Each time someone asks me whether they should charge by the hour, there’s a great fable that I always tell them. It goes like this.
There once was a man who, as a boy discovered he had a passion for glassblowing. He practiced for hours every day, seven days a week for years. While his friends were out playing in the woods he was at home perfecting his latest glass sculpture.
Once we grew up, he began to sell his glass sculptures in a shop. But he kept practicing. Soon, he became known as the best glass blower in the village. People began lining up the door outside his shop, wanting a piece of his beautiful work.
One day, a lady came and asked the glass blower for a custom piece “as a gift for my granddaughter”. After discussing a little what kind of piece she wanted, the glass blower went into his workshop. He came out thirty minutes later with a beautiful, custom made glass sculpture.
“It’s perfect!” the lady exclaimed. “This perfectly encapsulates what I was looking for, my granddaughter is going to love this and I hope she treasures it forever. How much do I owe you?”
“Two thousand dollars” replied the glassblower.
The lady was in disbelief. Two thousand dollars, for something that only took the man thirty minutes? She thought that was absurd. No one in the village makes that kind of hourly rate.
The man replied “Madame, while this piece of art may have taken me thirty minutes to make, I have spent the last twenty years refining and practicing my craft to get to this a where I can make it in thirty minutes.”
You see, the glass blower had created a niche market, spent years refining his craft to the point where he became a professional at it, and had a skill no one else in the village had, making his services scarce and in high demand. Because of this, the value of his work surpassed any hourly rate he could have set for himself.
Pricing per hour is more harmful the longer you’ve freelanced
As you become better at your craft, you’re going to become quicker, more efficient and skilled. Charging per hour is detrimental to your freelance business the more you work. Consider, the more you spend time working and refining your craft and skills, the more quicker and efficient you’re going to be on future projects.
The first website I designed took me weeks and weeks. Now, I can turn a website around in less than a week. This is because I’ve spent time practicing and refining my skills. If I were charging per hour, I would have made more money in the first project where it took me weeks to design a website, and a lot less in the second, where it took me under a week – even though these two projects were more than a year apart and my skills had increased since then.
Charging per hour is harming yourself for being quick, efficient and skilled.
Pricing on value and up front benefits everyone involved
If a client enquiries about your services, it doesn’t mean you’ve won the project – this is where the hard work starts. While investing time and resources on marketing your business and getting clients feet in the door, the hard work doesn’t’ actually start until they enquire with you – and it’s not always smooth sailing from there. It’s our job as freelancers to make this process smooth and easy for the client. Don’t fluff around numbers, tell the client what they want to know, be professional and upfront.
If you can deliver the client a full, up front price, you’re likely positioned in a much more desirable price range than your competitor, who is only giving them their hourly rate. Showing them the full price means they know exactly what they’re getting and what the financial investment is from them. They’re more likely to get the investment signed off by upper management and can plan ahead for future investments as the know the effect your services will have on their budget.
Someone who is only giving an hourly rate with an estimated amount of hours is much more of a risk for the client. Not only do they not know what the end price tag will be, but this relationship will also rely on trust – something that you may not have yet established with the client – especially if they’re a new one.
Providing an upfront cost based on value is also beneficial for you as it encourages you to be more productive. The more efficient you can complete the project, the higher the margin you’re going to end up getting – the power is all in you. If you decide to drag out the project, this isn’t going to make you more money.
Show the client what they’re getting
Consider two proposals; one with just the full price, the other with individual line items, deliverables, price tags attached to each item and a full price at the bottom. Which do you think is more likely to be approved by the client?
Clients want to know exactly where their money is going. Show them by breaking down each tasks into a line item and listing the deliverables. For example you may have:
Newsletter design $200
Newsletter sign up page $500
This will help emphasise the quality of your work. It’s important to remember that clients aren’t freelancers. It’s likely that they’re not aware of what work we do behind the scenes that never gets seen – wireframing, brainstorming, research, user testing, emails and administration. Breaking these down helps you justify the full cost and shows the client the tasks you’ll be working on that will contribute to the final deliverable.
