How to Set A Rate For Your Work
You’ve decided to take on a role working directly with clients.
You’re ready for the increased responsibility, and maybe you’re even celebrating striking out on your own after treading water in a cubicle for too long. Then it happens—they ask for an estimate.
It happens in every industry. Maybe you’re a freelance designer, a life coach, or like me, a nutritionist. You like people so you’re ready to work with them and you’re excited about the projects you’ll create. But now that you’ve taken the leap into entrepreneurship, you need to answer the most arbitrary business question that comes up with client-based businesses: What should I charge?
If you’re accustomed to working for someone, whether that’s a huge firm or a small start-up, you may never have considered what your time is actually worth. It’s not easy, but here are eight simple steps that I used to get started.
1. FIGURE OUT YOUR REQUIRED SALARY
First things first. You need to determine how much you need to make working with clients to pay the bills. Start by plugging your information and target income into a freelancer calculator. Based on your target goals, it’ll offer you an average rate.
How does that compare to similar jobs you’ve worked in the past? Does the salary feel fair? Would you ask a boss for this rate?
Keep in mind that as a freelancer or business owner you are responsible for paying taxes at the end of the year, paying yourself for vacations, and paying for your own health insurance. Make sure to take that into account and adjust accordingly. If the recommended rate seems too high, you’ll need to consider whether you need to adjust your expectations, offer more value, or price certain services at higher rates and aim to take on more high-paying projects. To answer those questions for certain, head to step two.
2. IDENTIFY YOUR VALUE
Before you settle on what you’re going to charge, you need to decide what you’re going to bring to the table. If at all possible, try to do this before looking around at competitors’ offers and rates.
Take out a piece of paper (or open a blank Word document) and start writing what makes your service valuable. For example, I offer one-hour nutrition coaching sessions for my clients, however, I also provide them with a personalized plan after each session and email follow-up between sessions. Each of these elements is a product that I spend my time on, and I include them all in my hourly rate.
You should also take into account my years of schooling or any additional pieces of training or certifications I hold that might make me a more valuable practitioner. Actually visualizing your selling points will help you consider honestly what your time is worth.
3. DECIDE HOW YOU WANT TO CHARGE
Now that you’re super clear on what exactly you’re offering, consider how to bill for each line item. If you are a graphic designer who offers logo design, will you charge per logo, or per hour of your time?
There are pros and cons to each, and the best decision will vary greatly depending on your industry and offerings. Try gauging how people in your industry work by asking friends or people in your network. If you’re feeling stuck, move on to the next step to help gain some clarity.
4. ACCOUNT FOR ALL YOUR TIME
When you own a client-based business, you inevitably end up doing work that you might not have accounted for in your original pricing structure. Surprise costs will come up when you first start, but it’s important to learn from, and account for, them in future projects.
For example, I prefer clients who are committed to working with me for six to twelve months, versus clients who only schedule a single session. A larger volume of short-term clients requires me to spend more time marketing, following up, and chasing payments—which is why I charge a higher rate for short-term clients.
Think about the time you’ll spend with your client, working for your client, and corresponding with your client (via emails, phone calls etc.), and make sure to account for that time in your price.
If you sense a client may require more hands-on time than normally required, pad your estimate to account for this. Ultimately, they’d rather have you bill them less than the estimate than getting hit with an unexpected increase.
5. STRUCTURE YOUR SERVICES
Decide exactly what it is you’re going to offer and make sure your communication is crystal clear. Your client should know exactly what their experience is going to be like during your time together and know exactly what they’re going to walk away with. Potential clients usually want to know exactly what they’re paying for.
Don’t be afraid to say no. If your client wants a service you don’t provide or requests your help on one item that you typically only include in a package deal, it’s alright to tell them their request is too cost prohibitive to take on. Especially in the beginning, it’s essential to say yes to as many projects as possible, but you still need to choose them wisely. Getting stuck in a time-consuming client relationship that prevents you from taking on more profitable projects can seriously affect your success.
If you’re uncertain about turning down a request, sometimes it helps to ask yourself: “I don’t want to do this right now, but what’s the price at which I just couldn’t say no?” Then, name that price to your client, even if it sounds too high to you. The worst case scenario is that they turn your estimate down—and you’ve dodged a bullet.
6. NAME YOUR PRICE
If you’re first starting out, I recommend keeping this super simple. Don’t give clients 20 different pricing options. Give them one or two.
For me, I allow clients to purchase a 1-hour session with me or to purchase a package of sessions at a discounted rate. That might not make sense for you, but keep in mind you don’t want to spend all of your time explaining your rates to potential clients.
At this point, go with your gut. What do you feel comfortable charging? If a potential client called you right now, what price could you name with confidence?
7. FACT CHECK AGAINST COMPETITORS
Once you find a rate you feel comfortable with, then go ahead and compare with your competitors. Most client-based businesses make the mistake of doing this step first, and it often clouds judgment.
Make sure you’re comparing yourself to competitors who are offering similar services and similar value. Take into consideration how long they’ve been in the field compared to you.
Once you’ve researched, you can tweak prices to align them with your competition or (my personal preference) find innovative ways to add value to current offerings. If a potential client notices you have higher prices, they will also look for added value.
8. MAKE SMALL CHANGES
Ever buy something for $29.99, yet couldn’t imagine spending $30 on it? Evidence shows that ending your prices in a “9” or a “7” could be beneficial when making a sale. If you’ve set your rate at $100/hour, consider making it $99 or $97/hour and see if that makes a difference in sales. Seriously.
Remember, prices can change. As you and your business grow, you can increase your rate or change pricing structures as needed (you’re the boss!). However, once you set your pricing structure, stand firm. You might have friends that ask you “you charge what?!” or you might have people tell you that you don’t charge enough. The most important thing is you feel confident in your prices and in your ability to deliver value that matches your prices. Now go get ‘em!