Why does pricing our services provoke such fear and dread?
Even when we’re certain that we provide an exceptional service and charge what we’re worth, we still worry that clients will view our prices as unreasonable.
Of course, we don’t want to underprice our services, either.
Where does this leave us?
Most of the time, it leaves us paralyzed and stuck. So when it comes time to actually give a prospective client a price estimate, we often just take a wild guess.
That’s a huge mistake.
To help you calculate your service prices accurately, I’m going to share a step-by-step method for setting your project rates.
Let’s get started.
Step #1: Perform research and determine your hourly rate
The first step in figuring out your rate is researching the project and asking yourself critical questions (examples below). These questions help you clarify all the details of the project.
You’ll also use the information you gather to determine your hourly rate, and that’s the starting point for the entire process.
Quoting a project rate, rather than an hourly rate, helps protects you and the client.
When you carefully consider your project price, you’ll be able to work comfortably until the project is completed — and you won’t be penalized if you finish faster than anticipated.
And because freelance services are notoriously variable in cost, your client will appreciate knowing their fixed cost going into a new project.
Why, then, do you need to determine your hourly rate if you’re going to quote a project rate?
Your hourly rate is the first variable in your project price. Your client doesn’t need to know this rate — it’s for your own calculations only.
During this step, consider:
- The project scope. Make sure you have a clear understanding of the client’s expectations and your role in helping him meet his goals for the project.
- Whether or not this project will lead to ongoing work. Is the client already talking about additional projects he’ll need help with, or is this a one-time assignment?
- The client’s budget for the project. Carol Tice, a freelance writer and founder of Freelance Writers Den, recommends inquiring about the budget for a new project. Clients won’t always have an answer, but when they do, it gives you a great piece of data to work with. Carol also adds that asking about the prospective client’s budget helps you weed out low-paying clients who don’t value your services!
After you’ve researched the project, your role as the service provider, and the budget, determine an hourly rate. This is the first component you’ll use to calculate your project base rate.
Step #2: Estimate how many hours the project will take
Break down the project into parts, and then estimate how many hours each part will take to complete.
Add up the hours for each part to get the total number of hours for the entire project. This is the second component you’ll use to calculate your project base rate.
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Step #3: Multiply your hourly rate by the number of hours, then add padding
Calculate your project base rate by multiplying your hourly rate (from Step #1) by the total number of hours the project will take to complete (from Step #2).
Base rate = (Hourly rate) x (Hours the project will take to complete)
Then add some padding. We recommend adding a markup of 25-50 percent to your project base rate to cover additional expenses, overhead, and that affliction most service providers suffer from, which we call “Acute This-will-be-easy-itis.”
In other words, pad your total time just in case you’re underestimating it (which is extremely common).
Padding will cover aspects of the project like:
- Client interaction and ongoing project questions. To provide great service, you’ll want to be available to answer client questions and provide status updates — that time can add up.
- Revisions and additional changes. Are revisions included in your project fee? If so, include them in your markup number if that time isn’t already reflected in Step #2.
- Other unexpected additions. Ideally, the project will unfold as expected. But if it doesn’t, padding allows you to be flexible (within reason). It enables you to be a helpful service provider who goes the extra mile to meet your client’s needs — because you know your own needs are covered.
Once you’ve added your markup, you have your final project price.
Project price = (Base rate) + (Markup)
Step #4: Communicate the price clearly to the client
Now you can clearly communicate the project price to your client and how you will proceed if the work scope expands beyond the original expectations set for the project.
Actively manage your client’s expectations and avoid miscommunications during this stage of the process.
Step #5: Track your hours and adjust future pricing accordingly
Here’s a critical last step of the pricing process that many service providers overlook: If you want to get better at pricing your services, you must track your hours when working on a project to determine if your original estimate was accurate.
Carol advises:
“Track your time, and find out how long it really takes you to do a project. Most people underbid when they’re getting started, so careful time tracking makes it all about the data. That’s useful.”
If you closely monitor your time and discover you consistently underestimate or overestimate the amount of time you spend on your client projects, you can adjust your future price quotes accordingly.
My favorite time-tracking tools are Harvest and FreshBooks.
Price your services with confidence and clarity
Pricing your services doesn’t have to be a nerve-racking process. When you use a smart method like this, creating price quotes can even be (dare I say it?) fun.
Check out the first two articles in this series on pricing your services:
- Are You Cheap or Are You Exceptional? How to Price Your Services
- How to Craft Winning Pitches for Your Service Business
And remember:
Communicate price quotes to clients with confidence and don’t apologize for your prices.
