Get two freelancers in a room and at some point they’ll be talking about estimating and pricing their services. Get two agencies in a room and at some point they’ll be talking about estimating and pricing their services.
For the most part these discussions are helpful to all involved. Each party picks up a few tips from the other and they go off to produce stronger estimates worth just a bit more that yield better profits for their business.
Underlying each discussion are two fears, though. The first is imposter syndrome which will rear its ugly head. It causes people to fear they’re charging way too much but aren’t worth it, and everyone is about to find out. This is rarely the case.
The second fear, funny enough, is the direct opposite. It’s the fear of under-charging but being worth much more. This is quite often the case, and more so the earlier a person is in the life of their business.
Learning to price properly is one of the things you can do right now to run a better business.
The biggest mistake
The biggest mistake that 99% of business owners make is not valuing the work they provide for clients. Remember what you do is hard enough as to be considered wizardry to almost all of your clients. I can’t think of a time when I’ve consulted a business owner and been shocked that they’re charging so much. I almost always tell them to raise their rates because they’re worth more than they’re charging.
You’re likely in the same boat.
The second biggest mistake businesses make is charging based on the hours they put in on a project. You don’t get paid for butt-in-seat time — you get paid to solve problems for your clients. Charging hourly means you quote some rate for your services and then the prospect does terrible math to guess how long the job will take you and how much that’s going to cost them.
This terrible math always favours those who charge the least and results in a race to the bottom. Where you may have 10 years experience and be able to do the work in one hour, your higher rate is getting compared to someone with one month experience who will take 10 hours to do the same job.
The longer you’ve been doing the job and the faster you are the less advantaged this math is to you. Don’t charge hourly is the best advice I can give anyone starting their business.
Price based on value
If you can’t charge hourly, then how do you charge for your services? You should be charging based on the value you provide. Another way of saying it is, you should be pricing based on the value of the problems you solve.
Unsticking a toilet that’s not leaking is of much less value than fixing a toilet that’s leaking everywhere and wrecking a beautiful hardwood floor. For one, you’re willing to wait a day or two for the plumber to have time. For the other, you’re willing to pay way more to have the problem fixed now.
The same thing works with your clients. If you can solve a big problem, like increasing their sales, you can charge a bigger price. If you’re solving little problems that aren’t huge pains, then you can only charge a little.
Now I know you want to earn more but that starts with positioning yourself and writing great proposals. We’re going to talk about how to write a great proposal on Friday in my podcast. If you aren’t subscribed, go get the Smart Business Show on iTunes or Stitcher or you can jump the gun and get my book Write Proposals That Win Work.