How much should I charge for my services?

Sep 21, 2021
How much should I charge for my services?

This question is often asked by freelancers, small-business entrepreneurs, and every person who is selling a service or product, “How much should I charge?”. Deciding on the pricing and how to communicate it to your customers might be the most difficult part of the whole business or freelancing process. It is challenging to set the price that you are worth for your services or products and to attract customers and keep them. But pricing should not scare you.

Let’s go together through several steps to become more confident in setting the right prices.

Firstly we need to understand why setting the right pricing is important. Almost all entrepreneurs and digital nomads are real enthusiasts, they really like what they are doing, but a lot of them do not know how to market their job right. Deciding how much to charge is one of the key factors that positions your services or products on the marketplace. People's brains quickly associate the price with the quality of what you offer. So, there is an assumption you all know about, a high price means high quality, and low price - low quality and bad customer services. Keeping this in mind, you also should be aware to not overcharge. Looks like pricing is an entire science. 

Investigate and understand the marketplace

You need to do market research to determine what prices your competitors have already set. To analyze the differences between you and them. When you price your service, you need to evidence the things you deliver and others do not. Ask yourself, why the clients should choose you and your product, what differs you versus your competitors, and communicate it. 

Calculate your rate

Is your business, service-based business? If the answer is affirmative, you should consider your value, your direct and indirect costs. Customers go for the products they need in their region. Same do, as rule, services customers. Therefore, you should understand the local and national markets. Look how much others charge for similar services. Selling your service is not the same as selling a product. Pricing the services is more about perception.

Perception pricing is driven by the values, or by how much the customers believe it is worth. You have to consider the following things, demand, overhead, billable time, billable expenses, and profit. 

You need to charge for your services according to the demand and the economy. If in the area you provide your service there is not much demand or there is a crisis, you have to take care that your prices are not too high. 

Calculating your yearly/monthly expenditure is critical. Take into account every expense you have while providing your services, this will give you a clear vision about how much you have to charge, so that you cover all the costs, and gain some profit. Determine your annually/monthly salary. Imagine how much would you earn for doing similar work if you were employed, and how much would you like to earn for your job.

Overhead includes all the payments you incur to do your business. This could be, office equipment, rent, utilities, marketing, business insurance, legal and accounting fees, and others. Overhead also includes income taxes, and fringe benefits, if you have any, such as medical insurance. Next, determine a profit margin. As you are not an employee, but a freelancer or self-employed person, you would like not just to have a salary, but to have a profit above your salary, that will also cover your expenses, and allow you to expand your business, or innovate it. As usual, a bigger profit involves higher risks, so it is up to you to choose between a higher but risky profit or a smaller but stable profit. Usually, profit represents a percentage of total costs, and there is no standard for it, but 10-20% is most commonly used. 

Billable time is the time that you need to complete a certain task. You should be able to estimate your effort and man-days for any task you have to do. For annual salary calculation, you may assume that you will work for 40 hours per week, as a common employee does, also you should consider the vacation time, day-offs. 

Regardless of the common expenditure you have, keep in mind that some projects may request additional spendings. You need to record them and bill the client appropriately.

There are two well-known ways of how to charge your clients, hourly-based rate or project-based rate.

Hourly pricing means billing by the hour. You sell your time, the time you spend on the tasks you do. From the beginning, you and the customer agree on a fixed amount for an hour.

Project(Fixed) pricing is also an approach and option for both freelancers and clients. Customers know from the beginning how much they should pay for the project, and freelancers are paid for their efficiency.

Both of them have advantages and disadvantages and depend on the project you work on.

Fixed price model advantages:

  • Low financial risk
  • Clear deadlines
  • Easy management

Fixed price model disadvantages:

  • Lack of flexibility
  • Higher costs

Consider the fixed price model for:

  • Clarity. Deliverables, milestones are defined from the beginning and are not changed after.
  • Limited budget.
  • Small project.

Hourly pricing model advantages:

  • Flexibility
  • Better risk management
  • Agility

Hourly pricing model disadvantages:

  • Undefined costs
  • Variable deadlines

Consider the hourly price model for:

  • Unfamiliar projects
  • Ongoing and ad-hoc work

The bottom line

Whatever method you choose to charge your customers, you could use online software tools to bill them. Online accounting tools make invoicing easier and painless for you. Invoicing is crucial for you as a freelancer or business owner. Oklyx might be a good option for you. It allows you to invoice your customers for the services or products you deliver, apply discounts or taxes, remind clients to pay before the invoice deadline, and automate the process of creating and sending invoices using invoicing requiring features. Also, you could track your expenses there. Oklyx provides an overview of your invoices and expenses on the dashboard, you could easily see the amount of money you are already paid, or still unpaid, and the most delivered services or products.