How to stop pricing yourself like a noob?

This blog also is a podcast episode. Go listen to 'The Boss Level Podcast' episode 3 on Spotify.

Well, let's start with some basics. There's three ways to compete in business:

1. Be better
2. Be different
3. Be cheaper

Unfortunately a lot of freelancers go for the be cheaper route. There's a few problems with this.

1. You earn less then you could be earning with fair, market conform pricing (obviously).
2. This, in a way, means time wasted, as you have to work more to earn a certain income.
3. If you're cheap, people might wonder why. You might actually repel the most relevant prospects this way. I certainly would question your professionalism if you would present under-average pricing in a proposal.
4. You might rush things, because there's little wiggleroom in your working hours. 
5. You'll get stuck with clients who value you for your cheapness, making it hard to raise prices

The first lesson: don't price yourself too cheaply.

Now, if you're in doubt on how to price yourself conform to your market and level of expertise, please don't make it harder than necessary.

An easy way to find out a decent price for you services, is by searching for the average hourly charging rate of similar freelancers and agencies. There might even be studies available online with pricing ranges in your industry. Simply pick an hourly rate conforming your level of expertise, matching market averages. So if you're a senior copywriter and studies show a $100 - $120 per hour rate, set your pricing at $110.

You can always increase pricing along the way.

That said, I'm not the biggest fan of hourly pricing.

There's five specific reasons for this, which I advice you to take into account:

1. Entrepreneurs Don't Think in Hourly Rates
They have a problem they want to solve. There's a certain budget for it. Or a desired ROI. If you come with an hourly rate, they have to convert. If you come with a fixed fee, you speak their language.

2. No Hassle Over How I Spend My Hours
My clients want to see results from their marketing. That's what I get paid for. I set targets with them and ask for a fixed amount per month to pursue these. If I worked by the hour, I'd constantly have complaints about how I spend my time and how many hours are still available.

3. It Suits My Efficiency Better
Since 2007, I've been in online marketing. I have knowledge and processes that are more effective than junior marketers. Yet agencies with juniors also charge €100 per hour. Suppose I'm twice as efficient. Still, I can't get away with a rate of €200 per hour. But if I ask for €2000 per month, the same as the agency, I get it.

4. I Hate Keeping Track of Hours
I did this even before I freelanced, which was the first reason to work without an hourly rate. How can you express your knowledge in hours? What about reading books, networking, consulting with other freelancers, and taking courses? I can't bill for this. Yet all of this significantly contributes to the final result.

5. I Don't Compete on Hourly Rate
Even if an entrepreneur doesn't think in hourly rates when it comes to the solution they're seeking. If every party communicates in hourly rates, an entrepreneur will compare on that basis. I have zero interest in competing on my cost price; I'd rather compete on what I can offer.

Myself, as a Google Ads manager, charge a % of the ad spend of my clients. This works, because at the start of every gig, I create targets for a year in advance. My client knows what budget and ROI we aim for and knows exactly what my fee will be. No surprises and a net positive business case lead to almost no questions about my pricing model in the last 12 years.

There's different ways for you to charge your clients for your work.

Which one works for you, is for you to find out. I recommend to study the following 3 pricing models and experiment implementing the best-suited one for your freelance business.

1. Fixed fees
2. Retainers
3. Commission-based

1. Fixed fees

Fixed fees are perfect if you have clear deliverables, like a website, blog post or social media plan. In cases like this, the client often has a certain budget available, making it easy for you to charge a fixed rate, versus an hourly rate. The trick here, is to charge an amount that (1) is in line with the value you bring to the table, (2) matches the clients' budget and (3) potentially earns you more than when you would charge hourly. The last one is important, because you're the one taking on risk in this matter. Your client is buying security, which should cost a small premium, allowing you to out-earn what you would when charging hourly.

The upside of fixed fee is both parties know what's being paid.
The downside for you is that projects might cost more time, risking a loss in income.

2. Retainers

If you follow my newsletter (edwindijkstra.com), you know I'm a fan of recurring revenue. Charging a monthly retainer fee is basically what I do, and recommend you to try as well, if your business allows for it. For instance, if you're a copywriter, you could sell ten blog posts for a fixed fee, but you could also propose an offer that you will write 4 blog posts every month indefinitely, for a fixed retainer.

The upside: less selling and long-lasting clients
The downside: might be harder to initially sell

3. Commission-based

The last one is the most tricky, and requires you to have a lot of confidence in what you bring to the table. However, if you do actually get the results you promise, this pricing model will earn you the most. I have worked with a marketing agency that only worked with commission based deals. I'll tell you, it was a whirlwind with big wins and massive set backs.

The downside: the main problem is that your often dependent on factors outside your control. For instance if you're a marketer or cold-caller, getting paid for sales, the pricing, offer, website content en social media presence all are taken into account by your clients prospects. No matter how good you do your work, certain factors might hinder your success and, by extend, your income.

The upside: if you do get results, you not only can significantly earn more than the other pricing models, but you also retain clients more easily.

In short. If you want to price yourself like a professional:

1. Never compete on price
2. Charge a market conform rate
3. Consider switching from hourly rates