Do You Make These Five Freelancer Pricing Mistakes?

“How much should I charge for my products and services?”

It’s one of the first questions I get from a new coaching client, especially those just starting out with a new business or freelance career.

Pricing can be a daunting task and one where many freelancers make mistakes that hinder their marketing and damage their cash flow.

Keep reading and I’ll tell you the five common mistakes I’ve seen and show you how you should price your products and services.

1. Not Thinking of the Big Picture

By big picture I mean not thinking about the amount that you need to earn and instead just pricing products and services individually.  Let me explain.

An example would be a website designer.  You decide that you need to earn a minimum of £2000 a month and after the administration and marketing time you have twenty hours a week for client work.  We’ll roughly say that gives you eighty hours a month to generate income.

If you take £2000 and divide it by eighty you get £25.  So considering the big picture you need to be charging at least £25 an hour if you want to earn the £2000.

If you want to earn £2500 it needs to be a minimum of £31.25 and so on.

Using this method and working backwards is a great way to price your hourly service and also set a target for how many hours you need to be working.

Just make sure that the hourly rate isn’t too low and the number of hours for client work isn’t set unrealistically high.  For instance it’s no good saying that you can do one hundred and twenty hours a month, and therefore charge £16.67 an hour, if you actually only have fifty hours of work as your income will fall short at £833.50 a month and you’ll struggle with cash flow and find it stressful.

2. Only Thinking About Price, Not Value

Another common mistake is thinking only about price and not about value.

This happens a lot with freelancers who are just starting their new businesses and are keen to get any business at any price.

A lot of the problem occurs in how you perceive your product or service compared with others on the market and offered by your competitors.

Using a website designer as an example again, you might think that you can get lots of people to sign up for a new website if you price them at £300 and that might seem cheaper compared to others you’ve researched.  However, purely looking at price isn’t a good comparison, how much time do you put into your websites and what benefit do they provide to your customers?  You might be skilled in graphic design and doing a complete custom design for your customers where your competitors are using a set of standard templates for instance.

It’s all about the value that you put into the product or service.  So if your website design takes you twenty five hours, and we calculate using our earlier example of £25 an hour, the minimum you should be charging is £625 per website.

“But that’s too expensive” you might think.  Well perhaps it is if you and your customers compare it to incomparable service from someone else who doesn’t provide as much value as you do.  But that’s not comparing like for like is it?

You need to use your marketing to show your customers and prospects the value in what you offer, so rather than compare you against another service they are able to see the true value in what you provide.

3. You Discount Too Easily

Another very common mistake is discounting too easily.

You’re nervous about getting new business.  You have some enquiries but worry that they are also looking at other competitors.  So in order to win the business you drop your price.  I’ve seen clients do this with little or no pressure from the customer, just because they wanted get the sale.

Now don’t get me wrong, I’m all for good selling and closing a deal but why give away your profit when you don’t need to?  It’s a mistake for three reasons:

  • Expectations: By discounting easily you’re teaching your customers that you are a bit of a soft touch.  They know that you’ll discount easily and once a customer knows that, they will expect it every time.  Discount is like tooth paste, once it’s out of the tube you can’t get it back in!
  • Word Gets Out: By Discounting you not only teach your one customer, but others as people talk.  The next thing another customer will be looking for a discount as they heard that someone else got one and you start losing margin on more sales.
  • Value: By discounting easily you go against the approach that we discussed above, you undermine the value in your product or service.  Customers will wonder why you’re discounting your products and service if they are so good.

There are some legitimate times when you will want to discount, for instance if a close friend or family member wants to buy a product or service, or even for a customer who has bought multiple products and you want to show some appreciation for the size of the order.

If this happens I suggest two tips to ensure it doesn’t become a mistake.  Firstly if you are discounting because of a quantity or monetary volume of the order, make it very clear what the rules are, for instance 10% discount before shipping when you buy more than five items.  Set this rule in stone and if the customer asks for you to be flexible and offer it for four, don’t!  Because soon they will expect it for three, then two, etc.

Secondly, when you do offer a legitimate discount, ensure your invoice shows the full amount and the discount.  In fact if you ever do a piece of work for someone for free, or give a product for free in return for a mutual service, always ensure that you raise an invoice and discount it by 100% because your customer will recognise how much money you’ve discounted and also see the full price of the service.

4. Hiding the Price

I think hiding the price on a website is the second most frustrating thing only to hiding the contact details.

If you’ve priced your product correctly, taken account of the big picture and you’ve used your marketing to really explain the value in what you offer, why would you hide it?

Marketing is about getting people to know, like and trust you and it’s very difficult to establish trust when you can see a service but not see the price.

I understand that many freelancers have services that are very bespoke and that it is hard to offer a fixed price because each project has to be priced individually.  However you can still get around this by using some case studies and suggesting the price of a typical project.  Again it’s all about value.  Don’t worry about showing the price because you think people will be put off, because those that are put off by your price are not likely to be your perfect customer anyway.  Instead state your price clearly and give a really compelling account of the value that you provide.

