Making more money as a freelancer or small agency has nothing to do with getting more clients. I mean, that certainly doesn’t hurt, but it’s definitely the harder way to do it. Instead, if you want to start doubling your income, you need to focus on two things:
- Winning more of the projects you pitch
- Charging more for the projects you win
Fortunately, you can do both of those things at the same time, let’s show you how.
“You’re not charging enough”
If you’ve been in the game for long enough you’re sure to have heard this little nugget. We’re constantly being told that as freelancers or small agencies that we’re not charging enough money for our work. We’re “undervaluing” ourselves!
Okay, yeah, this is technically true but it’s neither the complete picture, or helpful in any way.
You see, it’s not about “charging more”… it’s about charging the most you can possibly charge WITHOUT losing the job. There’s an important difference.
Sure, I can increase my prices by 100% but I’m probably not very likely to win any work. Or rather, the % of pitches I win would negligible. In this case, the tradeoff of would simply not make financial sense.
Simply charging MORE is not the answer.
Start thinking in probability
To really make this approach work, you need to reframe the way you think about pricing and winning projects. We need to remove ourselves from the traditional freelancer mindset of “how can I win this project,” and start thinking about “how can I improve the likelihood of winning more projects at a higher rate.”
We need to start thinking about striking a balance between maximizing the probability of winning the project and maximizing potential profit per project. If we can find that sweet spot, we’ll be operating at near optimum efficiency.
So how do we give ourselves the highest possible likelihood of winning the project while also charging more money?
End Fixed Pricing Once and For All (Fixed versus fluid pricing)
“Come up with a fixed menu of prices for your work,” “create packages,” “productize your service offerings.”
Any of these sound familiar? This is another set of common advice you find being circulated around the freelance circuit boards.
While the intent behind these propositions is valiant, these pricing methods and strategies are built to optimize for ease, not profit. While this might make the process of pitching a bit project simpler, it’s also a surefire way to ensure that you are leaving a lot of money on the table.
When you charge a fixed price for every project (eg. Logo package 1 = $2,000, WordPresss design w/ 5-10 pages = $3,500), you’re almost guaranteeing that you’re going to lose out on revenue.
For example, take these two scenarios:
- Scenario 1: A client comes to you for a website and you send them your price sheet. They see that for the package they want, you’re charging $7,500. That’s just a bit out of their budget so they decide to move on and keep looking through 10 other proposals they received. Project lost, no money in your account.
- Scenario 2: Client comes in looking for a brand identity for their new start-up and you send over your price sheet. The appropriate package, they find, will run them $11,500. They had $15,000 earmarked for this project in their funding brief. At this point, one of two things can happen:
- a) They think, “hey great, we’ll get this for a steal” — and they hire you.
- b) They think, ”hmmm, is this a red flag? Why are they only charging $11,500, maybe they’re not quite the caliber we’re looking for” — and they move on.
In the best-case scenario from above, you get the job but you’ve left $4,500 on the table. That’s a 40% reduction in revenue. Worst case, you end up in the same place from scenario 1, without winning the gig but this time because you undercharged.
Does fixed pricing make the job a little easier? Yes, but at what cost?
Value-Based Pricing: Still not the answer
Okay, so we know that fixed pricing is leaving money on the table, what about value pricing instead?
There are a lot of different definitions floating around out there, but in essence, value pricing is when you define a price point based on the value the client stands to gain from this project. For example: are you building a website that’s going to help a non-profit raise more donations? Or perhaps you’re building a conversion-focused sales page for an e-course?
Anyway, you get the idea. In either of these cases your work will directly contribute to the growth of their bottom line, and as such you can/should charge a price point commensurate with the value generated.
This approach is far superior to a fixed pricing model, but it still doesn’t quite go far enough, here’s why…
Sweet Spot Pricing
So if value-based pricing still doesn’t tell the full story, what does? We’re glad you asked.
Let us introduce to you: Sweet Spot Pricing.
Sweet Spot Pricing (SSP) is a methodology of pricing that -like value pricing- allows external factors to influence the price point. But with SSP, we’re not just looking at one variable (ie how much value we create for the client), we ask many.
You see, in addition to the value that is generated for the client, there are a handful of other variables that can and should be considered when determining the perfect sweet spot price. If you can figure out how to address and accommodate for each of these variables you are going to be able to define the price point that simultaneously gives you the highest likelihood of winning the project while also optimizing for profit.
If you can figure this out, this is the holy grail of pricing models for freelancers selling digital projects.
Here are the variables we have used to consistently 2-3x profits on our website projects.
The Three Buckets
Let’s break these variables down into three buckets…
- About the project
- About the client
- About me or my agencies current circumstances
We’ll walk you through each of these and underscore why they are important.
Part 1: About the project
This is all about establishing the foundation for your price. These questions are all centered around the traditional: “what am I going to have to do and how much time is that going to take?”
This is the part that most of you are already familiar with. Questions like:
- “what tasks go into this project scope”
- “how many hours do I estimate per task”
- “how many rounds of revisions am I including”
The goal here is to flesh out the quantitative data around your project. The objective truths and facts behind the work you’ll be doing. Most freelancers pitching and pricing projects simply do this step and then they stop… and that’s a huge mistake.
