Step 4 in Smart Freelance Pricing?

This post is part of Free Money, the book about freelance pricing and money mindset I’m writing in public. If you haven’t found your key numbers, read the previous Free Money installments:

1. Why is freelance pricing hard?
2. Are you stuck in a freelance pricing dead-end?
3. Step 1 in Smart Freelance Pricing?
4. Step 2 in Smart Freelance Pricing?
5. Step 3 in Smart Freelance Pricing?

To see future installments as I publish them, get updates in my weekly newsletter and check out the Twitter thread I’ll be updating along the way.

The first steps in this pricing process are a bit dry. All day-old peanut butter sandwich with no Kool-Aid to wash it down.

Yet, working through the math with your own numbers is the only reliable way to arrive at the right prices, based on your immediate needs and long-term goals. These are the key numbers you need to find:

• Survival Number & Survival Rate
• Available Weeks
• Available Hours
• Time Inventory
• Effectiveness
• Minimum Hour Rate
• Dream Number & Dream Rate

Your Survival Rate and Dream Rate will help you rethink what you’ll actually charge for different projects.

How to Actually Price Your Freelance Projects

Now that you’ve got your Survival Rate and Dream Rate, you likely need to rethink your prices.

How you proceed depends on the pricing model you currently use:

• Hourly Billing
• Project Billing

Note: We’ll get into other pricing models, including value-based and performance, later in the book.

Pricing Model #1 — Hourly Billing

If you currently charge by the hour, your first objective is to bump up your hourly rate by a small amount, between 10 and 15%:

• $30 / hour → $35 / hour
• $50 / hour → $60 / hour
• $75 / hour → $85 / hour
• $100 / hour → $115 / hour

A small increase is unlikely to cost you clients. A few may huff and puff, but the majority will stick with you for two reasons:

1. Most clients prefer familiarity over uncertainty and change. They may be able to find another freelancer to produce work of the same quality. However, paying you extra represents less time and risk trying to recruit your replacement. Paying you more is the easier option, and clients, like water, follow the path of least resistance.
2. Our clients buy more than the the hard product, such as copywriting. The best ones appreciate our professionalism, punctuality, personality, and values. With the tiniest bit of reflection, they’d realize they can’t simply go get the same experience elsewhere. Even clients who do leave to find cheaper pastures have a way of returning, hats in hand.

Should you inadvertently fire the bottom 20% of your clients by raising your rates, you will find yourself better off.

Behold the power of math:

• Let’s say that your current rate is $50 per hour.
• You raise your rates to $65 an hour.
• One client leaves to find cheaper pastures, and she takes 20% of your monthly billable hours with her.

You would have billed 100 hours next month, but now you’ll only bill 80, assuming that you don’t find a new client right away.

You’re looking at a net loss of $200:

• 100 hours x $50 / hour = $5,000
• 80 hours x $60 / hour = $4,800

You’re also looking at a net gain of 20 hours. You’re better off because you can resell your newly freed-up “inventory” of availability to existing clients.

Or, you can spend those hours on marketing instead and drum up a new client whom you charge $65 an hour.

• 80 hours x $60 / hour = $4,800
• 20 hours x $65 / hour = $1,300

By raising your rates and doubling down on marketing, you can turn a temporary “loss” of $200 into $1,300—a 650% gain.

Sometimes, the best thing that can happen for your business is the departure of a specific client. By raising your rates, you hasten that departure and reel in a better future.

Use this email template to tell your clients about your rate increase.

You can use these 8 steps and the email template to raise your rates today.

1. Think it over. When was the last time you raised your rates? (Have you ever raised your rates?!) Go back and look at some old invoices if you must. Write down an approximate date for your last price increase.

2. Write down your current rate.

3. Write down what you want your new rate to be — most likely that 10–15% increase already discussed.

4. Think of several newsworthy things that have happened in your business. For example, maybe you bought some new camera equipment, gained a certification, or wrapped up a big project.

5. Write down a few more details about the news or the benefit to the client. For example, more camera equipment may expand your capabilities, a new certification may mean better results, or a better portfolio may signal your growth.

6. Make a list of your current clients.

7. Do a quick Google search and find something helpful for each current client. For example, a new blog post, a nifty product or service, or a recent white paper or report relevant to that client’s industry.

8. Plug your details into the template with this format: a) greeting, b) small piece of news, c) price change, d) brief explanation of price change, e) invitation to discuss, f) resource, and g) closing.

Here’s the email template:

Pricing Model #2 — Project Billing

When I first started freelancing, I charged hourly. These days, I prefer fixed price, fixed scope quotes for reasons I’ll explain in a later section.

