Many small business owners and solopreneurs (especially those in professional services) have trouble figuring out how much to charge their clients. It’s brain – and nerve – wracking, particularly when you’re starting out in business.
Pricing mistakes can trip up the most talented and skilled small biz professionals as they risk…
- Under-pricing their services because they don’t realize all they need to consider when setting their rates.
- Undervaluing their brands.
- Overworking themselves to sustain their businesses.
There’s far more that needs to go into the pricing equation than many folks realize.
If you’re a small business owner or self-employed professional, are you factoring all of the below into your rates?
- Your time to do your work (the deliverable to your client)
- Your time spent in meetings and collaborating (phone, email, etc.)
- Your time to develop concepts and formulate ideas (particularly in creative fields like writing and design)
- Your level of expertise and talent
- Cost of materials, tools, and professional resources you need to do your work and operate your business
- Payroll (or if you’re a sole-proprietor solopreneur, the draw you want to take from your business)
- Your cost to market your services
- What the market will bear and what others with similar experience are charging for comparable services
- Taxes
If you don’t think about these things as you set your rates, you could shortchange your business.
And the pricing quandary doesn’t stop there. Deciding what pricing approach to use when billing clients also makes many small biz peeps break out into a cold sweat.
All clients and projects are unique, which means a one-size-fits-all pricing approach doesn’t work.
Three options for pricing.
When pricing services for individual clients and different types of projects, consider which one of the following three options fits the situation best.
Flat project fee – Charge a flat rate that includes all things you’ll do in relation to the project. This particular approach works best when you have a firm grasp on the scope of the work involved in a project and can accurately estimate the amount of time and effort it will require.
Hourly rate – Track your time and bill your client an hourly rate for all the hours you’ve spent on the project. This works well when you’re uncertain about how much work or time a project will demand. When you bill hourly, it’s important to track your time for not only “the work,” but also for time spent collaborating (email, phone, meetings), researching, etc.
Hybrid approach – This approach combines the flat project rate and by-the-hour methods. Here’s how it works:
- Quote a flat project fee by gathering as much information as you can about the project and what it will require of you. But put a limit on the number of total hours you’ll spend on the project for that fee.
- Then identify the rate per hour you’ll bill your client for any hours over and above the hours you’re covering in the project fee.
As you prepare proposals using the hybrid method, you’ll also want to state how and at what point in time you’ll inform your client if your time on the project is exceeding the hours included in the project rate.
Peace-of-mind pricing be with you.
A final note of advice: Regardless of which approach you use, take your time formulating quotes and estimates to customers.
Rushing through the process for eager prospects will lead to either underestimating or overestimating what a project entails.
Underestimating will either leave you short (project rate) or anger clients when they receive a pricier invoice than anticipated (hourly rate or hybrid pricing).
Overestimating could prevent you from landing the project in the first place.
By taking your time, taking ALL of your time and costs into consideration, and using the best billing approach for each client/project situation, you can avoid the potential pitfalls of pricing.
