Working on your pricing strategy is one way to increase your income in 2019. Many freelancers and small business owners with service-based businesses make mistakes with pricing that cause them to leave money on the table. These are mistakes to avoid in 2019:
Mistake #1: Racing competitors to the bottom.
Stop thinking like a big-box store that touts having the lowest prices as the big selling point. Freelancers and small business owners can go broke with this mindset, especially when your competitors are charging next to nothing.
For certain services (like freelance writing and web design), companies and individual freelancers may be charging a price that doesn’t add up to a wage that’s comfortable to live on.
Set your price based on your expertise instead of trying to beat others. Explain the results that you provide in negotiations if the prospective client questions the rate. People who value results and expertise more than finding the cheapest deal will seek out your business.
Mistake #2: Not packaging.
Clients want it to be easy to work with you. Packaging the services they need rather than having an a la carte menu can make invoicing and paying simple. This method also lets you upsell services within the package for an additional cost.
For example, you could have a package promotion that includes five blog posts a month with the sixth one free to sweeten the deal. It gives them an incentive to buy the package rather than one-off services.
Mistake #3: Not taking into account taxes and business expenses in your hourly rate.
More work should go into setting your hourly rate than just choosing a number. Your hourly rate has to cover taxes and business expenses first before you can pay yourself.
Forty dollars per hour may seem like a fair price at first if you’ve never made over $ 25 per hour at a full-time job. But when self-employed, you pay self-employment taxes, and you have to invest in your business to keep it running.
Take away 30% to set aside for taxes from you $ 40 hourly rate — you’re left with only $ 28. Next, take into account your business expenses. You may realize you’re taking home a lot less than you desire. If so, it’s time to bump up your hourly rate.
Mistake #4: Naming your price first.
You don’t have to come to the table first with a price for a client unless you have a preset rate sheet that you give to all clients. Here’s why: Late in 2019, I had a call with a prospective client. Before the call, I wrote down a price that I wanted to pitch.
I asked how much they pay other freelancers instead of stating my price first. The client quoted me more than double what I was going to pitch. Always, ask for a budget. Having a budget and asking for a price sheet will ensure you don’t leave any money on the table.
If you have trouble setting prices, ask other successful people in your industry what they make for similar work. Collaborating instead of competing against other business owners can clue you into what you should be asking for.
Right now during the COVID-19 pandemic — you may be low on funds and need to take on a few extra clients. Be sure and let them know this fact. Your customers and clients may be in the same boat, meaning they are hurting for cash. You can make a deal to help each other out with the agreement that you will have to raise your rates later.
But don’t jump the gun on your pricing model if you don’t have to. Things should be looking up at least for the summer months so your pricing model should be able to hold steady. Use your strategies for success right now — and you can pull back and charge less later if you have to.