One of the biggest challenges for new freelancers is pricing.
Pricing projects isn’t easy. There are plenty of factors that come into play:
- How long will the project take?
- How clear are the client’s requirements?
- How well do you know the client?
- How likely are they to stay on course?
- How likely are you to get future work from them?
- How experienced are you on these types of projects?
- How valuable is the project to you?
- How valuable is the client to you?
- How busy are you with other work?
And then you also have to decide how to charge: hourly, fixed price or on retainer? Or a combination?
Estimate Project Lengths as Accurately as Possible
Estimating how long a project will take is the key to pricing it well. If you can’t estimate the length of a project you’ll never come up with a fair price, and more than likely you’ll end up losing.
You can consider an endless number of factors when estimating a project, including some of the questions I’ve listed above. For example, if you’ve done many similar types of projects, you’ll have a better idea of how long the new one will take. If you’ve worked with the client in the past, you know their tendencies and can anticipate pitfalls.
No matter what you do, always add a buffer.
It doesn’t matter if you’ve worked with the client before, know exactly what the client wants, and have done the same thing a thousand times before. Buffer it.
The size of the buffer you use is up for debate, but I’d generally increase your time estimate by 15-30%.
If you have to increase it much more than that because of concerns you have over the project (i.e. fuzzy guidelines, sketchy client, etc.) then reconsider the project completely because it could end up biting you in the rear.
Projects almost always take longer than you expect, so buffer your estimates each and every time.
Whether you choose to charge for that buffered time estimate is a different story, but generally, I would recommend that you do so. And clients should expect that to be the case.
The warning signs of a potentially bad client include:
- Wishy washy requirements.
- Poor communication skills.
- Unwillingness to follow early recommendations you have.
- Unwillingness to answer questions about the project’s budget.
- Always trying to undercut.
- Unwillingness to pay something upfront.
- Constantly promising bigger and better.
These indicators aren’t absolutes. But keep an eye out for them anyway. On the last two points, I’d add the following:
- Always get money upfront. Especially from new clients. Stick with a simple structure: 50% upfront, 50% upon completion of the project, or 33% upfront, 33% midway (agree on this point in the project before), and 33% at the end.
- Be wary when clients promise lots and lots of future work. I realize this sounds very pessimistic on my part. I am a huge fan of building long-term relationships with clients (one off clients aren’t the most rewarding or profitable!) But, if a client is “bribing” you to lower your price because they’ve got “tons of work in the pipeline” be very, very careful. Even if they do have a lot of upcoming work, once you’ve set a price for the first project it’s going to be hard to raise that price later on.
How Should You Charge: Hourly, Fixed Price or Other?
I’ve always been flexible on this, adjusting my pricing approach on a project-by-project basis. Generally, I prefer fixed price projects, and so do clients, because they have the clearest sense of what the cost will be. You can also buffer fixed price projects better, because you’re not asked to justify every hour in your estimate (nor should you have to.)
Fixed price projects also help you manage your own finances – you’ll have a clearer sense of what revenue is coming in and when.
Even with a fixed price project, you’ll need to base it off an hourly rate (even if you don’t reveal the hourly rate to the client.) So it helps to have a sense of what the going rate is in your industry.
I’m a big fan of retainer projects. Most retainer projects are monthly. They’re great because of the consistent revenue and the ability to build long-term, positive relationships with clients.
When Should You Negotiate Price?
Everything is negotiable. But you should know your own parameters and conditions for negotiation. When are you comfortable negotiating price, and why? Some things to consider:
- Your current and upcoming workload. The busier you are, the higher your prices should go. It’s really as simple as that. Having said that, even if you’re desperate for work, be wary of dropping your prices too far. You don’t want to look cheap, and you’ll have a hard time bringing those prices up, later on.
- Name recognition of the client. You may consider lowering your price because having the client on your client list is a real win. And truth be told, big companies negotiate just as hard as small companies on price, even if they have the budget — they also have the power. There is something to be said for name recognition, but don’t put too much weight on it.
- Profile of the project. A high profile project that will generate a lot of buzz could be valuable, but make sure the project will be high profile amongst your targeted prospects. Otherwise, your return on investment (i.e. taking a lower price) will be minimal.
- The “fun” factor. No one wants to work on boring projects, but freelancers do it all the time to pay the bills. Some freelancers even call that work their “bread and butter.” Then a fun project comes along and they’re willing to slash their prices to do it. I must admit, out of all the reasons you might lower your price, this is one of the better ones.
- The “cause” factor. When a project has real meaning – a “higher cause” or purpose – you might decide to reduce your rates. After all, a little good karma never hurt anyone…
Ultimately, you have to decide how flexible you want to be with your pricing. Be careful about negotiating too much — if you drop your price 30% or more from the original estimate (without the project scope changing in parallel) it might look like you were trying to price gouge before, or you could end up losing money. You lose money on freelance projects when you book yourself too cheaply and can’t make more money on other projects and opportunities that come your way. If you do a project for 6 months and earn $5 you’re losing money, because you could have and should have been earning much more.