An always-rising topic is how you should price your service. What are the things to look at when determining your price? Do I undervalue or overvalue my price? In this article, we will discuss different ways to price your service.
There are many articles written about hourly or fixed pricing. However, is time-based pricing not just undervaluing your own business?
Well as it seems obvious, hourly pricing is a standard where the client pays you per hour for the work that has to be done. Hourly based pricing gives clients sometimes less confidence; a client does not know beforehand what they need to pay and therefore it brings uncertainty.
For beginners in the business of web service, it’s sometimes hard to estimate the time to spent on a particular job and therefore being payed per hour, takes away the risk to be paid less. However, it can make it also harder for you to take multiple jobs, because you always need to track the time.
Fixed pricing or project-based pricing, another term to describe this payment method, is used when people agree on an amount upon the start of a project. The amount is based on an estimate of the hours to finish the job. If you are able to do a job more quickly, than you had estimated, you can win.
To give an example, imagine that you need to design a new website for client A and ask $60 per hour. Client B asks to do the same job, but he wants to know beforehand what he needs to pay, therefore, you estimate the project time and agree on an amount of $1800; 30 hours of work. Now you start designing and you design the website of client A in 20 hours, and as client B had a similar request, you are also able to design the website in 20 hours. Both websites have the same value, however you get 1200$ from client A and 1800$ from client B.
Of course this would be a completely different story if your estimation of time is not right and you agree on $1100, because you think it will take you less hours. Therefore, if you are able to estimate the time, fixed pricing might result in more money. It’s important when agreeing on fixed pricing to discuss what you will do if you spent more hours on the job than estimated.
Hourly and fixed pricing are both based on the estimated hours it would cost to finish the job however, there is another way to price your service, value-based pricing. You do not charge for the hours you will spend on the job but the value it will bring. This avoids the uncertainty that clients asks free services, because you were not able to finish the job in a particular time. Or even better you don’t have to deal with the fact that your project is more valuable than that you had estimated hourly.
For example, you examine that your will need $60 an hour, and you think that the job will take 20 hours, so you charge $1200. However when you deliver the project, the value is worth $2000, this mean a loss of $800.
It´s important to think in overall value that you will deliver to the clients and not only to think in hours spend. Just like buying a pair of Nike’s, it’s not just the quality of the shoe you deliver, but also the experience of wearing Nike’s and the service in the shop. Besides Nike has a lot more to offer, like the Nike running app.
However how do you value your service?
To know what value you are delivering you can look at your expertise. You can compare you expertise with that of your competitors. Knowing the capabilities of your competitors will make you aware of how high you can price your services. When you are comparing your services, you need to ask yourself how unique my service is. What is my position in the market? Do I have more know-how (years of experience)? What I am delivering, beside the product? If you can rate your own expertise, you can explain the price to your clients.
However most important when justifying your rate is what value will your service bring to your clients, in terms of money. You’re not just delivering a web design, this design will attract more visitors to the website, which are potential leads, and these leads can eventually become clients, this increases the sales.
When pricing you product don’t be afraid to change your current pricing if it’s necessary. It’s important to find a system that works, which means a price that is justified in the eyes of the clients.