If you’ve ever been to a good sushi restaurant, your initial thought when you looked at the menu was probably, “That’s a bit pricey.”
It’s true — well-prepared, aesthetically-presented sushi is not cheap. But why should it be?
When you choose to go to a nice sushi restaurant, you’re not just paying for the base ingredients in the food. You’re paying for the overall value you receive. The quality of the food, the experience you receive in the restaurant, and even the chef’s expertise in how to properly prepare sushi (a craft in and of itself) are all part of what you pay for at this type of restaurant.
Similarly, although We’ve been taught as freelancers to think that the way to price ourselves is per hour or per project, we should be thinking of value-based pricing instead.
This is actually a more accurate pricing system for freelancers, because once you take all of your client interactions, past experiences, applied efforts, and end results into account (not to mention the quality of your work), you’re no longer dealing with just minutes of your life.
You’re dealing with a person whose services are more valuable than a clock can determine.
Time-Based Pricing Only Goes So Far
At the beginning of your freelancing career, pricing your services according to time makes sense. After all, it’s easier to keep track of your business expenses and income down to the last cent, and helps you figure out your work habits, like how long it typically takes you to finish a project.
Time-based pricing also keeps you well aware of those bills starting to stack up.
But there comes a point where those bills start to pay themselves off more consistently, and you’re not as worried about making ends meet. You realize you need to start earning more, so you can take your business to the next level.
This is when you need to pay attention to your value and not just “what it takes to make it.”
Sure, you can keep telling yourself that it makes sense to charge per hour because you’re still earning what you need to live, and all you need to do to earn more is charge more so you have a higher hourly rate. And of course you can keep telling yourself that it’s okay to provide a quote based on how long you think the project will take you.
But you’ll just be delaying the inevitable meltdown.
Unfortunately, freelancers who make the common pricing mistake of charging per hour tend to run themselves into the ground, because they’re the ones most likely to undervalue their own work. They think, “If I want to make this much, I should work this many hours, so the project’s worth this much.” They position themselves as nothing more than the individual parts that make up their services, like sushi’s ingredients versus the entire sushi restaurant experience.
This often means they get stuck with trying to finish a project within the timeframe they quoted to avoid it lowering their hourly rate, or having to deal with clients who try to push them to provide extra services free of charge (scope creep). Or, even worse, they have to deal with the fact that the client could have paid them a lot more money because their work provided so much value.
As an example, let’s say your typical rate is $75 an hour, and you think a client’s project will take you 30 hours, so you charge $2250. But what if the project actually ends up being worth far more than that to your client, say, $5000? You would have lost over $2700, more than double your quote for this client.
You don’t want to deal with this your entire life, do you?
Then start paying attention to value.
Figure out what to charge based on the value you’ll provide to your clients. Be aware this value could look different to each one; a 30-hour project may only be worth $5000 to one client while another would gladly pay upwards of $25,000.
This is why pricing on value, instead of an hourly rate, is so vital . It’s your “get out of jail free” card.
There’s a Value to Value (Seriously)
“Now wait a minute,” you might be saying. “Who’s going to pay for some hypothetical value I claim I can offer clients?”
You’d be surprised how much people are willing to pay for value. If something’s hard to obtain, make, or duplicate, it’s considered valuable, exclusive almost, and people want it. That’s why they pay out the butt for diamond engagement rings, and it’s also why foodies are willing to plop down a good chunk of cash for an unforgettable sushi experience.
Just as people will pay for value, so will clients.
This means you need to stop thinking of your services as the amount of time you put into them, and instead think in terms of the overall value they will bring to your client.
If you’ve got that track record of providing useful ideas to your clients which they implement and consequently earn more than expected, you’d be surprised how many people will want to hire you when you position yourself as a freelancer who brings results and value no one else can. After all, you’re basically providing them a diamond ring or really good sushi in a really nice restaurant.
You wouldn’t want to undercharge for those items, just like you wouldn’t with your own services.
Don’t Underestimate the Value of Your Services
If you’re still worried about switching to value-based pricing, cut it out.
You do need to pay your bills, of course, but you also need to treat yourself like a professional if you expect others to do the same.
Once you’ve paid your dues with time-based pricing, sit down and analyze everything you’ve learned about yourself, your business, and your clients. Price your services based on the value you’re bringing to them, and they’ll gladly refer you to new ones who will pay the fees you’re asking. In other words, your name will start going around as the expert freelancer people are looking for.
However, don’t accept an offer you know isn’t worth your time or stress. If a client wants you to design a website for $20,000, for example, but they have demands you think are going to take you a lot longer than a typical $20k contract looks like for you, negotiate what you can offer them value-wise for that price. If they don’t like it and still want to undervalue you, just move on. Some other client will be more than happy to accept that same offer.
If you treat yourself like a professional and value your work, clients will be coming to you, and the fear of moving to value-based pricing won’t have been justified in the least.
Make the Transition to Value-Based Pricing
Just like a sushi chef has to continually practice making high-quality sushi, it takes time and experience (and less and less instances of you doubting yourself) before you’ll figure out how to better price the value of your freelance services.
That’s okay, as long as you make the transition from time-based pricing to value-based, because staying in the time-based system is just silly if you’re serious about your work.
Once you’ve made the transition, don’t let anyone make you feel like you’re less than your asking price. You’re a professional with your own business, after all, and a valuable one at that.