Ask a freelancer: value-based pricing

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Millo Mastermind is a great place to talk shop about the business side of freelancing.

We’re all great designers, writers, illustrators and artists, but the thought of contracts and pricing and scope creep can send even the most battle-tested freelancers running back to full-time employment.

That’s why we decided to create a space dedicated to answering your financial questions. Once a month, we’re going to answer reader questions from awesome masterminders like you here on Ask a Freelancer.


screen-shot-2016-10-19-at-4-20-42-pmThis article is brought to you by our partners at AND CO. With a sleek app and a real-life human on your side, AND CO is all you need to take the headache out of billing as a freelancer. Our partnership has not affected the value or content of this article. Learn more at and.co

Sidenote: Once you finish, read how 4 freelancers built recurring revenue models that changed their business. You'll love it.


Today’s question comes from Amanda H. of Vancouver, British Columbia:

“How do I price for client value? I understand in theory that Starbucks gets more value out of a website than my local coffee shop, but not sure how to figure out pricing around that.”

Value-based pricing sounds great in theory but can be difficult to practice.

Most of us come from an employee mindset. We get a job. We punch a clock. We trade hours for dollars.

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That’s ok when you have a job. You know how much you’re going to make and can budget accordingly.

So, we carry this mentality into our freelance business. We charge our clients hourly rates. We trade hours for dollars. But there’s a problem.

Charging by the hour doesn’t take into account non-billable tasks

There are so many aspects of a freelance business that we don’t get paid for.

Marketing. Client contracts. Quotes. Training. You don’t know how many hours you’ll have to work on your business before you get even one client.

Once you get that one client they may only have a project here and there.

They may argue with you about hours, and try to cut corners and do things themselves, which we all know in the end makes their bill even higher because you have to fix what they messed up.

And then you have zero clients and you’re back to marketing eight hours a day with no work coming in.

So, instead of trading hours for dollars, we have to think in terms of how much money we will make the client and price along those lines.

If your clients like to haggle about pricing, you’re not charging enough

People who understand the value of having awesome creative freelancers like you are not going to balk at your rates.

Some may even say you charge too little.

If you’re finding that all your clients are arguing about money or not paying you, it’s because you’re going after the wrong type of client.

Create clear contracts

Every problem related to client payment I’ve had in my freelance business can be traced back to the fact that I didn’t have a contract.

Without a contract, you don’t have a legal leg to stand on if your client disappears when it’s time to pay the bill. If you’re overwhelmed by all the fancy language involved in a written contract, try using AND CO to create your contracts.

After answering a few simple questions, you can sign and send a contract without having to write the next Great American Novel.

Creative work is an investment, not an expense

The main theory behind value-based pricing is this: base your pricing on what your client stands to make and not what they say they can or cannot afford.

Getting back to Amanda’s question:

Starbucks will make a million dollars (or even more) from a better website, so $500,000 would be an appropriate price.

But the coffee shop down the street will only make $1,000 from their website. You shouldn’t charge them more than $500.

You need to show the client the return on their investment and they will have no problem paying any price you name, no matter how uncomfortable it makes you feel to ask for it.

Which brings us to our next point…

Don’t offer to discount your services or work for free

After a few months of contemplating hiring an editor, I met one on Shapr I liked.

She could tell from our conversation I was kind of on the fence, so she quoted me an hourly rate and then in the next sentence said she’d offer me an intro price that was $20 an hour less than her normal rate.

I would’ve paid her the full rate no questions asked. So I agreed to work with her for 33% less than her going rate.

If we offer our clients discounts right off the bat, we are communicating that we don’t think we’re worth what we want to make.

You should always be charging rates that make you uncomfortable. Otherwise your business will never grow.

There are only so many hours in a day, and the more hours you work, the closer you will be to burning yourself out.

I used to think that mindset work was for people who lacked confidence.

But as my business started to grow and my income didn’t, I started to realize that my confidence was great in many areas of my life, but not when it came time to talk about money.

Now I’m earning what I’m worth.

The only thing holding you back from making more money is you.  Do a little investigating and you’ll discover that your money anxiety is the real reason your business isn’t where you want it to be.

Trust me.

As your business grows, so will your rates

When it’s just you and your first client, you won’t need to charge as much. But as your business grows, so will your expenses, and so should your rates.

In order to price your services appropriately, track every penny you earn and every one you spend with a financial software program for freelancers like AND CO (this article’s partner).

Though tracking income and expenses seems to be a given, many people just don’t do it. Even if you only have one client, force yourself to keep meticulous records.

In addition to recording your income, you’ll want to keep track of home office expenses for tax purposes, advertising costs, web hosting and domain name registration fees and any costs associated with individual client projects like stock photos and fonts.

These costs need to be carefully tracked and managed, or at the end of the day you’ll be spending more on your business than you’re bringing in. This may be ok when you have alternate sources of income, but once you’re full-time freelance you’ll find yourself back in the unemployment line very quickly.

Have a question?

We’ve got some great ones so far.  If you have a financial question you want to be answered on Ask a Freelancer, leave a comment at the Millo Mastermind Facebook Group.

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About Sharon McElwee

Sharon McElwee is a copywriter and freelance business coach dedicated to help people get better at making real money doing what they love. Before having such an awesome career, she spent a couple of decades working in commercial printing and as a corporate slave. Check her out on YouTube .

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  1. I love this article! I truly believe value based pricing is the way to go, especially for experienced creatives. I’m an experienced one, but I have only recently leaped into freelance work and I’ve got a question about this article..

    This may sound silly, but how do I know how much businesses earn, how much will they earn from updating their website or working with me?

    Is it just guessing? If so, how do I even estimate it? I know I could charge more if I could somehow work it out, but I won’t ask them how much money they earn because they they’ll think I’m trying to rip them off and just see how much they can afford.

    Thanks in advance!

    • You can use tools like Owler as well as a formula to guess their revenue. The formula is # of employees x industry average salary (use a website like GlassDoor) x 2.5. As far as how much money you are making someone, you’d need to reach out to past clients (even at your previous job just don’t steal them) or talk to some more experienced freelancers who do what you do. Hope that helps!

      • I have two clients who I’ve done business with in the past, and they know the quality of work I provide them. Recently they asked me to re-work their website. I provided them a reasonable quote, and even gave them a website maintenance for free. And then today I found out they are working on their websites all by themselves. How do we convince clients about this? Should I insist or just let them be? Thank you.

        • Hi Alex,

          I would let them be. When they mess it up they will come back to you 🙂

          I have several clients who I do regular work for that always disappear for financial reasons or business issues on their end. I keep those clients on a monthly newsletter list. That way I am not bothering them for more projects but they don’t forget about me either. I have had three clients come back this way. Some it had been over a year since I had done anything with them.

          Hope that helps 🙂

    • Great question. I look forward to the responses also.

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