For now, let’s focus on applying your Dream Rate to a project you sell often.

Step 1. List all of the tasks.

Be sure to include sneaky time suckers, such as calls, emails, and project management. Here are categories to jog your memory:

• Project setup, research, and other prep
• Project management and client communication
• Admin work (e.g., scheduling and answering emails)
• Creative work and deliverables
• Meetings and phone calls
• Quality control (e.g., extra edits)
• Project wrap-up and file delivery

Step 2. Add up the total time required.

What you’re after here is the most accurate estimate you can muster. How long will you need to deliver the project, beginning to end, along with the complete client experience?

If you have tracked your time during past projects, this is an easy step.

• Log into your time tracking app.
• Generate a report for a similar project.
• Cross-reference it with the task list you just created.
• Retroactively add time for any tasks or categories you didn’t track.

If you’re new to freelancing or feel about time tracking the way I feel about celery (intense loathing), write down your best guess for each task in 15-minute increments.

For example, writing a long-form, narrative case study for one of my clients might look like this:

• 0.25 hr - Send email with onboarding questionnaire.
• 1.0 hr - Do kickoff call.
• 0.25 - Schedule interviews.
• 0.50 hr - Set up project docs.
• 1.5 hr - Create outline and do initial research.
• 1.00 hr - Conduct two 30-minute interviews.
• 0.25 hr - Have interviews transcribed.
• 4 hrs - Write first draft.
• 1.5 hr - Finalize first draft & send to client for review.
• 1 hr - Work through client’s feedback and revisions.
• 0.75 hr - Work through final edits and spell check.
• 0.25 hr - Send final draft to client.
• 12.25 hrs

Don’t worry about making perfect predictions and precise estimates. This step will be inexact science until you actually track several projects and develop streamlined process. Even then, the time required may vary from one client to the next. Getting up to speed with a new client will take more time than repeat work for an existing one.

Ballpark the total time and round up to the next number. For example, I’d round up 12.25 hours to 13.

Step 3. Multiply total time by your Dream Rate.

To arrive at a price you can put in front of clients, multiply the total time by your dream rate.

In the last section, Find Your Dream Rate, I zeroed in on a Dream Rate of $146 per hour. My first stab at a price for case study projects came to $1,898: 13 hours x $146 / hour = $1,898.

Step 4. Add a buffer to get your Pessimistic Price.

Take the total time estimate and multiply that number by 1.2.

That extra .2, or 20%, gives you a buffer for tasks you accidentally left off your list, for those that take longer expected, and for client antics.

Some clients require extra education, hand holding, and cajoling. Others take forever to respond. Radio silences cause delays, and delays kill momentum and enthusiasm. (This is why some freelancers include a reactivation fee in their contracts.) Even the most pleasant clients can be indecisive or make nitpicky edits on a random Thursday.

Take some advice from Ben Franklin: “An ounce of prevention is worth a pound of cure.”

A project buffer is your budget for human nature.

Expect clients to be on their worst behavior, not their best. Expect tweaks and changes you consider silly and meetings you consider a waste of time.

Why?

Projects always evolve. Scope always creeps. Too many freelancers lose $15,000 in lifetime client value because, in an effort to have strong boundaries, they say no to a 15-minute favor.

Minor scope creep isn’t worth ruining the relationship over. The better approach is to use “pessimistic pricing” by adding a 20% buffer.

• If your prices are too lean, you’ll growl each time a client asks for more of your time. Each request reduces your effective hourly rate.
• If you include plan for those small requests, you won’t mind saying yes. Clients will chalk it up to you being generous and easy work with.

My $1,898 case study projects with buffer would come to $2,277. $2,277 is my Pessimistic Price.

Step 5. Gauge your enthusiasm.

Once you have your Pessimistic Price, give it the side eye. Put it in a cinder-block room and interrogate it:

• Am I happy with this price?
• Would I feel good about making this money for that work?
• Is the price just high enough to feel a little risky?

If the price doesn’t hold up under scrutiny, ask yourself, “Why don’t I feel good about making this amount of money for this amount of work?”

Raise the price until it does feel good.

If the price does hold up under scrutiny, keep moving.

Step 6. Face reality.

Next, imagine telling one of your existing clients about this new price.

How do you think they will respond?

All your clients can’t grow with you. Graduating to higher project fees may force you to part ways with even your loyal clients, including family, friends, and early referrals. These people helped you grow your business, yet one day, you will lose a client you care about.

