How to Price Your Services
Pricing your services is one of the toughest things you’ll do as a freelancer. If you’ve coming from a larger company, you already have some idea of what the going rates are for what you do. So, it will be easier for you to set your prices.
But charging the same rates that a larger company charges might not work for you. Sometimes a large company charges less because they outsource the work to other countries where they pay workers less. Other times they charge clients a premium because they have more people working on the project.
You definitely can’t charge on the low end. But you might not be able to charge as much as a full-service firm if you’re not offering all the bells and whistles that they do.
One way to begin to set your prices is by researching what other freelancers are charging. Let’s look at a few industries for examples.
Doing some digging online, I found that freelancer writers are getting $2,500 to $3,200 per project for writing website copy. And they’re getting $850 to $1,050 per project for writing ads.
The price per session for massage therapists ranges from $65 to $180 across the country. Though there are certainly sessions you can find for more and for less.
Prices for website designers range widely based on experience and skill level. Hourly rates range from around $30/hour up to around $150/hour. Flat fees range from $2,500 to around $10,000 per website.
I’ve said in some of my podcasts and other blog posts that you really don’t want to be known as a discount service provider. When you’re a sole provider, it’s really difficult to make a living that way. So, you’ll want to price your services where you’re making enough to support not only your business, but also yourself. That means covering your living expenses, your business expenses, your taxes, your savings account, and your leisure.
“As a service-based freelancer, you do not want to be known as a discount provider.”
To begin to figure out where to price your services, let’s figure out what your minimum hourly rate would be. That is, what would your minimum hourly rate need to be to cover your living expenses, business expenses, taxes, savings account, and leisure expenses?
How to Calculate Your Minimum Hourly Rate
1. What are Your Living Expenses?
If you’re really on top on things, you may already have your living expenses itemized. Here are some of the items you’ll need:
Rent or mortgage
Utilities
Health insurance
Life insurance
Car insurance
Gas
Groceries
Loan repayments
If there’s anything I’ve left out, jot it down.
“Your living expenses should include everything required for daily living, housing, transportation, food, insurance, loans, etc.”
Figure out your monthly expenses then multiply by 12 to get your annual expenses.
For this exercise, let’s say they come to $5,000 per month. That’s $60,000 per year.
2. What are Your Business Expenses?
Think about everything it takes to run your business. What are your regular expenses? Some of these may be monthly, and others may be annually. For example, I pay for Squarespace annually, and I pay for Honeybook monthly (invoicing, contracts, CRM, bookkeeping).
Here are some things you may be paying for:
Website hosting
Domain name provider (e.g., Namecheap, GoDaddy)
Email marketing service (e.g., Squarespace Email Marketing, MailChimp, Constant Contact)
Scheduling service (e.g., Squarespace Scheduling, Acuity)
Bookkeeping (e.g., Honeybook, Quickbooks)
Tax services
Design software subscriptions (e.g., Adobe Creative Cloud Express or Canva)
Social media scheduling (e.g., Loomly or Hootsuite)
SEO research and tracking (e.g., GrowthBar)
Transcription service (e.g., Otter)
Write down any of those you pay for and any I’ve left out. Figure out what you pay monthly, then multiply by 12 to get your annual expenses.
“Business expenses need to include everything that you pay for to run your business. Remember to include monthly and yearly expenses.”
For this exercise, let’s say they come to $300 per month. That’s $3,600 per year.
3. How Many Days are You Working per Year?
As a freelancer, you have the freedom to work as much or as little as you want. Personally, when my son is with me, I work “regular” days and fairly regular hours. But, when my son is with his dad, I usually work on weekends, and my hours are usually longer. But I’ll “take off” random days when something comes or just when I feel like. It’s not really taking those days off, of course. It’s shifting the work to other days.
How do your work weeks go? Do you have a set schedule? Do you work five days a week? More? Fewer?
How about time off? Do you take vacation time? Do you want to take vacation time?
Let’s figure out how many days you’ll plan on working per year.
“As a freelancer, you may work more now than you did in a regular job. But we’re going to give you time off and set more realistic hours.”
Even though freelancers have this dream of working less than they did or would work in a regular job working for someone else, we often tend to end up working more. Sometimes it’s because we’re doing practically everything ourselves. Other times it’s because we love our work and just can’t tear ourselves away from it. And still other times it’s because we haven’t learned how to take downtime and actually step away from work.
