Five Pricing Strategies for a Freelancer
As a freelancer and solopreneur pricing your services for your customers can often be a stressful and confusing time, you are not sure what is the right price to attract the right customers. Knowing where you are in the pricing cycle will help you understand the best strategy for your business right now. Below I have listed 5 pricing strategies and how to move from one to the other as your business grows.
Stage One: Time for Money (Hourly / Daily Rate)
Most freelancers will start here, quoting a daily or hourly rate to their customers. This can include timesheets and often feels like you are working directly for the client and they control your pace.
Main Advantage: Easiest way to quote a price, you gain experience and build a relationship with your clients.
Main Disadvantage: The customer does not see your work in terms of output but rather as a cost of time, easily ‘cutting your time’ to reduce their budget.
As it is only you, the systems and processes you have in place are adhoc and not documents – most of them live in your head! Start looking at putting some control around your numbers – take them out of your head – check out my Bookkeeping Made Simple set up.
Stage Two: Maximum Output (Premium Rates)
As you gain experience and clients, you run out of hours and raise you hourly and daily rates. You reach the maximum rate you feel your clients will pay — you are selling all the hours you can. At this point increasing revenue means looking at outsourcing.
Main Advantage: You are earning a good rate, you have full control over all of your processes and systems.
Main Disadvantage: There are not enough hours in the day and you are starting to feel you are always working. Your business is good and successful – so why do you feel overwhelmed?
Now is the time to look at your internal efficiencies and outsource all the tasks you can and review all your systems, processes, technology, to streamline your business. If this is a struggle for you book a ‘Get Your Pricing Right’ session now.
Stage Three: Project Based Pricing
Project based pricing looks at the overall customer project and bases the price on the specific outputs. You are starting to talk to your clients in terms of what they want to achieve and the overall goals of the projects they are asking you to work on. This is an important shift; it is the start of the client seeing you as an asset rather than a cost.
Main Advantage: Here you are starting the process of showing your clients that you are an asset, focused on their goals, rather than a cost, getting a task done.
Main Disadvantage: Understanding exactly what the project entails can be tricky at the beginning, often the client is not clear or does not understand your work, so clarity is key.
At this point in your business, you are looking at standardising some of your offerings so that you can easily quote your clients and advise them exactly what is included and what is not included (in a nice way). You will start to develop customer options so they will see clearly what they are getting and what they are not. Why not book a free 30 minute mini consultation with me to explore your options.
Stage Four: Value-Based Pricing
Value-based pricing is where your prices are set based on the value created for the client by a solution. It is Customer- Focused rather than the traditional Cost (Time) Focused. What is the perceived value a customer will put on the outcome?
When you price based on value, the work to complete does not come into the pricing process i.e. this will increase your revenue by x% therefore the price of this work is y%.
Main Advantage: Increased profit
Main Disadvantage: Need full control over your costs as they are not the focus, therefore can get out of control if not monitored.
Your systems and processes are fully automated and controlled, your knowledge of how your business works is key to controlling your margins.
Stage Five: Performance Pricing
Performance Pricing is where you look at each stage of your offerings and you have a fully developed pricing mix. You have standardised your processes, you have a team to help you.
- You have all your processes catagorised and standardised
- You outsource or have an inhouse team
- You understand your business and your business margins
- You know when value based pricing is best and how to master the conversation with you client
- You know which pricing structure works in different situations
Knowing your own business and what stage you are is important to understanding your pricing structure. Often clients come to me because they worry that they are leaving money on the table, particularly when working on a time basis. Understanding your business is how you overcome these fears.
While there is no ‘rule’ to say you need to move from one stage to the next in order, I often find working with my clients that in order to charge a project rate, they need the experience of working the hourly rate.
If you are struggling with pricing your services, book a free mini consultation with me today and get confident in your pricing mix. If you know anyone that needs to hear this today, I’d love if you shared this article with your business friends or anyone else you think may be interested.