What’s your method for assessing a project and calculating your fee?
Share in the comments below.
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Reader Comments (29)
Quote project fees, not hourly rates. When a client asks your hourly rate for content or copywriting, say you charge by the hour and do not have an hourly rate. There are many reasons for this.
I agree, Bob! I think it’s always better to quote a project rate, if you can.
Great article. I have found that some clients take too much of your time if you don’t clearly limit the number of revisions you will make for the project fee they have paid.
What suggestions do you have regarding revisions?
HI, Melissa – I think the best thing you can do is spell out EXACTLY what you’re giving the client for the project fee. If you’re only doing one revision, say that…then tell them what the additional fee will be if they need extra revisions. Clear communication up front solves a lot of problems.
But then you also need to stick to your guns if they do ask for extra revisions, or you start to see scope creep. Don’t do it for free!
Pricing our services provokes such fear and dread because most of us don’t have any marketing education – and are proud of it.
We must know that our clients are not interested in pages, lines or words. And they don’t care how long we have worked on a project.
The only thing they are interested in is: An avalanche of sales.
There are strategies to find out how to charge the optimal price between what a client will earn with our work and what he will be prepared to pay.
This is no miracle science. It’s normal pricing policy that everybody can learn if he is willing to dive a little bit into marketing.
All those superficial lectures into copywriting nerve a lot. The thousands of want-to-be-copywriters without any formal education damage our profession.
How can a copywriter help anybody with his or her sales if the pricing of his own services provokes fear and dread?
I agree that our clients are interested in results, Peter, but I still think this is a good exercise for anyone who has trouble pricing their services – especially freelancers who are just starting out. We need to know approximately how long projects are going to take us to complete, even if we never share that number with the client.
Nice article, Beth. I definitely agree on the project fee method of charging.
However, the first step – determining your hourly rate – is a little vague. And it’s a challenge that many freelancers face. Doing research on what others charge is helpful, but often frustrating.
For example, blog posts can range from $50 (or less) to well over $800, depending on the industry served. My posts start at $300 and go up from there (content marketing, not just content).
A freelance writer should determine the base rate, or absolute minimum hourly rate that he or she must charge to make ends meet and still make a profit. (This also helps in determining what projects NOT to take.)
Marketing mentor Ilise Benun has a good formula for this. And the base rate is actually independent of the project itself. Here’s the quick version.
You need to determine and add up all of your yearly expenses, both personal (don’t forget insurance and vacations) and business (webhosting, computer maintenance, etc.) . You must cover these. Divide by 12 to get your monthly expenses, then add the profit margin you want. Multiply by your tax rate to get the monthly total required for your writing income.
Then divide that total by the actual billable hours you can (and will) work per month, and that is your minimum hourly rate. If you can work 10 hours/week, your monthly billable will be 40. That is your minimum rate/hour.
Here’s an example: If you have $4,020 in totally monthly expenses and want to generate a 20% profit ($4,824/month), but are in the 25% tax bracket, you need to make $6,030/month in writing revenue. If you can work on it 10 hours/week, that’s 40 billable hours a month. So your average, minimum hourly rate must be $150.75 to make that goal.
Note that it also “pads” your income a bit. (There are actually 13 “four-week months” in a year.)
Of course, you can charge more … but, that is the minimum you MUST charge to have a viable business.
You now have a base rate with which to figure your project fees, based on the excellent information you provided in steps 2-5.
Ilise talks a bit about that in this podcast – http://blog.marketing-mentor.com/2016/05/15/how-to-figure-out-what-to-charge/ – and offers a free Excel spreadsheet to help calculate your MHR. And you’d be surprised … going from 20% to 30% profits is not that much more per hour.
Thanks, Steve – this is very helpful!
You’re welcome, Beth!
Having previously been a contractor, this is the exact steps we used to use for pricing our jobs and clients. You are spot on and it works great. Thank you for sharing!
Pricing a project based on production time as proposed in this article is one way to go about it. Another way is to price based on the value of the solution or what the market will bear. This requires a measure of skill in asking the client a series of questions to uncover the value proposition. The best book I’ve read on the topic is “The SPIN Selling Fieldbook” by Neil Rackham. This book changed both my understanding of the value of the services I was offering as well as how I would offer my business advisory services to clients.
Learn this and the only person who can undervalue you is you. And, that’s a whole ‘nother problem!
Be On-Purpose!
Kevin
Thanks, Kevin – I’ll look into that book. I think value-based pricing could potentially be really difficult for beginners, but I’d be interested in learning more!
