The Freelancer Pricing Conundrum

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Whether you’re looking to get into freelancing, or in the thick of it, there always exists the topic of rates a freelancer should charge for his/her work. People adopt various methods of pricing their service, from hourly rates to one-time project fees. But how do you price yourself just right so you’re not too expensive and you’re not too cheap? Should you undercut the current market and work in bulk, or should you charge a little higher and take on less projects? After all, two of the great successes in retail are ASDA (for you Americans, it’s owned by Walmart) which is a supermarket which aims to keep the lowest prices possible, and Selfridges & Co, one of the much more expensive luxury stores in the UK. Well, let’s dig a little deeper into the topic and see what we can uncover.

The Client’s Psychology

Clients are people, and we as a people are very prejudgemental in our everyday lives, whether that be subconsciously prejudging the mindset of a person from their outward appearance, or prejudging the quality of a piece of clothing from its price tag. There are a lot of external factors that have no real effect on the issues that matter to us, but are considered subconsciously by the mind without us even knowing it. As a freelancer, you could use this to your advantage (in a non-malicious kind of way!)

Usually when a person asseses the price for a service when attempting to put a value on it, they will attempt to associate it with the “quality” of the work/product/service in their eyes. For example, if they feel that the end product(s) from your portfolio are better than the competitions’, then they are more willing to pay a premium for the service in mind. If however, they feel the end product is not of a high enough quality they will be less willing to pay a premium for it. This however, also works in reverse when it comes to the prejudgemental nature of us human beings.

Subconsciously, if we see a product or service with a high price tag, or “better” outward appearance (in terms of branding), we usually think it is because that product is of a very high “quality” (and I’m deliberately using speech marks here). This is rather deliberately triggered in our heads with all the subliminal marketing campaigns that go on in society on a daily basis. Therefore, it may well be a good idea to price yourself higher, in order to portray yourself in a better light. Pricing has a lot to do with establishing a quality brand.

So putting this all into the perspective of a freelancer, you could well be charging higher than the competition, establishing yourself as “quality” and therefore reap the benefits in terms of being able to charge more for your work.

If we further explore this mindset, you do come to realize though that your pricing also should rely heavily upon whom the client is – and not for discriminatory purposes. If you’re pitching to a business owner, then they’re inevitably going to be price-savvy and be looking for the best deal possible for work of a good standard (and that’s not to say the tactic won’t work at all); however, target the common individual and you could leverage this psychology and charge more for your work in order to increase your income and establish yourself as a quality brand.

You could also take the opposite direction, charge less, and in turn by my predictions attract a lot more business clients rather than what I’ve referred to as the “common individual”.

The Economics of Pricing

The economics of pricing is very important in the freelance-industry. Immediately, I hear you crying “but I didn’t pay attention in Economics classes!” – well, maybe you should have.

It’s a very basic concept which shows that there is a inversely linear relationship between price and amounts sold or in this case, number of pitches accepted. This means that as price increases, the number of pitches your clients are likely to accept are lower and vice versa. Simple – but again in such an industry this can be manipulated using the techniques described previously. It’s just something to generally think about when pricing as a general rule with a “bog-standard” product/service when quality of work is not taken into consideration.

I would put up a nice little graph to illustrate this point, but what the heck, it’s not hard to understand.

Hourly Rates

What I’ve covered so far has mainly affected the actual price you want to charge for your freelance services, but, how will you structure these charges? Well, hourly rates are a very good way to go about it. Why? Simply because it gives you a solid price structuring that you can always rely on instead of having to come up with a price per project. Again though, this has its disadvantages. In order to obtain a higher income, the only ways to do this would be to increase your hourly rate (which is a difficult step which could have great negative/positive effects) or work for longer periods of time. To me, this really goes against the “freedom” principles of freelancing if you were to take the latter step, as one core advantage of freelancing is being able to earn a good income with less hours of work in comparison to the typical 9 to 5 jobs.

Per Project-based Pricing

A lot of people think that per project-based pricing is something that is decided from midair. No. It is also based on hourly rates, but loosely. A good way of pricing per project is to first estimate how long a project is going to take if worked on at a decent speed (in hours – making sure the estimate is conservative) and multiply that by how much you wish to earn from doing the project per hour. You’d then add on certain premiums such as costs, and other extras.

What’s the difference?

So what’s the difference between per project-based pricing and hourly rates you ask – well, the answer to that is effort. When conducting the hourly rates method, you’ll be paid directly dependent on how long you took to complete the project. On the other hand though, per project is based on a conservative estimate on how long the project would take, and therefore allowing you to reward working more efficiently.

Just take a look at this example:

- John works on a fixed amount per hour.
- Linda works on a per-project basis.

John conducts his work at the rate of $40/hour. The project takes him 10 hours to complete, and therefore he sends an invoice of $400 to the client.

Linda estimates that the project will take 14 hours to complete (remember, it’s a conservative estimate). She wants about $40/hour whilst working on the project. She decides to multiply $40 x 14 = $560, and therefore prices the project at that amount. She then invoices the client at that price. Linda decided to work very efficiently and focus on the project and therefore gets it done within 10 hours.

If we do the maths, effectively Linda was paid $56/hour for the services she rendered, whilst John was only paid $400.

There are obviously a lot of factors which affect each situation that have not been considered in this case, but you get the general jist of things.

Conclusion

So, how do you think pricing should be decided upon? Do you have a particular formula in mind? Let us know your thoughts on the topic via the comments section below.

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