The idea that you have to exchange your time for money holds many freelancers back throughout their careers.
Hourly pricing is the most popular way freelancers quote projects. It’s simple and feels like the most effective pricing strategy. You are hired to complete Project X and it will take you Y hours. Your hourly rate is Z, so you charge Y x Z and the project is done.
That’s okay at times, especially in the beginning when you are gaining experience and building your portfolio. Yet, as you become more skilled, the time it takes you to complete tasks will decrease, while the quality of your work will increase. As you become more and more of an expert with a proven track record of helping clients, your fees shouldn’t drop.
So if you stick rigid hourly pricing, chances are you will soon start to punish yourself for getting better and more advanced, rather than rewarding your growth.
The case for value-based pricing
Value-based pricing sounds compelling to many freelancers, however, once they hear about it, very few actually get on board. Many freelancers are so used to hourly-based pricing that they are fixated on a mindset of trading time for money, rather than value for money. So they feel guilty, or assume it’s unethical to charge more for a project that didn’t take them very long to complete – despite the value they have created for their client.
Hourly pricing is so popular simply because it’s the easiest way to keep tabs on a project – not because it makes sense.
Another popular objection to value-based pricing is: If you get better and raise the quality of work, you should simply raise your hourly rate accordingly. Blair Enns, the author of Win Without Pitching Manifesto suggests:
“It’s not just a matter of charging more or raising your rates, rather it is recognising the circumstances around your products and services and then positioning for maximum value for you and your clients. “
Three pricing options for freelancers
Let’s quickly review the three main pricing options for freelance services, and what they mean in reality:
1. Hourly pricing
Hourly pricing is based on the inputs/time you put in to complete a project. For example, a client wants to hire you to update their website. You have your hourly rate, and usually, clients will ask you for a time estimation so they can get a rough cost estimate.
2. Project pricing
Project pricing is based on the final output. If we stick with the same example, the deliverable here is an updated client’s website. So by selling the deliverable here, instead of your time, the client will pay a fixed sum at the end, whether it took you 3 hours to do it or 3 days.
3. Value-based pricing
Value-based pricing is based on the outcome for the client and the value you have created. In our example, if you update a client’s website and that leads to an 800% increase in sales for your client, you have provided significant value. Blair calls it “the extraordinary value” and you set your price based on that, not the time it takes or the deliverable itself.
How freelancers can implement value-based pricing
Listen carefully to your clients’ needs and learn how to recognize opportunities where you can create “extraordinary value” for them.
If a startup is struggling to generate sales through their website and, as a result, are not hitting revenue goals, they don’t want to buy five hours of your time, they want you to solve the problem their business is facing.
In this situation, your focus is to provide an outcome for them, not work for a defined number of hours or merely deliver something that may or may provide results.
In contrast, if a startup wants you to write five articles for their blog to increase audience engagement, you are selling deliverables here (or the time it took you to create content), and therefore your price should be project or hourly based.
It’s important to understand the difference. Not every project will be suitable for value-based pricing, which is why recognizing the difference is crucial since it dictates the best pricing approach.
Final thoughts on value-based pricing
“The goal of value-based pricing is not to charge more—that’s merely a beneficial consequence. The goal of value-based pricing is to create an organization that is intently focused on creating extraordinary customer value.” – Blair Enns
When you make the shift towards value-based pricing, always strive for what Blair calls “a double thank-you moment” where you create massive value for a client, get paid for it, and your client is happy to hire you again and pay you what you are worth.
Alistair Webster is a creative director, marketing consultant and founder of FreelanceSuccess.co.uk, an educational platform designed to teach aspiring freelancers how to build sustainable, thriving freelance businesses doing the work they love. For the last ten years, he’s been working freelance – building businesses, and working with some of the biggest brands in the world – from Hotels.com, to the University of Oxford. He’s passionate about sharing everything he’s learned along the way, and sharing the exact steps he follows to launch new businesses, build multiple income streams and work from anywhere.
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