Mobile freelancer invoicing app – Albert – share their secrets to calculating the cost of your services.
We all know how tough it can be to figure out how to price your service. Price yourself too low – the hours become longer and harder; price yourself too high – you risk putting off potential clients before they’ve even seen what you can do.
If only there were a simple formula to could follow in order to price yourself just right to win the job and make a decent income. Well, there’s no magic spreadsheet, but here are a few simple tips to keep in mind when working out what you’re worth.
1) Figure Out Your Overheads
Pricing a service is always trickier than pricing a product. With products you can easily pinpoint the costs involved, whereas it’s much more subjective totting up the amount of hours or expertise needed for a particular job.
You can however, work out some of that value by figuring out what your operational expenses are, and then basing your estimated price on that coupled with your target profit.
So, here are some ideas on how to start crunching those numbers!
- Material Cost: The cost of goods you will need to provide a specific service.
- Labour Cost: This includes any employees/staff or other professionals you may need to pay, in order to provide your service to customers.
- Overhead Costs: These include your monthly rent, taxes, insurance, advertising, office/studio supplies/equipment, utilities, petrol/mileage or losses/inflation. A reasonable amount of these costs should be billed to each service performed.
You need to be aware of the amount competitors charge for a similar service – though never blindly follow this without first ensuring you are covering your own costs! Find everything you need here:
- Published data: You can find this info on government websites which contain publications with figures, reports, statements. Or else find this info in other journals, magazines or from market research.
- Competitor websites: Just use a Google Advanced Search to type in the relevant keywords and/or locations.
- Competitor advertising: Have a look at what they are doing in online and offline environments and promotions. It may be interesting to also know what kind of special offers they are handing out.
- Phone calls to competitors: Get a friend/associate to check them out, but then again there’s no law against pretending to be a client yourself! (Is there?)
In the service industry, competing on price isn’t as common as it is in other sectors. Instead, price on what sets you apart, like the quality and value of the service you’re providing. You want to establish long-term relationships with clients that value you – not ones that are simply looking to save a couple of quid.
3) Establish a Pricing Model/System
Establish which pricing model suits you and the work you deliver:
- Hourly Rate: For many businesses this ensures that they are achieving a rate of return realistic to the amount of time or labour spent on a service. It’s most often used in a consulting service as opposed to one that uses materials and labour, and grows by expertise and seniority.
- Flat Fee: Many clients may only want your business if they can pay for it with a fixed rate or a flat-fee. In these cases, it’s worth either putting a cap on the amount of hours involved, or an agreement to pay additional fees if the project runs over.
- Variable Pricing: Some businesses practice a variable pricing scheme as opposed to a fixed-price policy, where bargaining and negotiation help establish a unique price for each customer.
The bottom line is that everyone finds their own way of figuring out their pricing structure, though it’s important for everyone to know the basics before setting out to tailor their own terms. Just don’t forget, at the end of the day, providing a service even costs you money – nothing should come for free!
Albert is the free and simple mobile invoicing app for freelancers.