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Taking the Mystery Out of Pricing

Taking the Mystery Out of Pricing

by Jake on August 16, 2010

Post image for Taking the Mystery Out of Pricing

When I first started out as a freelance ghostwriter I was terrified of quoting pricing. The field was new to me, I had no track record to back up my desired pay, and I had no clue what other writers were charging. So, after I’d put in the hard work to find a potential client and then got the opportunity to pitch him or her, when asked how much I charged, I’d freeze, hem and haw, and then say I’ll get back to you.

By then, the client could smell blood and the battle was essentially lost.

We’ve spent some time talking about pricing here at Ghostwritepro.com over the last couple months. For instance, I mentioned that I only do flat fee pricing in my post “A Modest Proposal…On Crafting Winning Proposals“, and Joey wrote a great post entitled “Should I List My Fees on My Website“. Both arguments made the assumption that you would know exactly what you’d charge—within a range—for a particular type of project.

But what if you have no idea what you’d charge? And if so, how do you figure it out?

Find your number

The first step to determining any good pricing structure is to determine what you need to live—and not go below that number! The mistake I made, and that many people make, was not understanding that being out on your own is significantly more expensive than being an employee (especially if you don’t have a good CPA, but that’s another post).

When you’re an employee, many costs of doing business are assumed into your salary. For instance, when you’re checking email and filing, you’re still getting paid. When you’re on vacation, you’re paid. When you’re putting together proposals, doing research on a client, and meeting with potential clients—you’re paid. On top of that, your employer pays the employment taxes and provides discounted health insurance. Both are huge costs.

As a freelancer, you get paid for none of these things. They’re what’s required to even have the opportunity to be paid. Therefore you have to factor them into your pricing structure. So, if you made $50 an hour as an employee to meet your living expenses, you might have to charge $100 per hour as a freelancer just to maintain the same standard of living.

For every freelancer, the magic number will be different. I’d highly recommend checking out Freelanceswitch.com’s hourly rate calculator to help you find yours.

Understand the workload

Now, it’s all fine and good to know how much you need to make per hour to meet your living expenses. But as I’ve argued before, it’s better to price your projects with a flat fee, not by the hour. So, how do you do that if you only know how much you make per hour?

First, know your competitors and see what they’re charging. This will help you target your pricing, though it should only be a help, not the determiner.

Second, know your workload. By that I mean, know how long a potential project will take you. The best way to do that is with a simple Excel spreadsheet. There are dozens of quality billing programs out there to track your time and send client invoices, but nothing will help you when you’re first starting out like using Excel.

When I was beginning my career, I’d track each client project on my spreadsheet. It was very simple. I listed out the client name, the project, the type of work, and the hours spent. As I did more and more projects, my spreadsheet grew, and before I knew it, I had a huge sample pool of hours for each task. Then it was as simple as sorting by task type and averaging the time it took to complete it. By doing this, I had a very good idea how long a particular project would take me and felt more than confident when quoting a price to a potential client by simply multiplying the average time by my desired hourly rate.

At first I had to price by guessing the time it’d take to do a project—and I was usually wrong—but as each project came and went, and was logged into my spreadsheet, I became more and more accurate. Which leads me to my last point.

Mark up

Finally, make sure to mark up. First, do this as you start out simply because you have a lower quality pool of work to draw time averages from and it’s always better to overprice than to underprice. But, second, as you get better, you get faster. If you continue to simply charge by average work time multiplied by needed hourly rate, you’ll begin to charge less and less for the same projects! Not cool.

Instead, make sure to continue pricing consistently. The good news is that as you get better, your effective hourly rate goes up—as it should.

So, there you have it. My dead simple method for taking the mystery out of pricing. All it requires is good record keeping and basic math skills.

Chime in. Is this helpful for you? What have you done to determine your pricing?

Have a great week!

[Photo by Jeremybrooks]

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{ 5 comments… read them below or add one }

Kate Carney August 17, 2010 at 11:30 am

Your post is right on and I’ve followed the same basic system for years.

My one comment, especially for those new to job estimating, is to be very careful not to understimate the number of hours you’ll spend in meetings, on the phone, or traveling to client sites. With “high-maintance” clients or large project teams, I’ve seen these tasks add 10 to 30 hours (and sometimes even more) to a project. If you haven’t accounted for these costs in your proposal fee upfront, you can easily eat up all of your profit.

Jake August 17, 2010 at 11:53 am

Good point, Kate. Thanks. I’ve often included in my quotes a separate line item for “Account Management”, which includes things like email, meetings, filing, etc.

Melanie Jongsma August 17, 2010 at 7:59 pm

This is a good reminder, Jake. And Kate. I do have a tendency to underestimate pricing—partly because I forget how high-maintenance people can be, and partly because I’m secretly afraid they won’t see the value I’m providing. I learned a lot about pricing from Steve Slaunwhite, including how to include in the job proposal all the individual services a particular price is buying. Sometimes, after I’ve itemized everything, it’s a confirmation for myself of the value I provide!

Denis Ledoux May 24, 2012 at 8:22 am

I have always charged by the hour—$95. The client decides she wants to change the beginning of the book to include a part she had not wanted included—$95/hour. The client wants to tell me a “cute” story—$95/hour. The client had forgotten to mention something and wants to add it even if it changes something basic—$95/hour. The clients decided to take photos out that my office had had worked in Photoshop already—$95/hour.
I usually tell clients this protects them from my wanting to finish the project fast so as to collect my fixed fee. For a “feeler” who wants to please people, this per hour fee has worked very well for me. It has taken the “I can’t do this!” out of the equation.
Clients do ask how much it will cost to write a book and I tell them $10,000 to $12,000 per hundred pages. Many of my books have been subcontracted at $40/hour with the office keeping $55.

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