The price is right! Pricing options for freelancers
Freelancers worldwide are united in their effort to resolve the one dilemma they face now and then, “How to charge clients for the work done?” While there are numerous approaches to price yourself, there’s no one-size-fits-all solution. More often than not, it may feel like walking a tightrope – choose the wrong method, and you may end up doing more than what you are being paid for, or worse, making the client unhappy with exorbitant billings.
There are two broad pricing approaches for freelance professionals – time-based and value-based. If the extent of work is approximately defined, and the customer has progressing needs, a time-based billing methodology bodes well. On the other hand, if the scope of work and course of events are accurately determined, a fixed-price or value-based billing methodology is the better choice. Each approach can be further broken down into various pricing options.
Let’s explore further.
Pricing methods for your next freelance project
Below, we have discussed the two broad methods you can use to price your project as a freelance professional, available pricing options, and the pros and cons of each method –
A. Time-based pricing
1. Hourly rate
Working at an hourly rate implies you charge the customer as per the number of hours you work for them. Hourly rates are a regularly utilised pricing option among specialists around the world. Hourly estimating is a decent technique for loosely defined projects where clients aren’t sure about what they need.
The advantages of using an hourly rate:
- It’s a lot simpler to price than attempting to work out the whole worth of a project.
- It turns out incredibly for approximately defined projects where the scope will probably change on different occasions.
- It gives you the flexibility of charging more if the work takes longer than anticipated.
The disadvantages of using an hourly rate:
- You’re incentivised to take as long as feasible and get punished for quick, efficient work.
- As you gain more experience in the field, you risk hitting a price roof and quoting an hourly rate that is too high and may drive away potential clients.
- There is limited earning potential. There are only so many billable hours in a week, month, or year. In the long run, you’ll hit the ceiling and find it challenging to earn more with an hourly pricing strategy.
2. Daily rate
When you set a daily rate, you are charging clients for each full day you work (This could be a traditional 9-5 or 8 hours of work based on the company policy). Daily rates are typically used while outsourcing for large multinational organisations regularly.
The advantages of using a daily rate:
- It’s straightforward to compute for the freelancer and easy for the client to predict.
- Because the specific hours performed aren’t usually disclosed, you may be able to charge a greater rate.
- Cost estimations are more accessible and precise when measuring by the day rather than the hour.
The disadvantages of using a daily rate:
- Earning potential is limited as each year has a maximum of 365 billable days.
- You’re rewarded for taking as long as you can. However, it’s immoral to bill for an 8-hour day when you’ve only worked four.
- The work is still based on an approximation, and if it takes too many days to complete, the client may be left unhappy.
3. Monthly retainers
A monthly retainer agreement specifies a fixed amount that the client will pay to retain your availability, whether they need your services or not. A retainer fee is usually paid upfront.
The advantages of using a monthly retainer:
- It’s pretty straightforward and predictable for both you and the client. Retainers are simple to renew and a great way to build long-term, consistent revenue for your freelance business.
- Because of the shift in perceived worth, you may be able to charge a far greater rate. For the client, Rs. 80000/month may appear to be more valuable than Rs. 400/hour.
- Estimates aren’t required. The client might commit to a certain number of months in advance as needed.
The disadvantages of using a monthly retainer:
- Clients may not be comfortable paying to retain your availability if they can’t predict with certainty the kind of workload they’ll have for you. Most clients only want to pay for the time you actually work.
- You’d be reserving availability your clients may eventually not need while holding back from doing other paid work.
- Again, there is limited earning potential as there are only 12 billable months each year.
B. Value-based or Fixed rate pricing
Fixed-rate or value-based pricing is based on the value of the project to the client’s business, not the time it takes you to complete it. Fixed-rate pricing is best for experienced freelancers who charge very high hourly rates to reflect their actual market worth. It’s also ideal for small projects that occupy little of your time but have high value to the client.
The advantages of using fixed-rate pricing:
- It eliminates time tracking by focusing entirely on the value of the solution being provided.
- It provides unlimited earning potential. The more valuable your solutions are to the businesses you work with, the more money you’ll make.
- The client knows exactly how much the project will cost before you start, giving both of you a sense of peace and confidence.
The disadvantages of using fixed-rate pricing:
- Deciding on your price can be complicated – you’ll need to be able to estimate how long the project will take before you set your price.
- Requires sophisticated conversations about sensitive financial information in addition to powerful persuasion techniques.
- If the project takes longer than expected or the client throws in additional requests, you’ll either need to renegotiate for a higher rate or accept the pre-decided one.
While you settle on a pricing option, don’t forget to charge what you’re worth!
Deciding how to price a client project is a complex task. It’s crucial to understand the client’s needs and assess the pros and cons of the different pricing options. While each pricing method is excellent on its own, choosing one is subjective to the kind of project you would be working on. A project manager will have a different set of requirements than a java developer, which is why, once you understand the project, you will be able to choose the best pricing method. That doesn’t necessarily have to be the same for every project.
And while you settle on a pricing option, don’t forget to negotiate your freelancing rate (daily, hourly, or monthly) or fees (fixed price), adequate to compensate you fairly for the job at hand while helping you build repeated business with the client. You can also go through our insights on “How to negotiate prices as a freelancer” to make positive changes to your negotiation style and ensure you get your merited pay.