So, this little exercise is going to build in vacation time for you. Oh, my lord!
Out of 365 days in the year, let’s go ahead and take out the 10 bank holidays. We’re down to 355 days.
Now let’s take out all weekends. That’s 52 weeks times 2. So, 104 days. We’re down to 251 available work days.
When you went into freelancing, you were probably wanting lots of “vacation” time, right? So, let’s give you 3 work weeks. That’s 5 days times 3 weeks equals 15 days. We’re down to 236 available work days.
Now we need to figure in sick days. I get migraines, so this is essential for me. I actually front-load my work so that when I get hit, it doesn’t really interfere with work since I’m usually staying ahead.
So, let’s give you 2 work weeks of sick days. That’s 10 days. That’s 226 days per year of work days—a little more than 60 percent of the year. Pretty awesome!
4. How Many Billable Hours are You Working per Year?
When you work, if you were to bill per hour, you wouldn’t be billing for every hour of work you do. Why not? Because, while most of the time you’re doing client work, there is other time that you’re doing back-end work or marketing stuff that you can’t bill for. I spend hours every week writing blog posts and recording, editing, and publishing podcasts—in addition to logging my time, tracking income and expense, doing scheduling, sending invoices, etc.. I spend time creating images for my blog posts and for social media. And then I take time to post on social media. I wouldn’t be able to bill any of that to my clients if I were charging by the hour.
So, you need to figure out what percentage of your time you’re actually doing billable work.
“You can’t bill for every hour worked. So, figure out how much time you’re actually putting into your clients’ projects.”
Let’s just pretend that you’re going to work only 40 hours per week. I know, I know! About how many of those hours do you spend on client work? Or, if it’s easier to calculate, about how many of those hours do you spend on non-client work?
I know that I spend about 10 hours every week creating blogs and podcasts, including finding and creating images to go along with the posts. Sometimes I spend less time on them. But, since I do both a blog and a podcast, 10 hours is pretty much the norm. (I’m just going to include my back-end work in that time to keep it simple.)
That means that I spend about 75 percent of my time on client work. (If I worked only 40 hours per week, ha ha!)
What does your billable hour percentage come out to be?
If your percentage is like mine, 25 percent, then your billable hours come to 30 hours per week. 30 divided by 5 days in our work week equals 6 hours per work day.
We’ve got 226 work days in our year. That comes to 1,356 billable hours per year.
5. What is Your Annual Income?
If you’re already established in your business, you can use your current income here. If you’re not established yet or don’t have a steady income, you can use this step to come up with your desired/required income.
“Use the income you’re already making, or pick the income you’re hoping to make in the future.”
How do you do this? Well, you can just pick a number. But, realistically, you need to make it high enough to cover all of your living expenses and billing expenses, then have enough left over to put some into savings and still have more left over for leisure expenses. Plus, and we’ll get to this next, you’ll need enough to pay for quarterly estimated taxes. You’ll need a high enough income to cover your living and business expenses, your savings, and your leisure expenses after your pay taxes.
Be realistic about your leisure expenses. This doesn’t include just vacations. What about HBO Max, Apple TV+, Netflix, Amazon Prime? Be sure to include restaurants and clothes, too.
For the sake of this exercise, and since everyone wants to make “six figures,” let’s say you are making or want to make $100,000 per year.
6. What are Your Estimated Annual Taxes?
I’m nowhere near being any sort of expert at taxes. I do know that freelancers need to pay quarterly estimated taxes if you will end up owing at least $1,000 in federal income taxes in the next tax year. Quarterly income taxes are due January 15, April 15, June 15, and September 15.
Freelancers will have to pay a self-employment tax of 15.3 percent every year. This covers Medicare and Social-Security taxes that an employer would normally pay.
The safe way to account for taxes as a freelancer is to put aside 25 to 30 percent of your income to cover quarterly estimated taxes. You’ll be able to deduct your business expenses, such as the ones we listed above.
If you aren’t making a regular income yet, you can play it safe and estimate what you realistically think you’ll make this year and go ahead and pay your estimated taxes. This will save you from owing penalties next April 15th. If you end up making less than that, you’ll get a refund. If you end up making more than that, you’ll owe money come April 15th.