5. Working for Free

When I say working for free I’m not talking about swapping services or doing something to help out a charity or some other legitimate reason for not charging for your work.

I’m talking about doing extra work for your clients that isn’t included in the price.  Let’s go back to our website design example again.

So you’ve charged £625 for a website which equates to twenty five hours work at £25 an hour.  However you’ve been a bit sloppy with the scope at the beginning and now the project has started the client is changing their mind lots and in the end it takes you thirty five hours to complete.  A mistake?  Yes, because you’ve actually worked for £17.86 an hour rather than £25 an hour.  Keep doing that and two things will happen, you’ll either have to work a lot more hours in your month to make up the amount that you need to earn, or if you still work the same number of hours you’ll end up not earning enough because eighty hours at £17.86 an hour is £1429, £571 less than you need for your monthly earnings.

Working like this will be frustrating, stressful and will leave you with little time for finding more profitable work.

To avoid this mistake make sure that you scope your projects fully and don’t be afraid to tell a client when they have changed the scope and you need to charge a little more, if this is done correctly it won’t be an issue.

micro business actionToday’s Micro Action

Take some time to review these five mistakes.  Are you taking account of the big picture?  Are you communicating the value that you offer?  Do you discount too easily and are you often working for free?  Do you clearly show the price of your products and services?  As you consider each point write action points and get time booked into your diary to make the changes needed to ensure that your pricing strategy is helping you to grow your business and not hindering you.

Robert Peters

Robert Peters is a small business advisor, coach and consultant. Through his Fresh Eyes Consultancy he helps micro business owners grow sustainable and profitable businesses. Sign up for a free copy of his guide on how to avoid the feast and famine cycle and take the stress out of micro business sales.

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Comments

  1. HI Robert. I agree. I think pricing is one of the most challenging aspects of being a micro business freelancer and it can be very easy to undervalue and underestimate the time needed to complete a job. I think it’s important to focus on value and wherever possible never present your business as a commodity that can be directly compared with something else.

    Really great stuff. Thanks for an insightful week – lots to ponder over.
    Georgina El Morshdy recently posted..How To Hire A Ghost Writer Without Selling Your SoulMy Profile

    • Thanks for the comment and feedback Georgina! :-)

      I totally agree, if you try to compete on price there will always be someone else who has deeper pockets who can cut their margin lower and it’s a race to the bottom. You don’t want to accept business at “any” price, only the price that reflects your value. As you say it’s very important to show how you stand out from others, the more unique you can make your service the smaller your niche and the less competition.
      Robert Peters recently posted..3 Reasons Google Doesn’t Love Your WebsiteMy Profile

  2. Thanks for the insight Robert. I think an important thing to take into account with pricing is ‘billable hours’ and to offer retainer fees for ongoing work. Some things in my business (web design as it happens) are not really billable, they might take 5 or 10 minutes to do and in the time it would take me to invoice would just be silly. So instead of working for free, I offer retainer packages of a set number of hours per month. This is also nice as a freelancer because it contributes to regular income rather than the feast or famine cycle you mention in your profile.
    Not sure about showing prices on the website; I’ve gone round and round in circles about this, but really hear what you are saying – thanks for bringing it to my awareness again for pondering!

    • That’s a good point about billable hours. I think doing the small works as part of a retainer is a good idea, as long as you have some way to record them so that you can show the client how much they’ve actually used. This way when you come to review the price for the next year you can compare how much is being used and if you do change the clients’ price you have something to back it up. SpinLessPlates http://www.spinlessplates.com/2d?utm_expid=46461822-4 has a nice timer that you can use which records even the most minor of jobs and gives a nice record of what time is being used, it’s amazing how it can mount up during the year.

      I know a lot of people worry about putting prices on their website, especially in a competitive market such as yours, but I think some indication is really helpful and can also act as a good filter to get the right type of prospects contacting you. If you want to have a further chat about weighing up the pros and cons feel free to get in touch.

      Many thanks for your feedback and the comment!
      Robert Peters recently posted..3 Simple Steps to Add Personality to Your Small Business WebsiteMy Profile

      • My personal view is that it’s about knowing your market really well. I have indicator prices on my website to reassure potential clients that they won’t get charged £150 an email (true story from someone) and I have a Services Under £75 page for people who really can’t afford anything else. Otherwise, they may assume they can’t afford anything at all and go elsewhere.

        After all, when I have one client who needs to file returns from several years ago and another who is revving up to doing 2012-13, in practice, every client has a bespoke price that often changes every year as they learn how to do a lot of it themselves and well.

        An indicator price is reassuring that you’re in their budget, and it’s embarrassing to ask!
        Rosie Slosek recently posted..3 Reasons Tax Returns Belong With CakeMy Profile

    • Just realised having looked at your Google page, are you @littlegreenblog or do you have a doppelganger? :)
      Rosie Slosek recently posted..3 Reasons Tax Returns Belong With CakeMy Profile

  3. Most freelancers and microbusiness owners make the mistake of pricing their products and services too low. One thing to remember is that, if you are priced as the cheapest, your branding and other marketing communications should be communicating that you are the budget option.

