The Great Mystery Revealed: What Should I Charge My Clients? Part 3

Posted: April 28th, 2009

This is the third of a four part series where we explain the science of determining your freelance rates. Today’s post will cover putting a competitive price on projects and maximizing your earnings.

Alright, now we get down to the nitty gritty on pricing your projects. This will be a little complex but I’ll try to simplify things as best I can in Layman’s terms. Putting a price tag on a project can be broken down into three parts. I’ll explain each one in detail which are as follows:

  1. Research in your market and finding a price for your services
  2. Analyzing your income potential and determining a project price
  3. Optimizing your pricing

Research in your market and finding a price for your services

In the last post, we determined your hourly rate and your break even rate. We’re not ready to start pricing just yet though. One thing I want to remind again, too, is that we want to steer clear of coming up with a project price by multiplying our hourly rate by the time we think it will take to complete it (the reasons are explained in part 1).

What we want to do instead is do some research into what others are charging for the similar services that we are doing THEN calculate if this will be profitable for us by keeping in line with our hourly rate. First, we’ll take on the research.

The best places to research what other freelancers are charging are the major freelance job boards such as oDesk, Guru and Elance. Instead of searching the projects available, you can actually search for freelancers that work in your field and by keywords of the type of project you are doing (i.e. tech writer, PHP programmer). The really handy part is that these profiles have available the projects that these freelancers have completed along with the amount they charged for each one.

Also don’t just settle on the first project that matches yours and think this is what you should be charging. The point is to keep digging and find up to ten similar projects (from different freelancers) and come up with an average from all of them. Though this may be a little time consuming, you can more accurately gauge your market price this way.

Now we can take this result to the next step…

Analyzing your income potential and determining a project price

Now that we have a fairly good market price for a service you provide, it is time to see if this will be profitable for your business. The next step is to calculate the exact time you will need to complete it. It’s recommended you take a little more time with this than usual since a common mistake is to underestimate this. Also, if your project is rather large, it may be beneficial to add another 10% – 15% on top of your time estimate for some overhead (since you almost always need it).

Take your project price from Step 1 and divide this by your time calculation to get the project rate. Compare this result to your hourly rate. This will result in one of three possibilities:

  1. The project rate is higher than the hourly rate. This is the ideal situation and indicates that you have a profitable project. If you can come up with ways to streamline the project to complete it in less time, then you want to keep this service as your bread and butter when looking for future projects.
  2. The project rate is equal or about equal to the hourly rate. This is still not a bad situation but your earnings will not be in line with your income goals for the year (remember, all your billable hours for the year will not likely be used on billable work). If you can find ways to complete this project faster, this could end up being profitable in the end and a part of your arsenal of services.
  3. The project rate is lower than the hourly rate. If this is the case then best to ditch the estimate and find a different project with a another service you can provide and starting Step 1 all over again. If you run out of projects to bid on, have no projects lined up or are looking for work fast, then you may want to consider bidding. After all, you don’t get paid not doing work.

You are finally able to price a project.  Time to keep in mind the following rules:

  1. Do not ever quote hours or make mention of them on any project estimate. Always quote a fixed price.
  2. Sometimes you will be asked your hourly rate which you should then disclose. Only do this when asked, though.
  3. If asked for hours for a quote, however, on any project then always reply with a fixed price.

The reason for these rules is that we do not want to deceive our clients by telling them we are charging them X dollars for X amount of time while the actual figure will ideally be higher for your freelance business. Remember that your goal is to provide a service that you can do quickly while charging a market value that is both fair for the client and profitable for you.

In achieving this, your project rate will continue to climb which does not look so good when known to your clients.

Optimizing your pricing

Regardless of all the work that goes into pricing a project (from the previous steps) it will not guarantee you winning any project. A general rule is that if you win a high percentage of projects (50% or more) then you may want to think about raising your project prices in 15% increments. If you are not winning any at all, then lower project prices in 15% increments until you start winning them.

Be aware that this is a very inexact science. You may wish to bid high on many projects to win one that pays more. Or you may want to keep your bids lower to spend less time bidding on projects and more time working. Time and income tracking can help you see what is actually working for you.

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In the next post, I’ll explain two other important tasks, tracking time and tracking income, to make sure you are on track with your income goal (and keeping your hourly rate in check as well).

More on the author, Johnny Spence
Johnny is the founder of The Freelance Rant and a freelance web programmer with 8 years in the business. Have a visit at his company Oscarrr!web or see what he's up to on Twitter.

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