So, if you plan on making $100,000 per year, then you should estimate $25,000 to $30,000 in taxes.
7. Compute Your Minimum Hourly Rate
“Your minimum hourly rate is the very least you would have to charge per hour to cover your business expenses, living expenses, taxes, leisure expenses, and income goal.”
Now to compute your minimum hourly rate.
You’re going to add your:
Living expenses
Business expenses
Income
Taxes
Then divide by your number of billable hours.
So…
$60,000 + $3,600 + $100,000 + $27,500 (taking the average) = $191,100
$191,100 / 1,356 hours = $140.93/hour
So, $140.93 is the minimum you would need to charge per billable hour to sustain your business and yourself—if you charged by the hour.
Is that what you should do? Should you be charging by the hour?
Let’s look at three different pricing strategies you could take.
Pricing Strategies
1. Time-Based
With a time-based strategy, you would be charging by the hour. If you’re going to go this route, you will have to charge at least your minimum hourly rate—ideally more. I discuss in my podcast “Thinking About Rebranding? Start with a Brand Audit” how you do not want to be know as a discount service provider. I also discuss how raising your prices is difficult without going through a rebrand.
When you’re just starting out, it’s understandable to price your services in the low to middle end of the normal price range.
First, if you have years of experience and a high level of skill, you should price your services on the high end. Second, if you do price yourself on the low to middle end, you should give notice that your fees are “introductory” and that they will change.
Many freelancers, depending on their industry, use the time-based pricing model. It’s how they were paid in their “regular” jobs. They may not know how to price their services by the project. Time-based pricing seems simpler. “I do this many hours of work, so I should get paid this amount of money per hour.”
Time-based pricing seems like a good idea to many freelancers because you are getting paid for time spent on the job. But your value comes from much more than the time you spend.
Think about your years of experience. The courses you took. How much of your own time you spent to teach yourself your skills. The previous work you’ve done for other clients or at your “regular” job. The money you’ve spent on equipment that enables you to do your job.
This is why people are hiring you—not for the time you spend on their project.
“Clients aren’t hiring you for your time. They’re hiring you for your expertise and experience.”
A risk of charging by the hour is that the client won’t know how long the project will take. As such, they may be shocked by the final bill. They may think that paying you $140/hour isn’t so bad. But, if you end up spending two weeks on a project that they expected to take one week, their final bill just went from $4,200 to $8,400.
Let’s look at another way to price your services.
2. Project-Based
Probably the most common way to price your services is using the project-based model. In this model, you estimate the time you think it will take you to complete a service and price the service accordingly. Normally, the client pays.a deposit and then pays the remaining fee upon completion of the project. You might offer other payment options if your service package lasts longer than a month, for example recurring payments.
This model is still based on your minimum hourly rate. But you aren’t charging by the hour. And your client never knows your hourly rate.They just know the complete fee they’ll be paying you.
To figure your project price, take your minimal hourly hour and multiple by the number of hours you think the project will take you. Let’s say that you estimate it will take you 30 hours to complete your project. Taking a minimum hourly rate of $140/hour, you’ll need to charge at least $4,200 for that project.
When I say “project,” I don’t mean individual client projects. I mean your service. As in, every client who purchases that service will pay the same fee.
This is essentially a no-risk model for clients in that they know exactly what they’ll be paying. No matter how long it takes you to complete the project, they will still pay that one set fee.
The risk to you is that you might underestimate how long it will take you to complete the project. In that case, any work you have to do to complete the project is sort of “free work.” You have to do, and you can’t charge extra for it because it’s part of your contract with the client.
“Charging by the project is no-risk for the client because they know upfront what they’re paying. The risk to you is potentially spending more time on the project than you had anticipated.”
Along these lines, another risk to you is that each client’s project will likely take a different amount of time. When you decide on pricing using this model, estimate the range of time you spend on projects. I’d go with the upper end of how long it takes you to complete a project. That way, you’ll give yourself a buffer and run less of a risk of going over time.
