If your selling price is based on the hours you take to complete a task rather than the value you give to the client, you deem yourself a commodity. It’s simple, really; freelancer laborers work at an hourly rate, while freelancer leaders work based on the value they provide.
Creating your pricing strategy based on the actual time it takes to complete a job is in essence a method of restricting your growth. Why? You’re only getting a small portion of the profit made from the work you do.
Think about it: it takes time to learn a new skill. It takes more hours, research, effort, mistakes, emotional intelligence, and dedication to enhance your skills to competitive levels in your industry. Suppose you started freelance writing and took four hours to complete a 1,000-word article.
Six months of learning and consistently building skills reduces that time frame to two hours. In that case, do you think it’s still okay to charge the same amount for that article? No, you’d be doing your hard work some injustice. This is where value-based pricing comes in.
Once you start setting a price based on the value you offer, two critical issues will arise:
- The value to the client
- The ability of the client to pay for your value and work
All the pros and cons of a value-based pricing model compared to a cost-based pricing strategy will depend on how well these two factors work together. They also depend on how to derive the perfect value price for any freelancers’ skills and services.
So today, we provide freelancers tips on how to price their business or skills correctly.
- Identify The Value You Offer As A Business
If you don’t know what value you offer your clients, it’s going to be pretty hard to set your price points. Start by identifying the needs of your customers. Then determine how you can help them to achieve those needs.
For instance, suppose your client is a retail company that needs an eCommerce website to survive the industry-wide move to online buying and selling. What if your experience also allows you to finish the site in 1 month instead of the normal 3 months?
In that case, your skills as a web designer offer value in the following ways: first, your working speed ensures your client does not lose selling opportunities, which saves costs on hiring more staff members.
Second, your website is likely to generate revenue for the company (let’s say $100,000 per month). So, do you still set your cost-plus pricing at $40 per hour, or do you charge a factor of the 2 months (or $200k of revenue) that they gained by your efficiency?
The answer should be clear: you charge your worth. But remember, the only way to come up with such a figure is through first knowing the value you offer.
- Break Down The Value Into Deliverables
So, now you know your value and how to charge your worth . How can you sell this to your customers? Create a list of deliverable projects that are quantifiable. The deliverables make it easier for the client to not only receive your estimate, but also to perceive the value you bring.
For instance, if you are a freelance writer, and your primary work is to source content for new websites, then you can break down your work into the following deliverables:
- The Home page
- The About page
- The Blog page
- The Product page
Your knowledge and experience will guide the deliverables to offer. Add other optional deliverables like newsletter copies, weekly or monthly blog posts, and social media shares. Then set a price point for each of these deliverables. For instance, you could charge $500 for the About page. But if you do, you’ll need to ensure your client knows the exact value they will get for their money.
Adding optional deliverables is essential because they are often the first to go from the list during the negotiation process. Also, if you find it hard to determine the amount of money to charge your client, use the concept of anchoring.
Anchoring means comparing the known with the unknown to determine the amount of money to charge for a skill. For instance, you know that most people charge $200 for a 500-word article from your research.
Knowing this, should you charge the same amount for your value, or do you prefer to be paid more? If you want more, how can you sell that to your potential clients? You can successfully use this skill to price different freelancing skills. Watch out for more of this in our next post.
- Timing the deliverables
This seems counterproductive, especially since the goal is to avoid creating prices based on time. But timing the deliverables, in essence, is for you. Here’s why:
You know the exact amount of time it will take you to finish each deliverable. You also know the exact amount of effort the work requires. Then look at your schedule. Are you busy with other projects?
If yes, then raise your normal rate by a certain percentage. For instance, you can charge $600 for the About page and give it a two-week timeline to complete. If your schedule is not full for a period, charge them $500 but offer a 3-day timeline, even though you can complete the work in a day.
The extended timeline allows you to complete the work regardless of unexpected delays. Always ensure that your timeline is never given in hours. Instead, record the time or day you will deliver the work to the client.
- Identify the right customers
Let’s work with the About page example. Chances are, many clients will not be willing to pay $500 for an About page. Keep in mind that this might be merely one deliverable of the service they need from you.
So, you have to confirm that your client can afford your services. For instance, you might find startup companies that love your work but lack the budget to pay for your services. Don’t get tempted to accept the lower price. Instead, always ensure that your clients agree with your pricing methods.
The truth is, customers are willing to pay for something they value. For instance, a fashion influencer is probably more willing to buy a $2,000 shoe than a stay-at-home mom. If you need to, do a customer survey: collect customer data and determine what clients are willing to pay for your value.
Conclusion
Value pricing is what separates freelancer laborers from freelancer leaders. A leader recognizes that their value will create more revenue for the client by reaching the target market and causing lead conversions.
A freelancing leader will study the products and features of their client and use their skills to reach customers who have a willingness to pay. So, if you are ready to become a freelance leader in your industry:
- Identify the value you offer as a business
- Break down this value into deliverables
- Time your deliverables
- Identify the businesses or individuals that can pay for your value and ensure you have the right customers
Happy winning!
