The following is a rough breakdown of different popular pricing models in freelancing, as well as some pros & cons for each one.
✌️ Note: There is no ONE way to this. Much of your approach to pricing will be influenced by the type of clients & projects you work with, as well your own personality. Also, to this day I have not worked for/with agencies so I will update this doc based on your feedback.
It's the model we, and most of North America, is most familiar with.
First you need to figure out what your hourly rate will be. There are many factors that go into this calculation based on your lifestyle, overhead, desired profit margin, as well as considering the "market rate".
There are a bunch of online tools to help with this like:
- Beewits houry rate calculator
- Motiv's freelancer hourly rate calculator
Basically you figure out all the needs to get done to meet the project requirements. Then you guesstimate how long it will all take to complete, do some quick math of hours x rate , and you have an estimate to present to your client.
You and your client decide how much time (in hours) you will dedicate to a given project per month. Do the math again and you have a precise recurring fee for your client.
- Easy math and easy conversation to have with clients (it's what most people are used to)
- You can bill for any and all time you are working on the project
- Less stressful to manage if you're not a people person as there's no real selling or negotiating going on.
- You don't bare the risk for scope creep or road-blocks
- Good for maintenance agreements, debugging, etc
- The better you get, the less you earn! You can increase your rate over time, but there is an expected ceiling for what a dev is going to be able to charge per hour.
- Unless you have a pre-established trust with the client, you are starting off in an uncomfortable conflict of interest:
- You're super fast: you're like 😕 while your client's like 😎
- You're a bit slower = you're like 😎 while your client's like 😕
- More difficult to do estimates for larger/murkier projects due to small unit of measure.
- Budget-conscious may be more likely to micro-manage.
- Entries like meetings and other PM line-items can be a tough pill to swallow (can easily account for 20%+ of any project).
- Tracking hours is a PITA
- You're selling time, not value = more easily seen as a technician/ hire-hand.
- Locks you into one rate. You could charge different hourly rates to different clients, but better hope they never compare notes!
- When clients are used to getting line-item invoices with your rate all over the place, increasing that rates means you have to have the talk.
Note: I highly suggest being an "hourly client" at least once (in a field you know nothing about). It's pretty destabilizing.
Much more common in Europe, this approach is a step above and can help alleviate some of the micro-managing and time tracking issues above.
Note: you can obfuscate even further by charging weekly!
- Focus moves away slightly from time spent, to value delivered.
- Client isn't sitting there making uninformed judgment calls on how long it took you to fix a bug or code a nav.
- No time tracking, yay!
- Alleviates context switching— you dedicate a whole day to a single client.
- Can be easier to plan your time: for the next two weeks, client A is on Tuesdays and Fridays.
- You're a freelancer and things come up! If you have to take the afternoon off to meet a prospect for a potential new project it can get a little hairy about how/when to "roll over" that time.
Project pricing is essentially as close to "productized pricing" as we can get. You're basically saying a given product (website/project/design/whatever) will be delivered to spec for a given amount of $.
This is the kind of information we all expect any time we're going to shell out money for a product or service and, when done right, can really create a fantastic experience for your client from day one.
- Client knows what they're getting into and what to expect
- Can give you a competitive edge as an expert (you must be if you can tell me how much this is going to cost)
- You're taking on the risk, not your client = you've earned their trust and the project hasn't even started yet!
- No time tracking at ALL
- There's more creative wiggle room since you haven't tied deliverables to hours
- You will raise your scoping/quoting game faster
- Proposal can be shorter and easier to write because doing this well means really getting to the bottom of the project
- Can be a great way to create productized services
- Getting this right means being ready to talk to your client and asking a million questions in order to scope as accurately as possible.
- Your proposal must be very explicit about scope changes, additional requests, schedules, what is and is not covered in the quote.
- You take on the risk for poor scoping
- You have to be comfortable setting limits otherwise it can become a bit of an all-you-can-eat buffet.
- May not be appropriate for agencies...?
Pro Tip: present your estimate as a range with a low-end and a do-not-exceed number.
This form of pricing can provide huge profit opportunities. Basically you anchor the price of the project against the value that the client stands to gain. Example:
- Company A is losing $10,000 of sales per month because they don't have a mobile shopping cart.
- $10,000 x 12 = $120,000
- If you were to charge 10% of that projected revenue, that would be $12,000
- You meet with your client and present them with your proposal: pay me 12k and you bring in 120k.
- Sweet ROI 💰💰💰💰
The tough part in value pricing is that you have to be super comfortable talking about money and getting your prospect comfortable as well (not too tough with people who sell online).
Also, sometimes there aren't hard numbers available but with some detective work you can get there. For example: Maybe you can automate some accounting processes for an organization and now they don't have to hire someone 20 hours/week. Do the math on what that might save them.
Here's a little formula I've come across from Jonathan Stark:
price = max ( cost, value / 10 )
In practice the price should be the higher of these two:
- Your cost to do the project
estimated hours * rate * 1.25 - 1/10th of the value of the project to the client
So let's assume (super bad numbers for easy math):
- The project will take you 10 hours at $100/hour:
10 * 100 * 1.25 = $1250 - The project is worth $10,000:
1/10 * 10,000 = $1000
You would charge the first price.
- Probably not appropriate for smaller budget clients who "just wanna website"
- You have to be more than "just a dev" because the success of the project is unlikely going to rest 100% on your tech solution. You will need to be an advisor for your client to outline his/her role (marketing, outreach, list-building etc) in reaching the goals you set out together.
- Must be ready to answer the "what if you don't deliver" questions.
- Make more money!
- Clients see you as an expert/partner and puts you in position to deliver high customer service
- Because the $$ is generally better, you can afford to look into new tech or even outsource the get it done 100% right
- You will learn a lot more about business
- Skies the limit on what you can earn
- Deliver strong for one or two clients and you will get referred to more of the same
- Clients see the project as an investment rather than a cost.