    Prospects furrow their brow in skepticism when they see marketing communications that claim a superior/premium service that is priced at the bottom.

    Excellent post Robert and a very important topic!
    Russ Henneberry recently posted..Print and Steal This Headline Swipe File But Use It For Good, Not EvilMy Profile

  4. Your comment: “This happens a lot with freelancers who are just starting their new businesses and are keen to get any business at any price.” doesn’t sit right with me because you talk about “Thinking about the price, not value” and beginners regard getting customers at any price is worth it.

    I’m a beginner Internet Marketer (IM) and, from my research, I found that you have to build a list then build a relationship with that list. In order to build that list, you have to give your potential customers free or little cost gifts. The gifts cost next to nothing but it’s getting visitors (traffic) to your website in the first place that costs a lot of money. Then they spend even more money getting them onto their list.

    Beginners with empty lists would give their right arm to get people on their lists; and I suppose it’s the same with freelancers who have no customers. IMers spend a lot of time with keyword research; freelancers do market research to find out what products/services their target customers buy.

    I wouldn’t spend a million to get a 100 people on my list but I take your point that you have to be pragmatic on how much you spend on getting customers.

    • Thanks for your detailed comment Kasim. I think we’re talking about two different elements here to be honest, the price you’re referring to is the price of customer acquisition – how much are you prepared to pay to get a new customer, or as you say get someone on your list. If your coaching service (just for example) is £500 a month you might be very happy to pay anywhere between £0 and £500 to acquire a new customer. You can evaluate how long an average customer stays with your business (let’s say six months for example) and then base your maximum acquisition on that sum.

      However the pricing point that I was really getting at in the post was about how you actually price your products and services. So taking an example service again of £500 a month, if you make a 30% gross margin on this your cost of providing the service is £350 a month. So you wouldn’t want to discount the service to £400 just to get a customer if they were only likely to stay with you for one month, because you’ve reduced your gross margin by two thirds. That’s what I mean by not taking business at any price, it’s no point having lots of customers if you’re not actually making much of a profit. As the saying goes “turnover is vanity, profit is sanity and cash is reality”.
      Robert Peters recently posted..3 Reasons Google Doesn’t Love Your WebsiteMy Profile

      • I’d also add that it depends on your industry. The retention rate in accountancy is 80%. I dont’ come near that as I have a lot of one-off clients who ask for help one year and come back if they need me again, but it’s not a certainty. It’s much better than no help at all if only a very small budget is available.

        Even so, Robert does business coaching and by the nature of his job, he’s going to need a constant stream of new clients as enabling people to go away and do what they do even better is what he does. It makes the pricing and profit margins different.
        Rosie Slosek recently posted..3 Reasons Tax Returns Belong With CakeMy Profile

  5. I’d add in a few more costs in the initial pricing equation. The figure you need to earn needs to include all expenses, tax-deductible or not, income tax, National Insurance Class 2 and 4 (assuming you are a sole trader) and if you are planning on running a profit (as above), then saving for HMRC payments on account for the next year. If you need £2k/month net, then we’re talking over £3k/month you need to generate. The sums then start to look very different.

    If you have money coming in from different sources then the sums are different – or if you need a limited company.

    It all starts with what do you really need – bare minimum – rather that what you’d like. Work it out including your tax position and household income position and go from there. THEN work out what you want to earn. It’s a lot easier if the ‘I need to put food on the table’ money is taken out of the pricing equation.
    Rosie Slosek recently posted..3 Reasons Tax Returns Belong With CakeMy Profile

  6. Hi Robert
    Great post (as ever).
    It is interesting reading this a few days after the posts and reading others comments
    Am a little amazed more hasn’t been made about the lifetime value of a customer, how it is vital to ensure repeat business and having a system in place for this (I recently made over £3200 in profit from 3 repeat orders that took less than 30 minutes to complete from start to finish) or the inclusion of a productivity ratio when working out pricing.
    Always amazes me that someone who wants to earn say £50k a year prices their service at £25 per hour thinking 8 hours a day, 5 days a week, 50 weeks a year and then look amazed when they work 10 hours a day, 7 days a week and still struggle to make £30k.
    Even Dan Kennedy (time management and direct marketing guru) states he is lucky if he has a 50% productivity ratio. So that makes me wonder if as a rule of thumb 30% is too lenient!
    Interesting how many panic though when they work out this number and think ‘I couldn’t charge that’ immediately even though some of their peers do (and many charge more!)
    Paul Cox recently posted..The Number Most Business Owners Are Too Damn Scared To CalculateMy Profile

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    Do You Make These Five Freelancer Pricing Mistakes?…

    Take some time to review these five mistakes. Are you taking account of the big picture? Are you communicating the value that you offer? Do you discount too easily and are you often working for free? Do you clearly show the price of your products and s…

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