Maybe you may feel guilty about leaving them behind. Maybe you feel like you’re being greedy. Shouldn’t you be content with what you already have? After all, so many people are worse off!

Aren’t you repaying their loyalty with a punch in the gut?

Those strong currents of emotion are normal, and they can send us right off the rails. Pull back for a moment, and remember that you reached this point by way of math. You colored in the details about your immediate needs and long-term goals, and the math did the rest.

You know what you must charge and why.

Not to sound cold-blooded, but the clients and projects who got you here won’t get you there. Will you need to grow your network? Yes. Will you need to pivot to a new niche where people won’t balk at your prices? Possibly.

For example, one freelancer named Jess got her start building websites for non-profits. Eventually, she realized that her price-conscious nonprofit clients weren’t willing to pay the $10,000 starting price. But for fashion influencers, coffee roasters, or clean energy startups, the same price was quite reasonable.

Losing clients is unavoidable. Pivoting to a new niche and building out your new network will take time and effort. Raising your prices is now common sense, not betrayal. The sooner you face this reality, the sooner you start hitting your income goals.

Step 7. Double-check your price anchoring.

Though Russell Brunson didn’t invent the “value ladder,” I first learned the concept from his book Dotcom Secrets.¹

He uses a dentist as an example. A new patient starts with a teeth cleaning appointment. The next rungs up the value ladder are whitening, retainer, and cosmetic, such as veneers, crowns, and implants.

Freelancers can have a value ladder too. The rungs of the ladder are your freelance offers. As freelance clients move up, they pay more and get more value. For example, my brand consulting clients move from a short consultation or workshop ($1,850+) to a 1-day sprint ($3,500+) to a longer custom engagement with a bigger scope ($7,500+).

Hold your new project price up against the other projects you will sell.

• Where does it fit into your value ladder?
• Do your project prices form a cohesive whole?
• Do you need to tweak the prices of other projects?

You don’t want clients moving up the ladder, paying less, and getting less. You do want projects at prices that sell the next project and graduate clients to the next highest rung.

OPTIONAL. Step 8. Pick an unusual number.

I have no hard data to back up this step. My own experience has proven out this practice, and my hunch is that this technique will work for you too.

Here is the rationale for unusual numbers:

• Our brains resist uncertainty and ambiguity. Uncertainty equals risk and danger. One study even suggests that uncertainty is more stressful than knowing definitively that something bad will happen.
• We feel better about making a bet on something when we know more about it, that is, when we have more certainty. A large body of empirical psychological research supports this idea of ambiguity aversion and the Ellsberg Paradox.
• We like certainty, and specificity buttresses certainty. It is to certainty what salt is to steak. At the subconscious level, specific numbers are less ambiguous and therefore more trustworthy.
• Unusual, precise prices suggest an equally precise process: “He didn’t pick that number at random. He arrived at it through some formula or process.”

Call me crazy, but unusual prices have worked for me:

• $625 for 300 words of web copy, not $500 or $650
• $2975.00 for a long-form narrative case study, not $2750 or $3,000
• $3,275 for a 1-Day Brand Sprint, not $3,250 or $3,500

Try adding an extra $25 or $75 to enhance specificity. Small, odd increments won’t break the bank for the client or stall the negotiation. They will add up for you over time.

Final Word: Optimize for your prices for ideal buyers.

Believe it or not, you don’t need to justify your prices. Does your doctor? Are prices at your favorite special occasion restaurant up for debate? No and no.

Your job is to charge what you consider fair prices and then deliver commensurate value. Your job isn’t to mollycoddle your clients and manage what they feel. The more mature clients you serve will understand that. They’ll even applaud the courage required to raise your prices.

A handful of clients, thinking only about their bottom line, not yours, may feel confused and stung by your price hike. They may leave in a huff. One prospect told freelance content and copywriter Beth Longman that her price per article was “insanity.”

She shared this screenshot of the conversation:

If your prices aren’t offending someone, you’re undercharging. Consultant and host of the Ditching Hourly podcast, Jonathan Stark, reminds us that we’re optimizing for ideal buyers, not everyone else:

“Good pricing always seems outrageous to somebody. All that matters is that your prices are acceptable to your ideal buyers. It doesn’t matter what your friends, family, colleagues, strangers on Reddit, or anyone else thinks. If nobody thinks your prices are outrageous, you haven’t found your sweet spot yet.”²

Phew. We made it. You found your Survival Number, your true availability, and your Dream Rate. You then used those numbers to calculate prices that actually make sense for you, both near and long term.

In the next section I share some of the most important pricing lessons I have learned over 13 years of freelancing. The best is yet to come.