One of the most common recurring topics in our industry is that of pricing. A lot focuses on product or SaaS pricing but I have the most experience with pricing for client service. I want to note down what I’ve learned over 10 years of building websites for clients. I also want to jot down some notes/reactions to other commentary on the subject as of late.
Pricing models
As far as I’m concerned there are four models to employ when working with service-based pricing:
- Hourly: A structure in which you log each our worked and periodically issue an invoice for total hours worked at an agreed upon rate.
- Project-based: The service provider determines a flat cost for the project as a whole based on an internal formula, usually comprised of labor costs and time.
- Retainer: A block (or recurring blocks) of agreed upon time is reserved at an agreed upon rate per timeframe. Retainer fees can be paid on a fixed rate or variable hourly rate depending on the agreement.
- Value-based: A flat cost based on the value (as defined by the client) of the work being done.
I want to start off by saying that there are pros and cons to each of these models. Many times when pricing comes up it’s based not only on a superiority complex, but an aggressive contempt toward any other pricing model. With that comes bias when talking about “other” pricing models, so please don’t be easily swayed into thinking what you’re doing is wrong.
Pricing is personal. Just because someone says their pricing model is subjectively better does not mean mean it’s better for you. There are plenty of very successful companies employing each pricing model and doing very well at it, but it’s also possible to employ the wrong pricing structure. Not “wrong” in the empirical sense, but in the you sense. I feel that the pros and cons of pricing models heavily align with style of work.
Beyond your work techniques and processes, a pricing model heavily (but secondarily) depends on each client. Keep in mind that you are able to choose your clients. Your philosophy on pricing should match that of your client. Having to convince your client to go along with your pricing model is a blocker from the start.
When implementing (or changing) a pricing model it’s important to take into consideration your environment/circumstances so as to have your model align properly. To change your pricing model for the sole reason of making more money will likely result in frustration, inefficiency, and potentially failure.
Are you an expense or an investment?
A recurring topic I hear when choosing a pricing model is aiming to position as an investment as opposed to an expense. Rationale being that it’s harder to work with clients that view you as an expense.
I get the reasoning, but I’ve spoken with a lot of clients over the past decade and not once have I had to convince someone that their website was an investment over being an expense.
This is something you can pick up on quickly within the first few minutes of correspondence with a potential client. If a client thinks that getting their website (re)built is primarily an expense, just tell them it’s not a good fit right then and there. No amount of convincing will change that mindset, and there are plenty of other clients out there who do value their website already, it’s a non-starter.
I don’t think investments and expenses are mutually exclusive either. Take for instance a retail company who has to buy a building. Like their website, a building can be completely essential to their business, but do they see the building as an investment in their business, or an expense? I see a building as both an investment and an expense; having a great looking building will likely help your bottom line in the grand scheme of things, but it’s going to be expensive both to buy and to maintain.
If a potential client speaks about websites as frivolous spending from the start, you know it won’t be a good fit with a service provider that aims to build something designed to be a tool for their client. If you’re that service provider, no pricing model change is going to make that a successful project.
Does your pricing model serve your client?
When discussing pricing, the service aspect usually helps an entity come to a decision on which pricing model to follow. Companies (and freelancers) want to do right by their clients, and very often there is a nagging feeling about a pricing model that simply doesn’t feel right.
I question whether this is rooted in a specific pricing model, or more-so in a discomfort with talking about money. In our world something is worth as much as someone is willing to pay for it, and as we get better at our jobs and are able to produce higher quality work, it’s sometimes daunting to propose your most expensive project yet.
That insecurity manifests itself in a number of ways, and choosing a pricing model as a scapegoat comes pretty easily. At the end of the day I don’t feel that your pricing model dictates whether or not you’re doing your client a disservice.
You don’t force your clients to work with you, a proposal is agreed upon. The client agrees to the pricing structure, so unless you’re doing something shady behind the scenes you have nothing to be ashamed of.
If it’s not insecurity/shame that’s unearthing these feelings of disservice when thinking about your pricing model, perhaps it’s solely a monetary issue. Maybe as the project goes on you’re recognizing that you’re customizing something pre-built instead of doing it from scratch because something else took longer than planned.
Welcome to service-based business.
It’s times like those that let you better prepare for the next job, and as you get better at your job your estimates will get more accurate and you’ll be able to better recognize these cash-eating traps before they snag you.
Pricing is foundational, let’s talk about it
I want to walk through each pricing model in this series of articles. I want to lay out the pros and cons of each because each pricing model has pros and cons. I want to outline how each pricing model benefits both you and your client.
I don’t think I’ve got it all figured out, I just know I live with my pricing decisions every day and see that there’s always room for improvement. No one pricing model is going to work best for every combination of client and service provider out there, so let’s walk through pricing so you can figure out what will work best for you.