Pricing your Services : Guide for Freelancers

Pricing your services affects new and growing businesses. Knowing how to make a pricing strategy that works for your small business will save you a lot of heartache and regret. This guide works for product-based businesses as well.

Now pricing is one of those subjects that has a direct impact on your business whether you are good at it or not. Your pricing may affect you on a yearly, quarterly, monthly or even daily basis, depending on the kind of business you operate. 

I’ll start by defining a business as any activity you rely on to bring you money whether it is a monetised hobby, part time or full time, registered or unregistered.  

There are many kinds of pricing techniques all over the world but I believe the best you can use is one that covers your personal and business expenses. These are the main things that will make demands on whatever income you generate, save up or receive in the form of dividends and rebates. 

In this blog…

• What is good content marketing?
• What type of content should you publish?
• How to get better results from content marketing?
• How to see if content is working or failing?
• What should you do when you don’t see results?
• Should you use a content marketing agency or freelance content manager?
• What should you look for in a content marketing manager?
• Myths surrounding content marketing and why they are not worth your time

Calculate your personal expenses for better pricing

When I’m working on a pricing strategy for services, I start by advising whoever I’m working with to take a look at what they need for debt coverage, investments, discretionary spending and savings. 

What does your debt obligation look like?

Debt may include money owed for loans and outstanding bills. Anything you know doesn’t belong to you must always be paid back. Credit cards are often a problem for those in developed nations. Loans are the counterpart struggle in developing nations.

Debt must always be paid back early to avoid excessive interest, losing your reputation, financial credibility and even property should legal steps be taken against you to recover what is owed. Do not wait for the devastation of the repo man’s visit or risk destitution and having a bank reclaim your home for unpaid or defaulted payments. Just start by pricing your services and products the right way.

Should you adjust your pricing so you can invest?

For investments, consider what you want to invest in. REITs, property for rent gain, property to live on or work in, assets such as livestock, business capital and equity or commodity markets are just some of the things you may invest in.

At this level, art and jewellery are the domain of those richer than you so do not bother. If you are brave, look into NFTs, cryptocurrency and forex trading markets. 

Even if you have more debt than savings consider what you would like to invest because if you are pricing your services and products correctly you should be able to invest regularly in the near future.

Should what you want to save be part of pricing services and products?

Same goes for savings. Always save at least 10% of what you make for rainy days and emergencies. Save a bit more for loans or monies you will provide to friends or family when they have emergencies. Oftentimes these will not be paid back so account for these sunk costs and avoid tears later. Increase or decrease the amount depending on your age, earning power, debt and responsibilities. And remove the savings amount before you start spending on anything else.

Build a saving habit early on so that it is easier save for big things. 

Rejoice Nyatsanza

Savings also help you have something to put into those opportunities that come ever so suddenly when you otherwise don’t have money laying around to spare.

What is discretionary spending?

This is what you spend in a month on basics, healthcare and luxuries. Common costs include your utilities, transportation, groceries, phone and internet bills, dental and medical insurance, public service rates, and neighbourhood security bills. Pet care and children’s tuition, if you have these, should also be factored in.

Your personal expense budget must account for things you know you always have to pay for. In your twenties this could include coffees or dinner dates. In your thirties this could include baby shower gifts or a wedding outfit budget. For men this may mean including the monthly gym or golf course fee. 

Whether luxuries or basics be honest what you spend. 

Knowing what you need and use in a month will help avoid situations where you make a lot of money but never seem to have enough in the bank.  

What business expenses should be factored into your pricing strategy?

The second batch of expenses are your business expenses. These will often be paid on demand and aren’t optional or debatable if your aim is to grow. 

For instance, if you run an e-commerce site you will have payment processing fees, shipping fees and insurance, website hosting and maintenance costs. If you have a website developer or manager they will often charge you an annual fee for keeping your website secure and updated. 

You will have to pay your team and yourself. If you are a solopreneur, you will pay for contractors and freelancers from time to time. 

You will have external costs such as having an auditor check your finances yearly. Or an accountant who will help you with your taxes. 

Your pricing must allow you to save money to pay your taxes

Set aside a sum that you will use to pay your yearly taxes.

In my country Zimbabwe, an individual earning up to US$1,200 pays no tax while those making between US$1,201 to US$3,600 pay 20% at the time of writing. The ZIMRA website offers a breakdown of the taxes in both currencies if you are in Zimbabwe, check it out here.

It is good practice to know your tax bracket whether you are formally or informally employed and add it to your overall annual expense sheet.

Make a budget for these business expenses.

If you have never recorded what your business costs you, start now. Check last year’s bank statements to capture any numbers you had left out.

Develop a business expense record and update it regularly. My first expense sheet included train tickets to and from Shanghai as well as the cost of hotels and meals. I had not realised that the business was meant to cover its own expenses instead of having my savings account drained indefinitely as I licensed and registered my business. Had I paid attention I would have charged my services higher and been able to recover the costs instead of destroying my savings. Learn from me.

Remember, corporations, companies and even non profits factor in their operational expenses and you should too. This is what puts you a notch above the other freelances and moves you closer to become a pro business owner instead of just a paid hobbyist!

