It’s the age old question that every entrepreneur thinks about: what to charge?
On one hand, you don’t want to charge too little and leave money on the table. On the other hand, you don’t want to charge too much and scare away potential customers!
How do you find that perfect sweet spot?
There’s no one right way to price your services, but I’ve found a few tips along my own entrepreneurial journey that you can use to help determine your own rates.
1. Know Your Worth
This is the most important thing to remember when pricing your services. You are offering a valuable service, so don’t sell yourself short! Think about all of the time, energy, and training that you’ve put into your business. That’s worth something!
2. Consider Your Costs
In the offline world of retail, business owners typically price goods and services simply by using a “cost x markup” calculation. They add up what all their costs are to run their business as well as create the product, and then they markup that number to figure out what their sale price will be. So for example, if it costs you $100 to make something and you want to mark it up by 30%, you would do the calculation: 100 x 1.3 = 130. So your sale price would be $130.
Seem pretty simple right? Well, what if your products or services are digital?
Pricing Digital Products
If you’re selling digital products, your “cost of goods” will be what it took to create the initial product (maybe you paid a ghostwriter or paid for graphics to use on the cover of your ebook product, etc). However, because it’s digital, you have the massive advantage of what business folk call “economies of scale”.
Economies of scale basically means that it costs you the same amount to sell one digital product as it does to sell 1,000. So your marginal cost (the cost of selling one more unit) is very low.
For example, if you’re selling ebooks, once that digital ebook is created, you can sell it an infinite number of times without having to incur any additional costs. In this case, you wouldn’t necessarily use the “cost x markup” calculation. Instead, I would recommend thinking about:
a) What the knowledge is worth that you’re sharing in the ebook, and price it accordingly – if it’s general knowledge the audience could get elsewhere, it is less valuable than, for example, sharing one of your best-kept-secret strategies that you’ve used to help your clients make more money in their business.
b) What similar products are selling for – if there are other ebooks on the market with a similar topic, see what they’re selling for and use that as a guideline.
c) What you need to make in order to cover your costs and then some – this is where you’ll want to consider things like your time investment, what it cost you to create the ebook, as well as other associated costs like website hosting, payment processing fees, etc.
Pricing Coaching or Consulting Services
If you’re a coach, or consultant, your costs are different. You still have to think about things like overhead (e.g. website costs, phone, marketing, online tools, etc.) but you also need to account for your time and, more importantly, your expertise. This is where a lot of people get hung up when trying to price their services!
Coaches will typically bill in ‘1 hour session’ increments, which is great, but if you’re not careful you could end up working a lot more hours than you originally anticipated (and not making as much money as you should be).
When I first started my coaching business, I made the mistake of thinking that I could just charge by the hour and everything would be fine. But what I didn’t realize is that most coaching clients want, and expect, more than just an hour of your time each week. They want email access, they want to be able to pick up the phone and call you when they’re feeling stuck, etc. And if you’re not careful, you could easily find yourself working 5, 10, 20 hours or more per client each week…and not making nearly as much money as you should be.
So what’s the solution?
The best way to avoid this is to price your services in terms of the results you help your clients achieve. It’s called ‘value-based pricing’, and it’s a simple concept but can be difficult to execute on the spot if a client is asking for pricing right away and you don’t have a lot of information to go off of.
With value-based pricing, you essentially decide what results your program will help your clients achieve, and then price it based on the value of those results.
For example, if you’re a business coach who helps your clients increase their revenue by $10,000 per month, you could charge a percentage of that increase – say, 10-20%. So if they increase their revenue by $10,000 in one month (as a result of working with you), you would then invoice them for $1,000-2,000.
This type of pricing takes the focus off of ‘how much time you’re spending’ and instead puts the focus on ‘what results you’re helping your clients achieve’.
It’s a great way to avoid the ‘time for money’ trap that so many coaches and consultants fall into, and it’s also a great way to increase the perceived value of your services.
When you price based on results, your clients will be much more likely to see the value in what you’re offering, and they’ll be more likely to take action and get results.
Pricing Freelancing Services
If you’re a freelance writer, social media manager, web developer, or offer any other type of service that can be done remotely, you’ll want to consider a few things when pricing your services.
First off, what is the going rate for your particular service in your industry? Sure, you might consider your services worth more than what the average person in your industry is charging, but remember that your clients do their research. They’ll likely have a cost in mind when looking for a freelancer, and they’ll shop your quote around and see what else is out there. If you feel you’re worth more than the average freelancer charges, you’ll need to explain your value upfront to the prospective client and make sure they know why you’re worth the extra cost.
