Valuing your services on the basis of your skills, knowledge, and experience—as opposed to hourly rates for a task—gives your freelance business a lot more income potential than blindly following rate sheets. It’s not a calculation you can make in isolation, however. A value-based pricing approach requires looking at the situation from the client’s perspective: What can they expect from their investment if they hire you?
Two Elements of Value-Based Freelance Pricing
Actual Value: This is simple math. How are you making money for your freelance client? Take, for example, a lawyer who charges his clients $300 an hour. How much more money can he make by using you as a writer, editor, or designer instead of doing those tasks himself? Even if your project rates are based on a calculation of $150 an hour, he’s enjoying a 50-percent-off sale.
Other common examples farther down the price scale would be publishers, web designers, ad agencies, marketing firms, etc. Like the lawyer, they are repackaging your services at a markup to their own clients. What’s their return on investment if they hire you?
Perceived Value: This one is a little trickier, because there’s a psychological component. Say a financial advisor wrote a book, one chapter per plane trip over the past year, and wants you to edit it. She isn’t too worried about direct return on investment from selling books on Amazon, because she views her books as an upscale business card to give to prospective clients. So, in this case, it’s more of a matter of an image to uphold—with the potential, but not a guarantee, of a big piece of business.
Other situations that might fall under the perceived value umbrella would be startup companies that aren’t yet profitable, or wealthy clients who are doing something for personal fulfillment rather than income.
So: Which type do you think is more important when coming up with a value-based price, actual or perceived?
OK, that’s kind of a trick question. It doesn’t matter. I have long-term clients in both camps. Ideally, you are moving people from perceived into actual value. In other words, they may have bought you based on what they thought they were going to get, and you deliver actual results that make them money. If the financial advisor’s book causes someone to move their stock portfolio to her firm, you can guess who she’s going to choose to edit her next book.
Value-Based Pricing Serves as a Market Signal
Remember: Your freelance price isn’t just what you’re taking in from a project. It’s also a signal to the market of what your value is to someone’s business. What would a lawyer think if your rate was $30 an hour, 10 percent of what he charges his own clients? What would the financial planner think if you placed a cheap price on your skills, talents, and experience, when she wants to woo someone with a $500,000 retirement portfolio?
Like it or not, they’re going to believe you’re not very good. The reverse is true, too: Someone seeking an el-cheapo rate probably doesn’t have particularly high standards for their own business. (Please don’t construe this to mean you should only measure your success by your income—there are other rewards to being a creative freelancer and business owner that don’t start with a dollar sign.)
Value-based pricing doesn’t occur in a vacuum, and the answer can’t be found on any rate sheet I’ve ever seen. Understanding your client’s actual or perceived wants and needs will serve as a much more accurate guide for a value-based approach.
The Science, Art and Voodoo of Freelance Pricing and Getting Paid offers a more detailed explanation of how to crunch the numbers, formulate persuasive estimates, and give yourself more leverage in negotiations with potential freelance clients.