3 Pricing Mistakes Freelancers Make
Pricing Hourly Rates Like an Employee
Many freelancers get started by setting an hourly rate for their clients. It seems like a simple and logical way to charge - everyone understands the concept of trading hours for pay. But the problem is, new freelancers forget they aren’t going to receive the same benefits an employee does like health insurance, retirement investment or matching, and taxes withheld from their checks. If you are swapping a job for freelancing, setting your hourly rate based on what you made in your job is a good way to kill your business from the start.
A much better way to price your services as a freelancer is in packages. This helps you provide great results to the client and allows you flexibility in how you get results. Regardless of how many hours it takes you, you will still be paid the same amount. So when you’ve been doing this a while and have gotten really efficient, you won’t be penalized for your expertise - instead you’ll be rewarded for your optimization of providing your services by making the same income per package while being able to deliver the results with less work.
Not Including Taxes, Processing Fees, or Business Investments
Setting prices based off of your competition can also be tempting but can be a path to losing money instead of making it. Your first step in deciding what you should charge should be to understand your own numbers.
How much money do you need to make to cover your monthly living expenses?
How much money do you need to cover your business expenses?
Don’t forget to include saving for your annual tax bill, calculating for processing fees for online payments, and saving for investments you want to make in your business such as new software, an assistant, or more advanced equipment.
When you know what your baseline you need to make to cover expenses is, then you can calculate how much time you have to serve clients, how many clients you should take on, and how much you need to charge each one to pay yourself and cover your expenses.
Then if you feel the need to, you can check the competitor’s pricing. But remember- you don’t know their numbers. They may be offering a price that isn’t profitable!
It can be a bit scary to sit down and look at the financials, but an even scarier feeling is completing a project for a client and realizing you lost money on it. Remember, this is a business, not a hobby. You need to be able to make an income and feel secure in the money you have in the bank or you’ll never get out of survival mode and be able to grow.
Nickel and Diming Clients with Hourly Rates and Price Increases
Discussing money with clients is NEVER the fun part - for you or for them. It’s necessary, but wouldn’t you rather discuss results, strategies for success, and optimizing the way you work together?
This is another reason I recommend charging package prices. This allows you to get the money conversation over with when you start and never have to visit it again (so long as they pay on time!). By setting a package price, you never have to submit an hourly bill and feel like you need to justify the value you provided with the hours you worked. The client will always know how much they owe you every month and can budget accordingly. Setting package prices means there are no surprises because packages require you to be clear about the deliverables up front for the agreed price.
And how about when you need to increase your prices- either because you have increased the level of skill and value you are bringing clients, or its time to grow your business in new ways? A price increase discussion is one of the most challenging things to do as a freelancer. That’s why, I almost NEVER do it! That might sound a bit “chicken” but it’s actually served me really well in my business. When I started out working with my first client, I quote her a price that I knew was fair to both of us and that I could feel good about charging for years to come. She took a chance on me as my first client and I’m grateful to her for that, so it’s my honor to continue to serve her at the original price point.
But price increases do have to happen occasionally. So I make this work for my business by increasing my prices for new clients. Whenever I take on a new client, it will almost always be at a higher price point than I took the last one on for. Why? Because I have grown my knowledge and skills since I took on the last client and I also have a more limited about of time, so my time is not at a premium. This may sound like a strange concept at first, but it truly helps you serve your clients with the best value while growing your business.
How to Price Your Freelancer Services for Business Growth
Lastly, it’s important to set your prices just a tad higher than you feel really comfortable doing. This allows you to grow into your prices instead of growing out of them. This also will make you a better business owner because it will get you to a point of financial security. It is so much easier to make sound judgment calls as a business owner when you come from a space of safety and abundance instead of scarcity and survival.
You can find support, resources, and guidance in our Facebook group Purposeful Scaling Freelancers as well! This is a free community of people committed to starting or growing their freelance business to support their ideal lifestyle, bring them purpose, and provide an income.
