Most people price their services by guessing, then lowering the guess. A better price comes from three numbers: what you need, what the market pays and what the work is worth to the client.
Number one: your floor
Your floor is the lowest price that still works for you. Below it, every project makes your business poorer.
- Add up a year of business costs: software, equipment, insurance, accounting.
- Add the income you need to take home, and the tax on it.
- Count the hours you can actually bill. Not every hour is billable. Sales, admin and learning take a big share of the week.
- Divide the total by your billable hours.
An example. Costs of 8,000 dollars, plus 60,000 of income and about 20,000 for tax, makes 88,000. If you can bill 1,000 hours a year, your floor is 88 dollars an hour.
That number is not your price. It is the line you never go under.
Number two: the market
Find out what others charge for similar work. Look at published prices, ask peers, and ask clients what they paid last time.
You are not trying to match the cheapest. You are finding the range. Then decide where you sit in it, and why. Specialists, faster delivery and better proof of results all justify the top of the range.
Number three: the value
Ask what the work is worth to the client. A website that brings in leads, a contract that avoids a dispute, a system that saves ten hours a week. Each has a value much larger than the hours it took you.
You do not need an exact figure. You need to know whether your price is small or large next to it. If your fee is a tenth of the value, you have room.
Hourly, per project or a monthly fee
- Hourly suits work where nobody knows the scope yet. It also caps what you can earn.
- Per project suits work with a clear result. If you get faster, you earn more.
- A monthly fee suits ongoing work, such as bookkeeping or support. It gives you steady income.
Many service businesses start hourly and move to project prices as they learn how long things take.
Write the price down, with what it includes
- Name the result, not only the tasks.
- Say what is included and what is not.
- Say how many rounds of changes are included.
- Give the price as one clear number.
A price without a scope invites arguments later. A clear scope also gives you something to cut when a client wants to pay less.
When a client pushes back
Do not drop the rate for the same work. Offer a smaller version instead: fewer pages, fewer meetings, a first phase. That keeps your price honest and still gives them a yes.
If your price has been too low for a while, the next step is raising prices without losing customers. And once the work is done, make sure you get paid on time.