Capitalism means I'm free to charge whatever I want.
No one has to pay it, but I am free to set my pricing however I wish.
There's nothing stating you can't merely pull a figure out of thin air and see who bites.
There's never any need to explain or rationalize my pricing to anyone.
I charge what I think I should earn and the client may be willing to pay.
It's really that simple.
That does not mean clients are always willing to pay what I think they will. But many will, some happily.
Admittedly, this is much easier when you've got some experience and a track record you can convey. Think of "designer" handbags.. they use the exact same materials as less expensive handbags. I mean Versace isn't creating anything that can't be created by someone else for much less. But they price in multiples above the norm merely because of the brand. I'm free to think my "brand" is more advantageous to a client and price it accordingly.
To do this you first need to...
- Absolutely know your overhead.
- To this end figure a base minimum hourly rate.
- Be honest about your skills, abilities, and time necessary for many things.
- Understand at least some current market pricing
I won't go into details about how to factor overheard, there are other answers here which do that exceptionally well.
For market pricing you can use crowdsourcing sites to find similar projects and see what is being paid there... but realize those rates are very low most of the time. They are "basement rates" as I like to call them -- the minimum I should charge for anything.
With all the above you should be able to determine the cost of working hours (e.g. production time) for yourself, not the client. For an example, you should be able to estimate that a flier will take you 2 hours to complete, not the ideation, the production time. So you simply take 2 x the base hourly rate, which covers your overhead.
In many instances I find this base hourly rate woefully low. Randomly, let say it amounts to $20 - my overhead is very low and my base hourly rate is only $10/hr. I know on many crowdsourcing sites, fliers are going for $35-$50. Now, am I going to charge the client $20 for a flier promoting an event? $35? $50?
Heck no!
The client has contacted me directly, seeking my skills and abilities. My skills and abilities are a commodity since there's only one of me (that I know of).
As an example of this....
I am aware that few if any clients are going to pay $500 for a flier... but many will go as high as $250. So... I have some room.. I quote between $50 and $250 depending on the impression the client has made on me. All of this is well above my overhead and most of it sheer profit. This allows me, based on my base hourly rate, several hours for ideation before I'm no longer profiting from the project.
- If I quoted merely $100, and I know I need 2 hrs for production, that leaves me roughly 8 hours for ideation until I "break even" on the project. If ideation can be completed in an hour, then I've profited $70 from that $100 quote (3 total hours for the project completion).
This is the basis for value-based pricing (1). I price based on the client's percieved value of a project, how enthusiastic I am to work on the project, and current market trends. Not any direct math formula.
If I feel it'll be worthwhile to work with the client, and the client seems easy to deal with, and I want to work on the project I'll price lower.. in the $100-$150 range (remember anything above $20 is profit).
If I think the client will be difficult or more demanding I'll price higher.. $200-$250 range.
If I don't really want the work or don't really want to ever work with the client, I'll price very high.. $400-$500 range. Problem here is some clients will pay this, meaning you may have to work on something you'd rather not. However, the profit factor is much, much greater.
If I'm adamant about not working with someone I merely refuse the work.
One also needs to figure the number to clients they may need. When starting out, you may need to find more clients quicker. So pricing lower will garner more clients. Not necessarily good clients all the time, but more clients. Pricing higher will tend to weed out much of the "just want it done cheap" clients and garner more stable, repeat, clients.
There's an old adage -- "If you get every project you bid on, your pricing is too low."
One thing is clear to me though, sticking to strictly hourly rates only ensures you penalize yourself as you get faster and more proficient.
When starting out, it may take you 4 hours to complete something. However after working for 6 months it may only take you 2 hours. If you stick to hourly rates, you've just cut your rates by 50% in 6 months unwittingly.
- Let's say I'm just starting out and I quote 4 hrs for a flier at $20/hr.
So the total quote for the first flier is $80.
My overhead demands $15/hr. ($60)
So, I make a profit of $20 after overhead. - 6 months later, I can complete the flier in 2 hours...
If I stick to an established hourly rate of $20/hr,
I'd now have to quote the same amount of work for $40.
My overhead is still $15/hr ($30).
I have now profited only $10 after overhead, for the same work.
So, I'm doing just as much work for half the price merely because I'm better at my job. I want pay raises as I get better, not pay cuts.
It's not a simple thing to increase hourly rates by 50% in 6 months for a repeat client. But with value-based pricing I can easily charge the same amount for the same project even though it now only takes me half the time, and merely profit more and more as I gain proficiency.
So, in 6 months I would have increased my profits by 50%, rather than cutting them. If I charged the same amount, $80, for both fliers, I would have profited $20 from the first, and $40 from the second. And clients are happy there's been no price increase.
So in the end.. price however you want... just always be certain to cover your overhead.
I literally look at a project's scope, estimate how long it's going to take me in my head, multiply that by my base hourly rate - this gives me my absolutely minimum fee without any profit. After that.. I honestly pull a number out of my hat which is above my base fee, as high as I think the client will pay, and reasonably within the market for similar projects. I'm not always correct in estimating how high a client will go... but I have plenty of room for negotiations should they be necessary.
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