When it comes to working on your freelance business, it can be difficult to decide on how to price your products or services.
Although most freelancers simply base their prices on what their competitors are doing, that may not be the most effective strategy to create prices that are competitive and profitable.
While this may work or some business types, it may not be the best and can in fact cut into your own profits.
Pricing is crucial, as it is one of the four aspects of the marketing mix, along with the product, promotion and place. In fact, besides the perceived value of your products or services, many people view the price as the main sales driver.
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Choosing an effective strategy can be very difficult, however, especially with so many pricing strategies available. That’s why today we’ll look at the 5 most effective pricing strategies for freelancers.
The most used pricing strategy is what’s known as competitive pricing. Although many businesses and freelancers utilize this method, many are using it wrong.
In order for competitive pricing to be effective, two conditions must be met. First of all, you should not just focus on one competitor’s pricing and use that as your base.
You need to take a survey of all the competitors in the market and take their average. This will give you a better overall view of the market value of your product or service.
Secondly, you should consider whether your cost structure is similar to your competitors’. If they are similar then you can use competitive pricing by offering a lower price.
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If your costs are lower, then you have space to go lower and become a strong competitor.
However, if your costs are higher, then you shouldn’t compete on prices, as you will be cutting into your profits.
This pricing strategy does not take into account your competitor’s prices. Here, you are only going to look at your own costs and then add a markup in order to make a profit.
In order to use this method, you need to be aware of all your costs, not just your variable costs.
For example, your variable costs will include the direct labor (your own time and energy), transportation, or materials depending on your business. However, you still have fixed costs, such as your web hosting, rent, phone bill, etc.
You need to calculate the cost per unit (or per hour) of your product or services. After that, you can add whatever markup you prefer, although 30% is standard.
For example, if you’ve calculated that the cost to produce one medium bouquet is $7 and you add a 30% markup, you should be charging at least $9.10. That ensures that you are making good margins on your products or services.
However, as mentioned before, this does not take into account your competitors’ prices, so you may be over- or undercharging.
Customer perceived value
Customer perceived value (CPV) pricing is based on the value that your customers place on your products or services.
In order to know your CPV, you first need to figure out what the total perceived benefits of your products are. This will require, usually, a survey or research in some form. In order to calculate CPV:
CPV = Total Perceived Benefits – Total Perceived Costs
Therefore, we can say that the CPV is equal to the net benefits of your products or services. An example will help illuminate this pricing strategy.
Let’s imagine that you sell handmade jewelry. Your customer perceives the benefits of your necklace as equal to $75 and the total costs at $50. The CPV here is $25, and you have a range from $50 – $75 to charge.
Of course, the lower you charge in that range, the higher the CPV will be, and vice versa. If you charge lower than $50, you are undercharging, and if you charge higher than $75, you will lose a sale.
For many freelancers who sell their services, versioning is a nice, structured pricing strategy that can be used effectively. This is also a common pricing strategy for SaaS (Software as a Service) companies.
In versioning, you are essentially selling the same product or service for different prices at different versions.
There is always an introductory price that helps to draw the customers in while providing minimal features. When the customer gets used to the service, he or she will consider getting more features by paying a higher price.
For example, if you are a nutritionist or dietician, you can offer an introductory price for your basic services, such as an initial consultation plus a monthly checkup for $80/month.
For $150/month, the customer can get the better version which includes initial consultation, twice a month checkups and weekly menu planning.
For a higher price, you offer an even better version.
This pricing strategy is based on the psychology of your customers.
In order to get your customers excited about your products or services, you have to convince them on a basic, fundamental level that your offerings are premium or luxurious.
Instead of setting the prices for your products at something like $29.99 or anything similar, you need to instead make your prices with rounded numbers.
For example, shoppers may be more willing to buy organic fair trade coffee at $20 rather than regular coffee at $7.50. The rounded figure makes it more exclusive and gives the appearance of luxury more than a non-rounded price.
In one study on prestige pricing, the authors discovered that customers were more willing to buy the same brand champagne priced at $40 rather than the more practical $39.71.
This pricing strategy could be highly effective for freelancers who sell services or create products aimed more for the luxury market.
This includes jewelry, consultation, dating services, or many other freelance business types.
These pricing strategies, in general, are effective because they provide a good balance of competition and profitability.
However, it is important to first determine your own business category and your costs.Only afterwards should you choose which strategy would suit your freelance business best.
When you do, you’ll be well-positioned in the market to get your products or services to the right customers for the right price.
Good luck! Let me know which pricing strategy you like most in the comments.
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