How to Set Your Rates

Posted 8 years ago in Small Business Tips
by Katie Pryal

Whether you work part-time as a freelancer or run your own business, you know the angst that pricing your services can cause. Business consultants make a killing helping big corporations price their services so you shouldn’t be surprised that you have such a hard time doing so.

Here are some tips to help you get started pricing your services—setting your rates. The tips, as you will see, boil down to one maxim:

Take a step back to gain critical distance from both yourself and your business.

That critical distance allows you to objectively assess the value of your services. Folks hire business consultants because the consultants have that distance (plus a lot of experience in a field).

You can do research about your field to find out what others are charging (that’s step 2, below). Getting critical distance from your business is harder. You have to start with Step 1.

Know how much you need (and believe you are worth that much)

Only you know how much you are willing to take for a job. Most of us have an idea of what we’d like to make annually, monthly, and per hour. If you don’t know those numbers already, then you need to get out a piece of paper and write those numbers down. You need to know how much money you need to make to pay the bills, to pay your employees, to fulfill the most basic of Maslow’s hierarchy of needs. And then you need to raise that number because you need to factor in retirement. No one should have to work forever.

Once you’ve established how much you need to make, you can deduce your basic hourly rate. Let’s say you come up with an hourly rate that is $50. You can then build in some flexibility to that rate depending on the type of work. For example, for a job that is regular—one that you don’t have to quote or pitch every time you do it—you might be willing to take a lower rate because of the predictability of the cash flow. For a high-profile job, you might also take a lower rate to have the client give you a great testimonial. Other jobs, however, might have high-maintenance clients, and you might mark up your rates accordingly.

But you cannot set your rates if you do not know how much you need to make and believe that you are worth making that much. If you constantly feel apologetic for asking for your basic rate, you will never get your rate. Know your rate, know your worth, and stick to your guns.

Ask around—locally and online

Especially if the work you are doing is not something that is sourced nationally, you need to peg your rates to the local market. I have a client who moved from New York to North Carolina. She did freelance deposition evaluations for clients and charged an hourly rate. I had to help her adjust her rate sheet to match both what clients in North Carolina would be willing to pay and what she would be willing to take for her time (see #1, above).

Asking around will also let you know if locals in your industry tend to be paid by the hour, by the project, on retainer, or on some other terms. It is likely that you can use all three to meet the needs of your clients. Learn what these different methods of payment mean, and incorporate them into your pricing. A client might balk at your hourly rate, but they might be just fine with a project quote. Give them both quotes, and let them pick one.

You should also research online to help you set your rates. A great place to start is trade organizations for your field. Some even give suggested rates. When I was setting my rates, I did my research to educate myself, locating the suggested and standard rates for book editors published by our national trade organization. Over the years, I’ve had potential clients balk at some of my rates, which I freely publish on my website. So, I recently published right beneath my rates the link to standard rates from our trade organization. I made it easy for potential clients to see that my rates are standard for editors across the country. Thus, I used my research to educate my clients. (And now I get far fewer complaints.)

Don’t be afraid to raise your rates

Many small business owners fear that if they raise their rates, they will lose clients.

Spoiler alert: Those business owners are right.

The thing is, most business owners can lose those clients and still be better off after raising their rates. You will lose some clients, but that loss creates time for your business. Meanwhile, you will possibly, maybe even likely, be earning the same amount of money as you were before—if not more—because, after all, you just raised your rates. And in that time you created by sloughing off your lowest paying or higher maintenance clients, you add more higher-paying, more professional clients. Your freed-up time will earn your more money.

Besides, as you learned in #1, you want to work for people who are willing to pay you what you’re worth. The clients who left because you raised your rates a reasonable amount are not the clients you should keep around. You deserve better than that.

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