Your hourly rate is killing your business: 5 steps to escape it

By Donald Cowper, FreshBooks‘ small business writer and co-author of Breaking the Time Barrier: How to Unlock Your True Earning Potential

Most freelancers and small business owners struggle with putting a price on their services. Many end up using a pricing model that leaves them run ragged trying to pay the bills, rather than one that lets them build a healthy, sustainable business.

If you’re quoting clients an hourly rate for your services, chances are you’re hurting your business…even if that hourly rate was methodically calculated. That’s because you can really only charge so much per hour and there are only so many hours in a week, putting a limit on how much you can earn. Problem is—that limit usually has nothing to do with how valuable your services are.

There’s a better way to approach your pricing and build your business. Here are five steps how:

1. Focus on value, not hours

The first step is understanding the difference between churning out billable hours and delivering value to clients. As a freelancer, you’re not just a collection of hours; you bring an array of creativity, wisdom, talent, and skills that you’ve accumulated over the years. You bring far more value to a client than just punching in and punching out on the clock.

2. Probe for serious pain points

During the exploratory phase, probe your client on their current problems or pain points. Too many service providers focus on small problems, but clients aren’t motivated to solve those, so dig for the serious issues.

Are sales trending downward? Are new competitors emerging? If the client has goals or revenue targets, those create problems too, because if they aren’t met, the client will experience a loss.

Bottom line: clients value solving large problems and they’ll pay for that value. If you don’t identify where your client really needs help, you risk developing something that won’t have a lot of impact and consequently won’t be worth much to the client.

3. Position your services as an investment, not an expense

No one likes expenses, so they try to keep them as low as possible. That’s why so many contractors experience downward pressure on their prices. But an investment is a different story altogether.

To position your service as an investment, connect it to solving the client’s pain or helping them achieve a key objective. For example, if you’re a web designer, instead of building a better looking website, design a site that acts as a marketing and selling engine to help your client hit revenue targets. If you offer to build a site that could generate an additional $100,000 of profit annually, your client would be open to making a $20,000 investment. If you used the traditional hourly pricing model to figure out your fee, you might only end up charging $2,000 to $2,500.

4. Don’t present your pricing upfront

Most initial conversations begin with a client asking about rates and a freelancer obliging with a response, without either side fully grasping the impact or scope of the project. When you present your pricing upfront, you make price the distinguishing factor, not your ability to deliver results. This encourages the client to compare your rate to someone else’s (and having the most competitive rate doesn’t always work in your favor).

If you want to be judged on your abilities, resist the temptation to give a quote before you and your client agree on what they want to achieve.

5. Offer clients more than one option

If you offer just one package or price, the client has two options: accept it or not. Instead, offer a proposal that reads like a menu, with multiple options that have distinct prices. Each choice should address business needs and goals, with solutions at various depths and price tags. Many freelancers are surprised by how frequently clients choose their topline package. In addition, should a client want to pay less, there’s no haggling. They just choose to have less delivered.

Bonus Step: Focus on ‘good’ clients

A big client isn’t necessarily the same as a ‘good’ client. Clients that hammer you on price are unlikely to ever grasp the merits of your value, and all they do is lead to more low-quality clients. When you start working with clients who want to invest in themselves, they’ll refer you to other high quality clients—which will help you move upmarket.

If you’re interested in learning more about the value-based approach to pricing your services, FreshBooks has published a new ebook titled Breaking the Time Barrier. It can be downloaded at http://freshbooks.com/breakingthetimebarrier,

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