Pricing services: Stuck in a timeflow trap?
From a cashflow point of view, I find running a service-based business a doddle. I can pay myself a regular salary, and my biggest overhead is my MacBook. But the challenge is working out a strategy for pricing services.
It’s a far cry from a previous solo effort, in which I ran a small kids’ clothing business. Then, cashflow was my biggest challenge. Funding production upfront, taking out an overdraft to manage the risk of a new collection, chasing retailers for payment: as much as I loved the creativity of it all, there never seemed to be much in it for me financially.
I no longer have the cashflow ‘Where will all the money come from?’ problems that used to keep me awake at night. But the timeflow ‘How will I fit it all in?’ issue has taken over.
If a cashflow crisis occurs when there isn’t enough money in the business to meet the needs of the business, a timeflow crisis occurs when you don’t have enough hours in the day to meet demand – and generate the cashflow you need to meet the needs of the business. See? It can be a vicious circle.
Selling your services means you only earn for the hours you work. So how do you make sure you charge what that time is really worth?
There are generally three options when it comes to pricing services:
"If a cashflow crisis occurs when there isn’t enough money in the business to meet the needs of the business, a timeflow crisis occurs when you don’t have enough hours in the day to meet demand."
- An hourly or daily rate is great if you’re working onsite with your client, but set expectations up front if you’re not. (Need help calculating your hourly rate? Try this hourly rate calculator.)
- A project fee, which tends to be based either on an estimate of what you believe the work is worth to your client, or a stab in the dark calculation as to the hours that will be involved. You need to take care to avoid scope creep too.
- A retainer, which can be great for your cashflow, but means clients will want to see regular monthly value. In this case you need to define what that value means to both parties.
In my business, we’re big believers in the project fee. We generally find that we can work faster (sometimes as a team) than an individual freelance writer, so an hourly or daily rate is rarely indicative of our total cost. Clients like it too, as they can sign off their budgets and there are no surprises.
But setting the project fee is an art in itself. Have you ever gone through a cycle of under-quoting to make sure you get the work, then run yourself ragged keeping up with deadlines, and then wonder why the monthly revenue has taken a dip when you’re busier than ever? That’s when the timeflow trap sucks me dry.
We recently started using a program to manage quotes, timelines and invoices. Importantly, we can track how much time we really spend on a project. I can now see I’ve sometimes let myself down by not valuing the work properly, and that I’ve sold myself short for not factoring in the time it takes me to supply my clients with all those little extras.
Picasso famously completed a sketch for an admirer on a paper napkin, and then asked for a large sum of money. “How can you ask so much?” demanded the patron, “it only took you 30 seconds.” “No,” replied Picasso, “I spent 40 years perfecting this sketch.”
While I’m no Picasso, I’ve had those moments. When my first draft was so universally loved by the client that there were no amends, the design agency demanded I discount the project fee because it ended up taking me less time. Yet I’d produced something beyond their expectations – which saved them time too. Perhaps I should have demanded a premium.
So what’s the answer? Regular clients can breathe a sigh of relief – I’m not going to start jacking up prices! But I am going to make sure I question the brief thoroughly before I quote, and I’m going remind myself to have confidence in the value of my work.
How do you make sure your price is right? Share your tips for pricing services with us all!