In this model—well, in any model, but particularly this one—you must be very clear in listing exactly what the service includes. For example, with website design, I list:
How many pages I will create
How long the beginning strategy session is (in which we discuss design and branding)
How long it will take me to complete the project
How long the video training session will be
How much email support they’ll get after the project is done
And backend specifications about their website set up
Freelancers in certain industries will create a few levels of services—often three: A base level, a mid-priced level, and a premium level. The strategy behind this is that, studies show, when given a choice of three options at three different prices, people will usually choose the mid-priced option. This applies to wine, food, clothes, and services. The “average” person doesn’t want to look cheap, but they also usually don’t want to pay a premium.
If you go this route, you’ll want to make your mid-level option really attractive and make the base as barebones as possible. For the premium level, you’ll want to add things that are truly special.
Here’s an example:
In the coaching industry, the base level is usually group coaching with no one-on-one time with the coach. The mid-level service usually includes group coaching plus one-on-one time with the coach—probably once or twice per quarter. The premium service will include group coaching plus much more one-on-one time with the coach—probably once every two to three weeks. The premium level may also include a group retreat with other premium-level clients.
Now, that premium-level coaching service, is that really a project-based model? Let’s look at the third model for pricing your services.
3. Value-Based
The last model we’re going to look at is value-based. In this model, you base your prices on the benefits to your client. The more your client benefits from your service, the more you can charge for the service.
“The value-based model puts the emphasis on the benefits to the client, the experience you bring, and your expertise.”
This model is not based on your minimum hourly rate. It is based purely on value and benefits.
When you price this way, you are emphasizing the benefits of your service, how well the service solves your client’s problems and pain. You might charge a different amount per client, depending on the scope of the work you’ll be doing for that client.
To sell your services under this model, you might not post any prices on your website.
What you’ll do is communicate the value of your service all over your website, especially on your service page. You’ll want to hit your client’s pain point. That is, you have to figure out what problem your client wants you to solve for them.
Now, this problem doesn’t mean, “My client wants me to write their website copy for them.” That’s their surface problem. What’s their real problem? Is it time—that they don’t have the time to do it themselves? Is it skill—that they don’t have the writing skills to create outstanding copy?
For me with website design, it’s time, skill, frustration, and a desire to do the work they love. The freelancers I work with don’t have the time to do their own websites. They don’t have the advanced skills to get the designs and layouts they want with a strong branding strategy and SEO strategy built in. And they are frustrated thinking that doing their own website will end up looking like a DIY project. So, my service provides several benefits to them: I save them time, I bring them my skills, I relieve their frustration, and I enable them to focus on the work they really love doing.
“On your website and in the discovery session, you must focus on the benefits to the client—how your service solves the client’s problem and relieves their pain.”
I communicate that on my website and on my service page. I also communicate the “focus on the work they love” part in my short bio and in the footer of my website.
To choose your clients in this pricing—yes, in this model, you must choose your clients—you’ll need to interview them first. This is called a discovery session or a complimentary consultation. You might make a few concrete suggestions to your potential client. But the session—which should last about 30 minutes—is really about uncovering the potential client’s desires, pain points, and desire to change. You’ll have to find out how motivated they are to change. Then you tell them about your service. You communicate the value of your service, making the connection between your service’s value and how that will relieve their pain point. Finally, you discuss the price of the service and make the sale. If they need to think about it, you go ahead and set another phone call/video meeting to check back in. Set that meeting for no more than two days later.
—
So, what’s the best pricing model for your services?
“Choose the pricing model that works best for your industry and for your specific services.”
It really depends on your industry. If you’re a massage therapist, you’ll likely charge by the service—a single price per session. You can also sell package. For example, you could charge one price for a set number of sessions. This would essentially be giving a discount on multiple sessions. But you’d be getting the full amount upfront.
For website design, the norm is to use the project-based model. I have three services, each with a set price. I run the risk of needing to put in more hours than I have anticipated. But clients will know upfront what they’re paying. While my services are priced essentially on a project-based model, I sell them by value.
For coaching, you could go with the value-based model. It’s easy to do what I laid out in the example above. Have three tiers of packages. Do a discovery session. Do not sell your services by the hour or by the session. Too many coaches do this, especially when starting out, and it’s really difficult to make a living that way. Charging $140/hour, you’d have to have coaching clients 30 hours per week, 226 days a year. That puts it in a quite a new perspective, doesn’t it?