In our business, an hourly rate might not be as applicable, but the basis if it is fantastic. Thanks for Sharing Beth.
Yeah, I actually think people should steer AWAY from using hourly bids – we advise using hourly estimates as a basis for coming up with an overall project fee.
It’s funny that I ran into this, but I use this system as well in our security business. It really helps me to maximise profits and protect against my loses. We put Beth.
Great article Beth, thank you for sharing. It will give me some things to think about.
I really enjoyed the part about enquiring for what kind of budget they may have. So many times as a construction company have we put together days of work on a bid to only have it immediately rejected because it was way out of their budget. Had we known ahead of time we could have saved days of work. I understand it can be an uncomfortable question, but very necessary. Great article!
Agreed, Wes – it’s not a comfortable question, but I think it can save a ton of time and energy if you’re willing to ask. It’s a great weed-out question for both parties.
Well said Beth!
I have to disagree with the basic premise. Your client doesn’t really care how many hours it will take to complete a task. They have a price in mind based on the value of what you create.
Until you move away from a time and materials model and move to value based pricing, you will always be undervaluing your services.
Lorraine, the basic premise is just the opposite — we are saying you should not give an estimate of your hours.
We’re recommending you use the hours you expect to spend to calculate a project price, which is the only thing you share with the client.
Does that make sense?
Are there any exceptions to the project fee model? For example, if you are doing research, should you have an hourly fee or still charge a flat rate?
Hey Steve – when I’m estimating writing projects for my clients, I include research in my list of tasks (Step 2, above). Sometimes it’s the hardest part to estimate, but it’s important that we add it!
Great article. I am a patent/trademark agent and have worked in both large national firms and small agencies. Recently, I started my own intellectual property protections agency. I modelled my business billings on a per project basis, rather than the legal service industry model of providing hourly rates, billed in 0.1 minute (approx. 6 mins.) increments. Since I have a lot of experience drafting and prosecuting patent/trademark applications, I know roughly how many hours it will take to complete a mandate. I ensure I provide a service contract which details what services will be provided and, importantly, it carries a request for a 50% retainer based on the agreed upon fees, the final 50% being due once the client is satisfied. Now, I have two ways of addressing the experienced client versus the novice. The experienced clients are often easier to deal with because they know what information I need from them to draft a patent application. It then takes roughly two to three drafts prior to filing. For the novice client, I do expect to lose money guiding them through what is typically a very difficult and convoluted process en route to an issued patent/trademark. However, I take the long term view that if the client likes my work, he/she will be a source of repeat future business. The risk of any per project billing on my side is that you underestimate and spend more time on the mandate. The upside, gathered from client feedback, is that it is easier for the client to budget. The client will never be presented with an invoice that is significantly higher than an estimate. This is very true of many law firms. I chuckled when I saw the word “padding” in your article. You’d be unpleasantly surprised by how much padding occurs in law firms.
I’ve been testing out using price points that end with ‘7’ and ‘.95’ and it’s been working really well. 9.95 seems to convert extremely good.
How very true about the little extra padding. I frequently find I’ve underquoted a project, usually because I get so into them that I do way more than I needed!
In days of yore, in the software industry, we used to work on a costed project plan then add on 100%.
This was to allow for two key client aberrations that were the downfall of MANY software development projects in that environment: (i) they were reluctant to include “Planning” time; preferring to wing it and (ii) they were notorious for “Scope Creep”; the scope of the project growing daily as “have to have” innovations were introduced (because up front “Planning” and “Conceptual Design” time had been curtailed or even eliminated – to reduce cost).
Fixing designs in the planning stage has a 1:1 cost implication; fixing code in the development stages can be as high as 100:1 (compared to having planned it ‘properly’ up front).
It was a standing joke among us that “there was never enough budget to do planning but there was always enough budget to fix the unplanned screw-ups”.
Invariably the projects came in, >100% over time and over budget ( even MORE than if the planning budget numbers and phase had been allowed to remain).
This in turn led to even more stringent budget cuts on subsequent projects as the development costs were perceived to be consistently too high…a spiral of stupidity.
The company involved dug money out the ground so it never folded but it was still a wicked war!
Great advice, Beth. I only wish I’d known it when I started pricing projects, about 16 years ago. I think we’ve all got stories about agreeing to lowball bids of our own making.
I tend to find that pricing my services with confidence has been my downfall in the past. I am always feeling the need to give a good deal. I have since realized that at full price it is a great deal because of the time and quality I put into things. Great article Beth.
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