Business Lesson - Pricing your work
Real-world experiences from the eyes of a freelance consultant.
I've read and heard it multiple times before, from consultant to consultant, from company to company that when pricing your work, you should not back down from the price you gave for your proposal to your client. There are two sides to this particular issue and its a fine line to walk.
Quit cutting your hours...
Now, I'm not talking about cutting a couple hours here and there, like two or three hours. I'm talking about taking a 400-hour project and cutting 100 hours off the project just to get the client.
Two things will happen if you pursue this avenue:
- In mid-stream of the project, you realize you were right in estimating 400 hours for the project, but you need to tell your client that it will take longer. This will definitely make things awkward between you and your client.
- Your professional image may tarnish a little. I'm not saying rust, but tarnish a little. If you continue to price your work like this, it will build up and you can expect rust (clients not interested in your work).
...but defend yourself.
If your client says this is too much money or too many hours, show the client your project plan (you did create one, didn't you?) and how you are planning your "attack." Explain to the client where and what their money is going towards. If you are upfront with the client, the client will respect that. If the client doesn't have enough money for the entire project, split the project into phases or complete the entire project and ask for "payment plans." The client will see that you understand their position and you are trying to accommodate them. This will go a long way in the business world.
But how much do I charge?
Ahh...the universal question in the consulting industry. There are so many ways of determining what to charge.
There are four factors involved in pricing work: Quantity, Quality, Type of Work, and Billing Type.
Quantity
There are two ways to take this meaning. The first way is the size of the company. If you are comparing a larger company to a smaller business just getting started, you probably are going to chase them away with a $17,000 price tag for a web site when all they want is a presence. If you proposed this solution to a larger company, they would consider this a steal! Now the small business client may wish to get started on the site and if you continue to show exceptional progress, it very well could turn into $17,000. You have a returning client coming directly to you for their web site.
The second meaning to quantity is how large is the project. If you have a project where the client wants to implement an e-commerce site, forums, an intranet, CRM solution, oh...and an exchange server (and a kitchen sink), you and I would agree that it would take a little bit of time. Hence, the rise in price.
Quality
"I need it over the weekend!" I've had clients who said to me, "How fast can you write this?" You may get it done, but guess what...there may be some quality issues involved. If you are professional enough, you know that you need to have development tools, version control, accounting software, travel and meal expenses (IF out of town) :-), and hardware replacements in case of weekend deadlines (Am I missing anything else?). All of these issues take time and money.
Type of Project
Clients will always have a problem and if you are a jack-of-all-trades, you will be in a perfect position to offer more services to your existing client, justifying your value. One client I currently have asked me, "Do you know of anyone who networks PCs?" "Why, yes I do," I replied, "you are talking to him." That is an additional service that you need to price out. As soon as the networking phase is done, we are talking about working on a web site design and objectives.
Billing type
In the example above, a client wanted a network and a web site. Common sense tells you that shouldn't charge $1,000 for the network setup and maybe $200 for a web site. The two most common methods are hourly and on a project basis.
If it's a short-term, one-visit problem, more than likely you'll charge by the hour. Otherwise, its project-based pricing.
Phew...Now....the magic bullet. What's the formula in determining how to price your work?
There isn't one.
If a client comes to you, you will ask them questions about the project. You will know the detail of the project, the size, the offer, and the timeframe needed to get it done. There isn't a single formula out there that can possibly encompass every project.
But keep in mind that all of the above factors will play into how much you are willing to charge on a project without scaring away your contact, providing maximum value, and continuing your awesome business relationship with your clients.
Every young man would do well to remember that all successful business stands on the foundation of morality.