3 Deadly Traps of Bid Pricing

Posted: May 26th, 2009

Last month, I did a series on what you should be charging your clients, however, I forgot to mention some pitfalls that freelancers frequently fall into when coming up with a price for a project. Methods aside, other factors such as fear of not finding work or perceived work shortages tend to cause us to resort to desperate pricing in order to win projects.

This couldn’t be a bigger mistake. To come up with a fair price on a project for both you and a client, you have to keep three things in mind at all times.

#1 Deadly Trap: Not knowing Your Market Price

Your clients are likely do do some shopping around plus they can get a general idea of what price they will pay just from the bids they receive from any project. Its your job to do the same also. Keep in mind that we are not talking about your hourly rate here, but an X dollar amount for a particular service you offer.

By not knowing the pricing in your market, you essentially guess at your pricing which may cause you to underprice and potentially leave money on the table. You may also overprice and virtually guarantee you will not win any bid. It pays to do the research and know exactly what your services are worth on the market. You can view the previous post on how to do market research here.

#2 Deadly Trap: Not Believing in the Law of Averages

For those unfamiliar with the law of averages, you will notice over time that a fairly fixed percentage of bids will be won. For example, after bidding one hundred times, you may win ten, twenty or even thirty of them. While the actual percentage of bids won is irrelevant, it is important to keep number in mind when determining your bid price.

The reason is that you may eventually hit streaks where seemingly no bid you make is accepted. What most often follows is that pricing is lowered on successive bids in hopes that a new client will bite and accept. Big mistake. The proper reaction to a cold period is simply look for more work and make more bids. The slow streaks tend to be followed by a return to bids being accepted and even hot streaks.

Of course, the percentage of your bids that are accepted are dependant on other factors such as how you write the bid and shifting market conditions for your type of service. The law of averages, however, does tend to hold true to its meaning when it comes to the number of bids you make. So use it to your advantage.

#3 Deadly Trap: Settling For Less Than Your Market Price

Most freelancers are aware that there are other freelancers that offer the same services you do for far less than you are willing to accept. It doesn’t have to be said that there are also many companies, individuals and small businesses seeking them out.

What many freelancers do not realize is that, while they do have an effect in lowering the general market value, many times they do not provide the quality of service that businesses need. Many of those hiring for cheap services have even been burned by cheap freelancers and end up paying more in the long run to get the service they want.

Bottom line is that there are many out there who do know the value in what they are getting by paying more for freelancers adhering to the old saying “you get what you pay for.” Sure, you will have to work a little harder and submit more bids to overcome the cheap freelancer seekers. You eventually will find those clients that will pay your price though.

When It Is OK To Lower Your Rates

There are times when lowering your bid pricing can actually be a smart business move such as:

  • A prospective client that may have the potential to be a long term client
  • A project comes along that would be impressive for your portfolio
  • Offers on your services to drum up more business.

Of course, use your discretion here. A discount of 50% may be pushing it but 10% – 20% will keep you earning a reasonable amount.

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.

Comments are closed.