Next, how much time will it take you to complete the project? This is important because you’ll want to make sure you’re charging enough to cover your time investment. I’m not talking about hourly pricing here, but rather having a general estimate in your head about how long something is going to take you. Your time is your most valuable asset! (more on that later)
When pricing freelance projects, I typically will quote on a per-project basis. I work out a balanced, fair price taking into account my experience, level of expertise (and the years of training it took to learn that skill), time commitment, and how passionate and excited I am about the project and client in general (let’s call it the ‘enjoyment factor’). Blend all that together, and come up with a flat rate that you will be satisfied with if the client says yes, and don’t waver on that amount!
Unfortunately the freelancing industry is still stuck in the mindset of ‘hourly’ pricing. When you bid for a freelancing gig, they’ll typically want to know your hourly rate and try to get an idea of how long something will take. It’s a race to the bottom.
Personally, I’ve found that clients in the ‘hourly pricing mindset’ are typically looking for the cheapest freelancer they can find and not necessarily thinking about the value of the expertise and experience that person brings to the table. Avoid these types of clients if they don’t respect your expertise.
Which brings me to my next point…
3. Value Your Time
Sure, you could do hourly pricing, but let’s be honest… hourly pricing sucks (for many reasons). Think about hourly pricing for a moment… it’s actually in your client’s (and your) best interest NOT to do hourly pricing because:
a) The client will want to rush to get the project done as quickly as possible to save money. You, on the other hand, want to take your time and do a good job so that they’re happy with the results. Your client will constantly be questioning how long things took you because in their mind they know that the longer you take, the more you get paid.
b) As a freelancer, you want to get paid for the VALUE that you’re providing, not just the time it takes to do the work. If you’re able to do something in 2 hours that will save your client 10 hours of their own time, then you should charge for that 10 hours of saved time! That’s what they care about.
So, hourly pricing puts you at odds with your client right from the start (not the best way to set the tone of a new business relationship!)
If I do a job in 30 minutes it’s because I spent 10 years learning how to do that in 30 minutes. You owe me for the years, not the minutes.
— D A V Y (@davygreenberg) February 15, 2019
4. Offer Multiple Pricing Options
One mistake I see a lot of people make is that they only offer one pricing option. “This is what I charge… take it or leave it.” But the problem with that is that you’re leaving money on the table! If someone really wants to work with you but your rates are just outside of their budget, then they’ll move on to someone else.
Similarly, if you only offer one package, but your client wants more than what’s included in that package, you’ve potentially lost out on making a lot more money with that client by adding more services to fit their requirements.
The solution is to offer multiple pricing options. This could mean offering a la carte services, or tiered packages. That way, you can cater to clients with different budgets and needs.
5. Give Discounts Very strategically
If you want to attract new clients or get existing clients to spend more money with you, then offer them a discount. But don’t just give discounts willy-nilly! You should always have a strategy behind why you’re offering a discount and what you hope to gain from it.
For example, let’s say you want to attract more high-end clients. You could offer them a 20% discount if they sign up for 6 months of coaching. The discount is an incentive for them to sign up for a longer package, and the 6 months gives you enough time to really work with them and get results.
You’re rewarding them for their commitment to you long-term.
Another example: let’s say you have a client who always pays late. You could offer them a 5% discount if they pay within 7 days. This encourages them to pay on time, and you still get paid (albeit a little less) instead of waiting 30, 60, or 90 days for payment. Alternatively, you could offer the discount only if the client pays upfront, which guarantees you the money before you even start working on their project.
6. Review Your Prices Regularly
Your pricing should be fluid and flexible, because your value will increase as you gain more experience. So make sure to review your prices regularly and make adjustments as needed. I typically review my prices 2-3 times per year, and increase pricing for new clients I onboard, while slowly raising rates on my existing clients usually once per year to be more aligned with my new client pricing.
Don’t be afraid to raise your rates. You should be constantly striving to increase your value and improve your services, so it only makes sense that you would charge more as you get better at what you do.
If you have an existing client who you really enjoy working with, or has consistently worked with you each month for years, that relationship you have with them as well as the level of passion you have for their project is worth something. You might consider keeping some of your best clients on older pricing if they can’t afford an increase, simply because you know that they pay on time, and the stress level working with them is low. I’d take a lower paying, stress-free client over a stressful one any day!
One strategy for handling long-time clients while you’re doing a price increase, is to explain to them that your pricing has increased (showing them your new price sheet or services list and explaining why you’re worth more now than when the client started with you), but then provide them a discount on that new pricing that brings their costs to being just slightly more than what they are currently paying, and make it clear that the discounted amount you’re giving them is because they are a ‘VIP client’. They’ll appreciate the discount, and it can help to retain them as a client since they know that if they stop their services and come back later, they’ll be paying regular rates.
The Bottom Line
At the end of the day, there isn’t one pricing strategy that fits all. You have to experiment, test, and try different things to see what works for you and your business. Use these tips as a starting point, but remember that you’ll need to adjust and tailor them to fit your own business model and goals.
If you find you’re attracting the wrong market (or no market at all) you can always change your rates. Working too hard for not enough return? Raise your rates.
It’s your business. You get to call the shots!