How To Price Freelance Services — Understanding Your Costs

In Today’s post we found this awesome article about, How To Price Freelance Services and Understanding Your Costs by Steven Bradley.

One of the questions I often get asked is how do you price your services? What should you charge when someone approaches you to design and/or develop a website? Since, we’re talking about custom work, the answer, as you might expect, is it depends. I’d like to share some thoughts about what it depends on.

Pricing any service based job is a negotiation. All else being equal, you’d like the client to pay as much as possible and the client would like to pay as little as possible. Ultimately the price of any project will be one both you and your client are willing to accept. More specifically there’s a range of prices, below the maximum the client will pay and above the minimum you’re willing to accept. Somewhere in that range is the price you should set for the job.

Today I want to focus on that minimum you’re willing to accept. I want to consider how you arrive at your costs and how you use your costs to set a minimum price you’ll accept. Next week I’ll look more at pricing itself.

Understanding Costs

A lot of advice about pricing web design services is about estimating time and then multiplying time based on some hourly, daily, or weekly rate. I’ve offered that advice myself in the past and it used to be solely how I thought about price.

Over time I’ve come to understand that it’s not the best way to price a project. When we estimate our time and effort to complete a project, we’re figuring out our costs, not the price we should charge.

We can use our cost estimate to set a minimum price we’d accept for the project, but remember if you set a price equal to your cost, your aren’t making a profit.

Tracking Time

Most of the cost involved in a service based business comes from the time you spend completing the project. Some projects will require you to make purchases, like stock images, a CMS, or a script of some kind, however most of your cost will come from the time you spend working on the project.

Since it will be the bulk of your costs, the first step in understanding your costs is to track your time. Record the time it takes you to complete every project. Even better track the different tasks within that project. How much time did you spend sketching? Researching? Preparing deliverables?

There are a couple of reasons to refine your tracking and record the time spent on individual tasks instead of the project as a whole.

  1. It helps you better estimate projects as few projects will be the same. Most will be a combination of different tasks.
  2. It will help you discover bottlenecks in your process, which you can then improve them in order to reduce your costs.

Naturally the above won’t help you figure out how long your first project will take to complete, but within a few projects you’ll have a much better idea, and each project will be that much easier to estimate than the one before.

Dealing with the Unknown

One of the things I find difficult in estimating how long a project will take is that every project seems to require something I’ve never done before and it’s hard to estimate how long that something will take.

It’s one reason why it’s so important to track your time as much as you can. You reduce the amount of unknown in the project so the impact of any unknown is less than if everything was unknown.

Many, many years ago I worked as an engineer and one thing engineers apply to the design of buildings and bridges is a factor of safety. In the context of estimating time for a project, a factor of safety is a number you multiply your entire estimate or parts of your estimate by in order to cover some unknowns. The more confident you are in your estimate, the smaller the factor of safety will be.

For example I’ve gotten pretty good over the years at looking at a comp and estimating how long it will take to turn into an html/css template. I don’t need to add any factor of safety to that estimate. On the other hand I haven’t spent a lot of time working with Drupal as a CMS. If a project required Drupal, I’d add a relatively high factor of safety to many tasks associated with it. As I learned the system more I could reduce that factor of safety on future projects.

There are two areas you should keep in mind when estimating time and deciding on a factor of safety.

  • We’re usually optimistic about how long something will take to complete, but we’re seldom right in that optimism. We tend to estimate based on best case analysis instead of something more realistic.
  • Something difficult to estimate with new clients, is how much time you’ll spend communicating with them and making changes based on their feedback.

For the first I tend to apply a factor of safety across the board to cover my optimism and for the second I tend to go with my gut based on what my initial communication with the client is telling me.

Setting Your Rate

Time is one aspect of understanding your costs. The other is how to set some kind of rate that reflects your value. Here too there’s no absolute answer, but I think the main things to consider are:

  • Your skills (and experience)
  • The general rate for your market

While we tend to be optimistic when it comes to how quickly we can get something done, we tend to be pessimistic when evaluating the worth of our skills and experience. Early on you might lack confidence and so devalue your worth. Later, and with more experience, you see difficult tasks as simpler than they really are and devalue their worth.

Remember your value is the value you bring to the client. Sure it’s easy for you to write some basic html in a code editor. It’s not so easy for most of the planet. Don’t mistake the ease with less value. If anything it’s more valuable, because of the work you put into making it easy.

Design rates, development rates, any service based rates vary, but they generally vary within an accepted range for the market you’re serving.

By market I don’t only mean the overall industry. Design rates will have a different rate than development rates and copywriting rates, but even within any of those the accepted range of rates is different for different types of clients. A large corporation will likely pay a greater rate than a single owner business.

In thinking about your rate, be honest about your skills and don’t undervalue yourself. Think too about your clients and what’s an acceptable range given who your clients are. Spend a little time searching for businesses, similar to yours and discovering what they charge. Look to industry surveys to get a feel for going rates. You may not find exact hourly rates for your industry and market, but you should be able to get a pretty good sense of what those rates are.

Closing Thoughts

Let me remind you again that an estimate of your time and some kind of rate are about your costs and not your price. It’s one of the mistakes I made early on and one I think many new to service based businesses also make.

It can be easy to think that since your out of pocket expenses are $0 for a project that the cost to you for that project is also $0. It isn’t. Any time you spend on a project is time you can’t be spending on another.

If you value yourself at $100/hour then 20 hours of your time costs you $2,000. If someone wants to hire you for a project that will occupy 20 hours of your time, you want to charge more than $2,000. How much more is a topic we’ll get back to next week when I talk more about pricing itself.


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