How to price on value
It’s no easy task.
At The Apartment, we bill each project individually as we see each project as having a different value, based on the client and their needs. For example, an illustration requested by the local book store for a newspaper ad, is likely going to be worth a lot less than if Nike approached you asking for an illustration for their next advertisement in Sports Illustrated. Learn from Davidson who only charged Nike USD$35 to design the iconic Nike Logo.
A good place to start is to spend time researching your monthly expenses. Start a spreadsheet and list everything you pay for as part of your basic living; food, rent, online subscription services, insurance, everything. You should have a sum that reflects your base living costs. You’ll want to ensure that this base cost is at least being covered and reflected (privately to you) in your invoices.
As a freelancer, it’s your job to ask the right, value leading questions to uncover the value of the project for your client’s business. If this project is projected to make them an extra half a million dollars in sales that year, or bring in an extra 10,000 people to their event, consider the extra revenue they’re forecasting to receive from your project and price accordingly.
Take a read of our onboarding questionnaire which helps uncover some of these by asking certain value leading questions.
Increasing your rates
You want to ensure that you’re charging what you’re skills are worth, which means that occasionally you should be increasing your rates as your skills develop.
Increasing an hourly rate is a difficult task for many freelancers (who do charge by the hour). When you have recurring clients, trying to justify a raise in price can be tricky and risky, especially if they’ve been loyal clients for a while. If charging by hour, chances are you’ll be needing to increase your rates often and in small increments as your skill level increases. However many freelancers don’t – because they don’t know how to justify it to their clients.
Negotiate on deliverables, not price
Occasionally, a client will come back saying your price is out of budget. At this point they’re either walking away, or trying to negotiate with you to decrease your price. If it’s the latter, there’s still an opportunity for a positive outcome if you land the project. If they can’t accept your original proposal but still want to work with you, majority of the time they will try to negotiate a lower price.
Discounting can be a dangerous and risky game. If being a discount brand is something you’d like to be, then go for it. For The Apartment, we prefer to position ourselves as a premium, professional service. The words premium, professional and discount, don’t go well together.
Instead of discounting your rate, propose a counter offer. Remember how earlier in your proposal you listed each deliverable out as line item? This is going to make it super easy for you to justify your counter offer. Instead of discounting, take out a deliverable or two and present them with the new, lower price. For example, if your original proposal was for $2000 and the client only has a budget of $1000, take out $1000 worth of deliverables.
The lower their budget, the less services you should be providing to them. If you negotiate on the price but maintain the deliverables, this not only lessens the quality of your work, but also causes pain points in other areas of your business – both financially and timewise.
Position your service as an investment, not an expense
An expense is going to the bookstore and buying a magazine. An investment is going to college, spending money you don’t have on your tuition, knowing (hoping?) you’ll make that back and more later in life with a stable income higher than what you would have gotten had you not gone to college (debatable but you get the point).
When pricing a project, consider where your project fits in their overall business. Maybe they have a huge campaign going on that your project contributes to that they anticipate will have a huge influence on their bottom line this year.
Does your project have a short life-span? Is it for a one off event? Will they be using it in an ongoing manner for the foreseeable future? Consider the goals that the client is trying to achieve and how your project can help them achieve those goals. If you can communicate that to your client during your proposal,you can help shift their mindset from seeing your services as an expense, to an investment.
As time goes on, you’ll learn how to get better at pricing based on value. You’ll be able to uncover hidden value statements, become quicker and more efficient and devising portfolios and make better decisions for your business.
If you undervalue your own work, chances are the client will too. Don’t give them the opportunity to do so – uncover the value of the project for the client’s business, charge a fixed price, include deliverables, negotiate on those deliverables (not price), and know your worth.
I want more!
If you’re looking for more resources and information on pricing by value, here’s a short list of some great resources and articles to help get you started: