for a set amount of money. This can be great for the freelancer as it motivates us to get the project done quickly, for the same amount of income. The biggest trick here is to make sure that you scope the project’s outcomes as specifically as possible so you don’t get stuck doing way more than you anticipated.
Value-Based Fees
Similar to project-based fees, a value-based fee is a total project price, but it's based off of the value that you bring to the table. For example, if I know that I can spend 1 day providing a service to you that will make you $50,000 more this year, would it be fair to charge you $5,000 for this service? Yes!
Value-based pricing is a win-win form of pricing where the freelancer makes a great rate, but only because they're providing a valuable benefit to the client that more than justifies the price. To make this work, you must be able to clearly demonstrate your value to the client, with a proven track record with other similar clients.
You Don't Have to Choose Just One
By understanding these three types of pricing for your services, you can now decide on a per-project basis which one provides the best benefit to both you and the client. If someone comes to you with a list of to-do items that may expand with time, I’d go with hourly-based fees. If someone wants you to do something that you’ve done so many times that you’ve become proficient doing it, charge by the project (because you know you’ll do it quickly and hourly doesn’t make sense).
What’s next?
Armed with a few ways to bill for our services, our next lesson will focus on why it's a horrible idea to compete on price, and how we regularly won projects by being the most expensive option.
