We’re often asked how we invoice, what our contracts look like, what our favorite payment gateways are + general pricing. We’ve always approached the topic of money pretty openly but a few weeks ago, Kory tweeted to us about the topic of raising your prices. How do you know it’s the right time? And by how much?
This is something that Adam works through inside of his Black Market Business Partner program, but he wanted to give you a basic rundown below.
Our approach to pricing has always looked a little like this:
- What’s the average rate/industry standard for someone with my experience?
- How much do I need to make in order to live comfortably? (paying bills, being somewhat social, travel and saving)
- Based on how much we make, what is my hourly rate? I use this only to estimate. We rarely work at an hourly rate.
- Are clients constantly saying, “YES!” to the proposal? Not charging enough. You want them to pause and think about the investment.
- Does the client wear a tie? (Unless it’s a bow tie, we charge more).
An Example (perfect for you if you’d like to make $90,000/year!)
Alright, so let’s do some math here!
- Assume you want to pay yourself $90,000/year. (Which means you need to pay yourself roughly $117,000 before taxes but after expenses.)
- Let’s assume your expenses are $1000/month (or $12,000/year).
- So – and this is VERY rough – you’ll need to invoice for $129,000.
So $129,000 is your target number.
- Let’s assume 2 weeks of vacation a year (giving you 50 total work weeks).
- 5 Days a week for 50 weeks gives us 250 working days a year.
- so if we take $129,000 divide by 250 we get $516/day
So your target daily number is $516
- Let’s assume that you don’t actually invoice 8 hours a day, it’s usually actually around 4-6.
- Plus you want to spend some time making cool, fun projects that pay $0.00.
- so $516 divided by 4 = $129 & by 6 = $86
So your hourly rate is going to be between $86/hour & $129/hour
If someone came to us with these numbers, my first recommendation would be to diligently scope out project hours when putting together proposals and then create pricing with a rough $100/hour rate in mind. That way if you’re a little over or under, you’re going to hit your target hourly rate.
Also, I wouldn’t communicate that number to the client. They don’t care about your time, they care about your results. Focus on clearly outlined goals & deliverables.
What If I’m Awesome?
Ok, so all this hourly bull crap above can be thrown out the window if you’re both (A) completely booked and (B) one of the top performers in your industry or niche.
The Wonder Jam isn’t about some kind of pretend reality TV star crazy pricing, we’re about supply and demand. As we raise demand for ourselves, the supply becomes limited and prices go up.
If you’re the best, charge whatever you’d like. If you’re busy as you can be, then charge whatever people are willing to pay.
Note: We don’t charge by the hour anymore (why punish ourselves for being efficient? and why punish our clients when we want to spend an extra 12 hours testing & tweaking?).
How do you go about raising your prices?
IMMEDIATELY! That means any new inquiry receives your new rates and you can discuss the rate increase with current retainer clients. If you’re already locked into some fixed fee contracts then you need to respect that and deliver as promised. If we raise our rates, we also change the appropriate spots on our site forms (where we often get inquiries). Adam and I are just getting more into automation when onboarding clients so we hope to share more about that soon.
If you’re a freelancer, you don’t need to tell anyone you’re raising your prices. I’ve watched creatives announce to the world that their prices are increasing – which I’m sure feels good – but that’s not going to do much except turn people off. (Fun story: In one retainer we held, we actually DROPPED the monthly price of the contract, but also simplified our deliverables. Hourly, we made a lot more money (and our client paid less as well!).
Finally, if you’re selling products and you want to raise prices, have no fear! If you treat your customers well and nurture everyone through increases, you’ll do great! We’ve watched folks in every industry raise their prices and walk away better than before.
What do you do if every quote/proposal is rejected?
You might have raised your rates a bit too much. There’s always a sweet spot. Not everyone should say yes. Not everyone should be saying no. There are a few ways to find out that sweet spot:
- What kind of value are you giving your clients? Are you delivering a product? What about an experience? How do you make them feel?
- After you’ve asked yourself these questions, send out a survey or meet with past clients one-on-one. Ask for real feedback about what they loved about the experience but how you could improve for future clients.
- What does your competition do well? Don’t be afraid to admit that and then take cues.
- Are you booked solid? If not, it might not be in the best interest to move forward with your increased rates. There were times in my freelance career that I had to take on lower paying projects in order to meet financial goals. Seven years later and working with Adam full time, we’re able to be picky about who we work with.
Keep track of projects, hours and contractor fees!
Our last piece of advice is to keep track of project details. It makes pricing yourself out for future work much easier. Our developer tracks his hours per project (broken down by type of task and functionality on the site) and we now have a spreadsheet that lists average costs. When a client inquires about a smaller, informational site then we can go to the spreadsheet and determine (on average) how much of the quote should be set aside for development. Then I can add project management, design and maintenance costs based on our rate. If we’re really slammed, I’ll increase or double the quote based on the requested timeline. If I’m going to have a crazy week and less sleep…I will be compensated! We’ve had clients extend their delivery date in order to reduce the cost of the rushed project.
Hopefully, these tips are helpful! If you have any suggestions or follow up questions, leave a comment!