How do mixed expenses affect your pricing?

While you are running up your expense sheet, you may find there are certain costs that you share with your business, especially if you are using the same tools and services for both. This is highly common when you work from home. 

Consider these costs part of your personal not business expenses. If the business did not exist, you would have these costs anyway. The most common ones are internet, laptop and cellphone costs. If you are a consultant like myself you probably also use your personal car for business. 

Add these costs to your personal expense sheet as they contribute to your quality of life. Your business is your employer. Like any good employer, your business ought to care about your quality of life as it has a direct impact on your productivity. 

If you were formally employed these costs would go towards your welfare through your salary and benefits package so put them in personal and make sure the business knows how much to earn to cover your wages. In other countries these expenses will also earn you a tax deduction so its a plus. 

Know your depreciation

Some of your tools lose value over time and will need to be replaced regularly. Get a rough depreciation cost for each tool or device you use. Budget for the cost of replacing machines every 3 to 5 years.

A hard working phone may take 2 years to decline in battery health. A laptop and desktop computer will get slower as newer programs and software are introduced making it necessary to upgrade your machine every 5 or so years, and you will upgrade software earlier than that. 

Know the numbers to avoid equipment failure which can disturb your workflow, destroy your completion rates and damage your reputation as a service provider.

This happened to me when my MacBook started having boot up problems and my money was tied up in other investments which made replacing it impossible- hard lesson learned!

Add your personal to your business expenses

Now that you know your expenses, go over them again to make sure you didn’t forget any numbers. Snacks, gifts, subscriptions and membership fees for magazines, trade associations and conferences should show up in either personal or business expenses. 

Add your personal to your business costs. Then multiply the sum by 12 to get your annual expenses. 

What is your profit rate?

Now because you are in business, you actually want to make profit. Generally speaking, a 15% annual growth rate is a good number for a wealth creation asset. If you have a low wealth creation asset, usually a growth rate of 2-7% is acceptable. If you really want a big and profitable business for yourself or are building a legacy business for your children, then you want to target 15% or more every year.   

Now add that amount to your annualised cost of operations.

This is your cost of operations and the number you use to determine your value for services.

What if your profits are too low?

If you had never paid mind to your pricing before, you will find that 15% is too low. This is because you undervalued your services when you set your original pricing. 

Remedy this by developing confidence in yourself and your skills. Up-skill if you know you had priced according to your capabilities. 

Next, aim high with your expected profit figure. Most times we set a low figure due to inexperience or not trusting ourselves. If you want $2000 to play with write it down. Why write $500 if you’ll be griping about it later? If you need a serious talking to about setting low expectations read The 10X Rule – The Only Difference Between Success and Failure by Grand Cardone. You can get it from Amazon here.

When you are done reading, review your profit goals. We will dive into this in a blog about having a growth plan for business and in life later.

What are people in your area charging?

At this point you can charge based on the sum above. However, there are many disparities depending on the city you live in or even the country you are in. 

I advise then going one step further and checking what similar businesses are charging in your area or niche. 

Record the highest and lowest prices. Ignore the outliers. Then get an average based on the more common prices.

For instance, you get $50, $150, $270, $300 and $450. You’ll want to get an average using $150 and $300. The amounts $50 and $450 are your outliers so ignore these as they imply value or something else. Others will charge differently due to different currency values, varying competition levels, cost of living, higher skills, college education investment, reputation and even purely inflated egos.

You can now charge $225, best make it $220 as round figures are better. Or use the upper number. In this case $230 and adjust upwards or downwards according to your need. 

Should you charge an hourly rate?

You may also calculate your hourly rate at this point. I tend to frown against if you’re in the production side of the service industry. This applies to those in web development, blog copywriting and ad copywriting. 

These tasks are mostly conducted in the mind and you can’t track how much time you spent refining the inspiration that came to you while you were in the shower. 

Calculate this number anyway for certain employers who prefer the hourly fee and use project tracking systems. Companies that deal exclusively with contractors often use hourly rates. 

And that is all you need to know about pricing your services as a beginner. To recap:

1. Calculate what you need to clear any outstanding bills, loans and any other debt.
2. Research and set a number for what you want to invest in for extra growth.
3. Know what you need for personal expenses such as groceries, rent and utility bills.
4. Set aside a savings amount that can cover emergencies or which you can use for really great opportunities.
5. Record and set aside money for operating your business.
6. Be sure to include your wage/salary, money for your team and any contractors or freelancers you hire.
7. Save a specific amount for your taxes. Save 30% of your earnings if you do not know how much you will need.
8. Make a budget and always record expenses when they happen.
9. Charge mixed expenses to your personal expenses. Check which are eligible for a rebate or tax deduction.
10. Factor in depreciation as you will need to update equipment.
11. Add personal to business expenses and multiply by 12 for an annual total.
12. Add in 15% to make a decent profit.
13. Figure out your industry average and adjust your pricing accordingly.
14. Have fun pricing your services with a fixed or an hourly rate.

I want to know if this helped you so drop a comment below! Or share it with someone who needs it!