On the surface, your recent project went really well.

Your client responded to emails in a timely manner with helpful feedback, you both got along well, you gave them excellent quality work, and wonder of wonders, miracles of miracles they paid on time! Then why do you have a sinking feeling in your gut when you receive payment on the final invoice?

The numbers don’t really add up to the value of the work you put in. And if you’re not sure how to fix that, it’s pretty frustrating. How can you avoid disheartening numbers in your next job? Maybe it’s time to evaluate your pricing strategy.

Although these pricing strategy suggestions are based on our process, working in the creative industry on web design, branding, copywriting, and social media management projects, these ideas can be applied to any service industry.

Define the Scope

Trust me, I know, it’s super exciting when you land a big project or client and they want to pay you. It’s so easy to just send over a contract, get the t’s crossed and the i’s dotted and get the ball rolling. In all the excitement, you started the engine but have no idea where you’re going or what roads to take there.

Before you start working or even send over the contract, make sure both you and your client know exactly what to expect. Clearly define the following: The Client will pay you “X” for service+service+product, which they will receive by this day, and you expect to be paid on this and this day.

Helping clients know what to expect gives them a guideline for how you’re performing and builds trust when you meet agreed deadlines and expectations.

Figure Out How You are Going to Charge

Our preference is dollars, though for the right client there are times we will work for baked goods.

Generally, you have two pricing strategy choices—flat rate or hourly.

Charging a flat rate is perfect for the services you do often enough to know exactly how the project will proceed. Roundpeg logo projects, for example, typically involve three concepts and two rounds of revisions. We know generally how long that will take to create and get out the door.

Similarly, we tend to work on websites with the same requirements. We know how much it costs to get the website up and running, design, build, and make sure everything works correctly. There may be some variation if a client needs features not typically part of the project, but because we building more than 30 websites a year, we can accurately predict what the additonal fees will be.

The benefit of a flat rate or fixed price to the client is that it is a predictable expense. The benefit for the service provider is a simplified quoting and billing system. The downside is that if you guess wrong, misjudge your actual costs, or allow scope creep to add features you did not anticipate, you may see some or all of your profit disappear.

An hourly charge is better for when you’re not sure of the exact scope of a project. Perhaps the client needs a random combination of services you aren’t used to quoting together. This fee structure is also useful for smaller or routine tasks that may not require a lot of creativity. It will take “x” amount of hours to complete this task, you can charge x amount of dollars multiplied by the time. Just make sure your client is kept in the loop so they are not surprised by the bill at the end.

The benefit to the client is that hourly pricing may be cheaper, especially for small projects. The benefit for the service provider is the opportunity to get paid for all the time you spend on a project. The downside? If the project drags on, it is a continuous negotiation as the price continues to rise. There is more tracking and bookkeeping on hourly projects to justify what you bill the client. One way to limit the conflict is to give prospective clients a “not to exceed” number so they can budget appropriately.

Educate Your Client

Sometimes the largest gap between commanding the prices you deserve and your client happily paying you is their understanding of exactly what it is you’re doing for them. The creative industry is rife with clients who genuinely believe a teenager could build a lead-generating website and manage their social media accounts in return for an intern’s stipend. If their jaw drops when you say you’re going to charge x, it’s helpful to have a reason why.

List out the things you need to purchase to complete the project. In the case of a website, that’s a url, hosting, ssl certificate, and any plugins needed for functionality. Custom graphics and icons require software, skills, and time, none of which are free. Stock photography accounts may also be a business expense they have access to. Getting a handle on everything you provide not only helps you educate your client but also keeps you aware of everything that goes into a project so you can charge appropriately and avoid that gut churn feeling at the end.

What if your service isn’t quite as tangible? It’s a little easier to tally up prices like a cashier at the end per item and time spent. But sometimes services have more value than the time it took to create them.

Logo designers, for example, are often given a side-eye when they reveal what they charge. “How much? For something that took you a couple hours?”

It’s not how much time something took in this circumstance, but what it’s worth to the business it represents. Small nonprofits need a logo for websites, print collateral, and general recognition, but donors aren’t generally motivated by the quality of the logo to give more money. Conversely, customers recognize the Nike swoosh and are willing to spend more money for what that swoosh represents. A stand alone logo does not represent quality in and of itself but paired with a good customer experience over time, a quality logo can be invaluable.

In this case, what a client is paying for is a designer’s expertise and ability to translate those ideas into a mark that will represent the business’ values over time. Rather than billable hours, that takes years of experience. In comparison, no one balks at an accountant who asks for a high fee to do your taxes every year. The value to the client is understood. When the value of your service isn’t easily recognizable, it’s up to you to educate your client on what it is you provide for them.

Feel Out the Competition

Before you can accurately price your services, it helps to know what the guy down the street is charging. Otherwise, if you throw out a quote without a sense of where it lands, you might come back empty-handed.

Again, in industries where prices are based more on value, these numbers can be hard to come by. If you have peers in your industry that you trust, let them know what you’re charging and see if they think that’s fair. You might be overcharging for the value you offer. It’s likely you’re undercharging, and if you’re undercharging, that hurts not only your business but the industry you’re working in as well. Clients who are looking for the cheapest prices negatively impact profit because they were not taught or didn’t listen to someone who tried to explain the value of their services.

It’s like getting a haircut or a tattoo. More often than not, you get what you pay for.

The best way to figure out your pricing model is to know precisely what value you offer, and how that stands out from the competition. The more you can differentiate yourself and still find an audience, the more you can charge. Arming yourself with the knowledge of what you have to offer is the best way to provide an optimal experience for your client. They’ll know they’re getting their money’s worth.

For more on the topic of pricing, check out Lorraine’s article from our archive. Sure it was written ten years ago, but the rules for a good pricing strategy haven’t changed.

Also watch the Facebook Live Cherilyn and Lorraine recorded this week on the same topic.

https://roundpeg2020.wpengine.com/2008/10/profit-begins-with-intelligent-pricing-strategy/

Want to talk about your pricing strategy?