Do You Make These Five Freelancer Pricing Mistakes?

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“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.