Before officially opening up for business, you’ll need to set prices for your products or services. When I first launched my photography business, I relied heavily on the advice of my shutterbug friends and what my local market could support.
Of course, there were numbers to crunch, too. I needed to pay for studio space, camera gear and business insurance — in addition to cutting a paycheck (eventually). It was a lot to figure out before booking that first appointment.
Take it from me — and a handful of other successful freelancers — learning how to price your offerings isn’t difficult, but it will take time to understand the value of your product, the structure of your market and what you need to earn to pay the bills. Here are four questions you should ask yourself before you open for business.
How Much Money Do You Need to Make?
Before you even think about how to price your services, you need to determine the minimum income that’ll keep you in business. Create a monthly budget to estimate your mandatory expenses, which may include housing, a co-working space, food, insurance, business supplies and transportation. And don’t forget to set aside funds to cover your retirement savings, future tax payments and that much-needed entrepreneur vacation.
“My price is a mix between what the market demands and what my lifestyle demands,” explains Kiné Corder, owner of Presidential Lifestyle, which offers psychotherapist and financial therapist services. She looks at what other coaches in her niche and market charge, and weighs it against her income needs. Then, she aligns her prices accordingly. “For example, if I wanted to earn $30,000 a year from my course, and I can only work with 100 people, the service would cost $300. I would then round down to $297 to make it marketable,” Corder elaborates.
The pay-per-project mindset can be eye-opening for new small business owners. How many hours can you actually perform your service? How many products can you create before quality begins to suffer or you get burned out? Don’t forget: You also need time to market yourself, perform accounting tasks and do other non-paid business chores.
Which Payment Structure Works Best for Your Clients?
Next, decide how your clients or customers will pay. If you provide a service, it may be better to charge by the hour or task. In order to meet the needs of her clients, Michelle Garrett, the creative mind behind Garrett Public Relations, offers different payment options. Garret’s clients can choose to pay by the project, hourly or through a retainer fee.
When determining your payment structure, you can also consider offering additional perks for repeat business. “Are [clients] committing to a guaranteed number of hours each month? If so, I’ll give them a break on the rate,” Garrett explains.
I’m of the same mindset. When a work-for-hire contract dictates ongoing, steady work, I’ll accept a lower payment per service. Why? I end up with more billable hours, since it’s less time-consuming to keep a current client than to onboard a new one.
But if you create a physical product, like a painting or a knit sweater, it may make more sense to charge a flat rate for each item you sell — especially if your customers are making one-time purchases.
Are You Using a Third-Party Platform?
- Does this third-party service have posting fees?
- Do they get commissions?
- Do they cap your rates?
- Do they require minimum prices?
- Do you have to pay an annual membership fee?
For Alina Adams, a freelance consultant and author who helps New York City parents find the best schools for their children, it was simple to set a price for one of her revenue streams.
“I priced both [of my] books at $9.99, because that’s the maximum I can price a book on Amazon and still earn a 75 percent royalty … That money subsidizes my free podcasts and webisodes that offer even more information for parents,” Adams explains.
Remember: If you’re using a third-party platform, it’s important to incorporate any and all associated fees and costs into your monthly budget planning. Doing so will help you understand what you should charge in order to get the gross income you’re seeking.
How Can You Compare Your Product’s Value to the Market?
As you develop your business plan, consider whether your work comes with a set rate. This can help you create income goals for project-based work or sales of individual items. For example, if you sell handmade bracelets on Etsy and have 10 pieces available per month at $50 each, your maximum income will be $500 pre-fees.
But is that price appropriate? When pricing a product, you’ll need to weigh the cost of the supplies and your time per item against the market values of similar products. If other crafters sell similar jewelry for $30 each, your products might appear too expensive. Can you afford to lower the price and still profit? If not, consider finding a new selling platform or lower-cost supplies. Before you post your items, search for products similar to your own and identify key competitors who make regular sales. This will give you an idea of the price range for your products that’ll appeal to your market’s audience.
And what if your bracelets are selling faster than you can make them? Then it’s time to assess and revise your pricing model as necessary. When repeat buyers and increased visibility lead to a sudden boost in sales, you can begin to increase your prices. Do this gradually, and consider reassessing your payment structure on a quarterly basis to ensure you are continually gaining the ultimate profit. As you’re analyzing your gross profit, be sure to think about the wholesale and retail costs that you incur as both a producer and seller.
No numbers are carved in stone. You can always offer lower introductory specials to build a consumer base, then revise your rates as your business takes off. Always remember: This is your business. Choose a price that appropriately compensates you for both your talents and offerings.