“Show me the money”, or how to set the price you’re really worth
Pricing is a question that comes back over and over again, whether I’m coaching students working on an entrepreneurial project, chatting with freelancer friends or building a marketing strategy for a client.
Last week, on The Kameleon Collective, a group of French freelancers and entrepreneurs who want to break free from cultural conventions, I asked participants to talk about a moment of pride and excitement. Super-talented graphic designer Sophie Spéciale, told us about the time two of her clients requested to pay her more for her services.
How much better does it get than having clients telling you they’re not paying you enough? Pretty good, right? Or is it?
Should your remuneration be matching the time you spent on a project, the experience you have or the genius you showed?
The famous Pricing Lesson from Picasso, ends with the artist charging a large amount of money for a 5-minutes sketch on a napkin and justifying by saying:
“Madame, it took me my entire life.”Pablo Picasso
Of course, we are not all Picasso… but establishing a price at the level of your worth is crucial. Now, that brings the question: how much are you really worth?
There is a series of parameters to take into consideration when building a pricing strategy. More often than not, brands and freelancers alike stop at the first one. When they’re a little more advance, they dab into the second one. Rare are the people who risk testing the third one.
One: the price it costs to produce the work
If you’re selling a physical good, you have a cost per unit, that’s a given. When you’re selling a service, most people base their price structure on time spent and charge an hourly rate.
To start calculating that hourly rate, the simplest is to estimate how much you want to earn each month and divide that by the amount of hours you’re able to sell (not to work, but to sell!).
Let’s say you would like to make $2,000 / month. There are about 160 workable hours in a month, but you’re probably only going to sell 100 of these (the rest might be used to develop your business and do all the admin work that comes with being your own boss). So, we’re at a $20/hour price.
But that mean you’re going to have to work full time EVERY MONTH in order to reach your objective. Plus, there are a lot of extra charges (fixed costs, taxes…) that you need to take into consideration. That’s why it’s important to also look at parameter number 2…
Two: the price that matches with the market
How much are people doing the same type of work as you are charging? How does it evolve with their years of experience doing the work? Where do you fit in that spectrum?
Let’s say you’re still a beginner in your line of work. If you snoop around a little you notice that most people charge an hourly rate going from $35 to $150 for bigger, more advance structures.
Should you still keep your $20 hourly rate? Probably not. Going for “being the cheapest” on the market will only bring two consequences:
- you will pull the market down for everyone. Is it really smart if we look long term?
- you will only attract clients that are budget-focused and not quality-focused. Again, is it really smart if we look long term?
So let’s bring this price up and match, at least, the bottom of the market. With a $35 hourly rate you are now able to only sell 57 hours / month and live comfortably.
Three: the price the client is ready to pay
This final parameter is the scariest. That’s the one where you’ll have to put yourself in danger. What if you try increasing your price a bit? Does it go through? Will they say no?
Trust my experience, in most situations, if you have proven the value of your service, clients will be happy to pay more just to retain your services. And if you feel too scared to increase the price for existing customers, start with proposing a higher hourly rate to your new customers.
Like a lot of things in life, and particularly in business, pricing is a game of touch and go. And once you have set your minimum hourly rate, don’t accept anything under it. Remember, you’re charging your worth, don’t discount yourself. If you REALLY want to work on a friend’s project and you know they can’t afford you, better do it pro bono. But that’s a conversation for another time…
Photo by Jimi Filipovski