Once this step is completed you will have your general “base fee” for your project. Capture the tasks, assign hours to the tasks, and multiply by your hourly rate. Simple enough.
Beyond this point, we’re going to consider outside variables that will scale your base fee up (or in some cases, down).
Part 2: About the client
In part 2, we focus on the client. Who is the client, and how does what we know about the client influence our price?
You’ll see that it is here we begin to build on this philosophy established in traditional value-based pricing, but we take it to an entirely new level. As we begin to move into part 2 and part 3 we make a shift away from the objective, quantitative variables and toward more subjective, qualitative ones.
Tip: Measuring qualitative data — Don’t get too caught up in having the PERFECT answer for these questions. Remember what we said about making that mentality shift toward a more probabilistic mindset? These are meant to be loose guide rails that will steer you in the right direction. If you’ve done a decent job in the discovery phase and have had a conversation or two with the client then just trust your gut instinct here and don’t overthink it. If you HAVE NOT done a great job in the discovery phase, we highly suggest checking out our checklist to building the perfect project discovery process.
Will this project generate revenue for your client?
As we covered with value-pricing, this is important because if you can tie your project to directly contributing to your client’s bottom line, you can —with a higher degree of probability— comfortably increase your price.
What is your client capable of paying?
The fact is, certain types of clients are simply going to have fixed budget limitations, while others will not. Of course, there are exceptions, but in general, a grassroots non-profit org is not going to have the same pocketbook as a corporate consumer products brand. Make sure that when pricing you are considering your audience and what financial resources they might have access to.
What is your client willing to pay?
You’ll find that certain types of clients will be willing to spend more money than others. If your client is used to dealing with big agencies and has experience in the business or corporate world, it’s likely that their “price gauge” will be calibrated toward the upper end of the spectrum. On the other hand, if your client is just venturing out into the world of entrepreneurship for the first time, they might be unfamiliar with common budget and pricing practices and therefore willing to pay less. You need to get a read on their willingness so that you can adjust your price accordingly.
What is your client expecting to pay?
Finally, ask yourself what you believe your client is expecting to pay. To me, this is the most enlightening of the bunch. Through discovery calls and gaining an understanding of the client, I always look for signals that might give me a sense of what they’re expecting to pay. The answer might sometimes shock you because it’s not always as obvious as you’d think. For example, don’t make the mistake of thinking that because a client is capable of spending on the higher end, that they are expecting or willing to pay on the higher end. I once pitched a project to a professional athlete who had just signed a many multi-million dollars a year contract, and because he was inexperienced in the world of entrepreneurship, he had significant sticker shock about what I perceived to be a very middle of the road price tag.
Tip: In discovery conversations look for insights into what they are currently paying for other services. For example, are they paying a professional SEO or social media team, or are they handling Instagram and Twitter themselves?
Part 3: About me
Finally, in the last part, we ask ourselves some questions about ourselves and our current circumstances as a freelancer or agency. The great part about these questions is that, unlike questions about the client, you don’t have to guess!
Nonetheless, I’m always shocked to hear how many freelancers fail to ask themselves some very basic questions that can and will shed some light on what they should ultimately be charging for a project.
How busy am I right now?
Firstly, what’s your pipeline look like at the moment? Are you slammed? Slow? Spending your days organizing project folders and noodling on personal projects? Let this guide your pricing. If you need the work, consider exchanging some potential profit for more certainty that you’ll secure the project. Got work coming out the ears? Wonderful, maybe you’re more comfortable cranking it up a notch.
What is my risk tolerance right now?
Just like our friends in the stock market, it’s important for us to have a sense of our risk tolerance at any given moment. How much risk you are willing to accept is not a fixed thing, it is something that changes from time to time, depending on your personal and work circumstances. Got a baby on the way? Just hire someone full time? Those are variables you want to consider. For that reason, I like to take the time to ask myself at the gut level how much risk I’m willing to accept whenever I price my projects.
Is this an area or industry I want to do more business in?
Sometimes value can show up in more indirect forms, don’t ignore them. Will this project look amazing in your portfolio? Will doing this project give you a foot in the door to an industry that you’re excited about? If so, consider taking a slight price cut in exchange for access and attention.
Is there potential for backend revenue?
Finally, think about the long-term tail of the project’s potential revenue stream. Perhaps this initial project is nothing to write home about, but if there’s an opportunity or significant likelihood of a decent stream of backend revenue (either through future work, profit sharing, selling peripheral services like SEO, digital marketing, or social media), you may want to factor that into your price point.
Now, that seems like a lot to go through for each and every project, and we admit it can definitely be some added work, but the benefit you get far outweighs the effort. Following this formula has resulted in hundreds of thousands of dollars of profit for us and it has done so on a consistent basis for years.
We’ve streamlined the process for you
If you really don’t feel like doing the leg work yourself, don’t worry, we’ve streamlined and automated the entire process for you at scopeconcierge.com.
How it works:
- Start a new project
- Answer our onboarding questionnaire
- We automatically generate a pre-populated SOW, complete with line items for tasks, associated hours per task, most importantly, our recommended price point.
Check it out for free now at scopeconcierge.com.