On February 25th, The Work Crowd hosted a webinar to discuss everything you need to know about value and project-based pricing.
Time-based pricing is the most common pricing strategy adopted by freelancers but while it allows clients to easily compare contractor pricing, it has multiple downsides for both parties:
The faster and better you work, the less you get paid.
The client will hesitate to call you if they have a problem because they automatically know it will take more time and hence more money.
The only way you can increase revenue is to increase your hourly rate, and there is always someone willing to offer the same service for less.
Value or project-based pricing is a strategy that allows freelancers to price services based on both deliverables and the value these will bring to your client. The Work Crowd are advocates of this pricing strategy and are beginning to see many clients and freelancers benefit from these models.
The Work Crowd co-founder Alice Weightman joined co-founder Madeleine Weightman, freelancer Mel Fitzsimmons and Matt Phillips, Founder & CEO of PPR agency, to discuss both project and value-based pricing models, their pros and cons, and how to incorporate these types of pricing strategies into client briefs and proposals.
What are the pitfalls when looking at a more time-based pricing strategy?
Typically, clients and freelancers look to a time-based pricing strategy as it’s easy to understand but the pitfall is that the client is instantly rewarding people for slow work and inefficiency. Time sounds expensive to clients, whereas conversely, to freelancers, there is only a finite amount of it. If you turn the time-based model on its head to a fixed-price or value-based system, the freelancer and client’s motivations are instantly much more closely aligned; the freelancer is rewarded for being more efficient which has a positive effect on the client.
From a client perspective, if you’re only looking at a time-based arrangement, you’re limiting who you can consider and restricting the pool of candidates available to you. Clients who think in terms of time often come in with a preconceived idea of what they want to be delivered in a specific amount of a time. As a consultant or freelancer, you need to understand the client’s motivations and objectives and where you fit within them.
As soon as we start thinking in terms of objectives and deliverables, we can best position ourselves as freelancers or independents to be the solution.
Do the same rules apply when freelancers are working for brands and/or agencies?
Typically, brands are much more open to thinking about a budget whereas agencies are more inclined to work to a time-based model.
As soon as businesses rethink their structure and focus on finding a freelancer who can fulfil the key deliverables of a project to a budget, the sooner they open themselves up to a much wider – and often more experienced – pool of talent.
What are the challenges and advantages of pivoting from a time-based to a project-based model?
A day rate is often seen as the easiest and most straightforward way to price for new clients, but the problem with a day rate is that you lose freedom and flexibility, which is part of the appeal of freelancing.
Clients ultimately want you to help them reach a certain objective or deliverable, so if you can sit down with them in the first instance to ascertain what it is they want to achieve you can price the job based on delivering those things without the mention of time. This can make you much more efficient at what you do and give you the freedom to work on projects at a time and pace that suits you.
With a project-based model, there’s no ceiling on how much work or how many clients you can take on. So long as you’re achieving agreed deliverables for each client – perhaps with the help of more junior support – you’re honouring your contract and objectives.
What is the problem with retainers – and what’s the solution?
Retainers can be problematic for clients as at the beginning of a project they don’t necessarily have a gauge of how good the freelancer they’re engaging is going to be when they start. This can create anxiety on both sides, however, introducing a value-based pricing model can be a good way of removing that anxiety for both client and freelancer.
In terms of account management, it’s best to be upfront and clear about how this model works from the outset, and that leaves the client free to make a choice as to whether it will work for them. Everything that is not in the clearly outlined account management process is deliverable, billable work in addition to the agreed fee. Clear communication upfront is key.
How do you pitch a value-based pricing model?
Productising your proposal and integrating things that stretch the offering can help to build a value-based model. It’s so important to understand the client’s business objectives early on and how you as a freelancer fit into that.
There are several approaches that work for different people, maybe it’s a fixed price with a built-in buffer and a stretch ‘bonus’ incentive. From an account management perspective, sometimes it helps to build a time indication into the statement of work, and this gives you something to refer back to - should you need to - in the future.
Value doesn’t have to be pecuniary; it can also be about achieving business objectives - if you can talk in terms of how you’re going to make or save a business money you’re immediately aligned with the client and working on their level.
How do you work out value and what percentage should you charge?
Traditional value-based pricing methods can work on a percentage if you’re able to clearly ascertain how your work will, for example, increase revenue for the client.
If a client isn’t able to be transparent about the revenue increase that they’re anticipating as a result of your work, there is an opportunity to quantify value in terms of the deliverables that you’ll be achieving in line with business objectives. It’s hugely important to have those initial conversations and to be clear about the pricing model from the outset. The more experienced you become as a freelancer, the easier those conversations become.
Clients are naturally risk-averse, and this is where the value-based system works very well. If you can guarantee a KPI then that can be built into your pricing.
How do you manage clients that exploit your agreement?
This is a familiar challenge for freelancers and the best way to deal with it is to productise your offer and put scope around it. For example, if something is outside of the scope of an agreed project it will be charged at an additional (high) fee. In this way, you can disincentivise certain behaviours through how you productise and position your offer.
Educating the client from early on and ensuring that they understand what the service you’re providing is key in helping them to acknowledge how your work will impact their business and add value.
Adding a buffer into a proposal to allow time for unscheduled calls and queries can also help. In doing this you can be more available to the client and be approachable and open without it costing you money. Clients need to value their freelance talent and if they’re trying to compromise your time or get more out of you for less money then perhaps it’s time to reassess if this working relationship has a future. Being clear and upfront affords you the luxury of being able to say no when the client doesn’t have realistic or sensible expectations.
Avoid being added to a client’s Slack channels and/or WhatsApp groups as this can waste huge amounts of time – agree how you’ll communicate outside of these methods before you start the job.
Specialist or generalist - what really drives value?
When you start out as a freelancer, the instinct is often to be very broad but that’s not always very valuable. From the outset, ascertain what you’re good at and what you love to do and what you can do that’s high value and quick – on that basis you can start to build your personal brand and focus, which will help you to identify the best clients. If clients identify a freelancer who has the specific skills that they want and value, they become less price sensitive.
In specialising you can become an expert in a specific area and can more confidently offer guarantees on deliverables. The more you drill down on a specialism it also becomes easier to price jobs and know what you can achieve in a certain amount of time. Being recognised as a specialist will lead to recommendations and referrals - key trust indicators in building your freelance brand and business.
How can you increase your productivity and work more efficiently?
From a digital marketing, scheduling tools like Hootsuite are vital for saving time from a social media perspective. Reporting tools like Google Data Studio are great for providing reports and are transferable to every single client. Tools such as SEMrush cost money upfront but give you all of the important data you need about a client’s domain very quickly. Investing in tools can make you more efficient and more productive and add value to your work.
Specialise, productise, and then automate – this way you can focus on the highest value thing and make the most money!
Keen to watch this webinar back? Click here to watch the full webinar.
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