Many freelancers (and studios) price their projects too cheaply — because they aren't running their business, like a business.
Charging too little is not only bad for your business, but also your clients. If you don't charge enough your business will not survive.
It's not sustainable.
Which means more risk for both future and current clients.
We've all been there. The fear of charging too much might mean you don't get the work. But every time you take on a project, there is an opportunity cost. You close a door to a project that might have paid your worth.
In this article we'll break down what you should be charging for, including all the little things you may not have thought to charge for.
And to make the process faster and more transparent we built a tool, which we’ve used on hundreds of 4 to 6 figure projects. We felt it might help others, so we decided to name it PriceUp and release it for free.
PriceUp can help you:
Scroll to the end to grab it, or read on to learn the secrets to pricing digital projects.
There are plenty of articles on how to calculate your day rate, you’ll need this to ensure you get paid enough for the time you put in to cover personal bills and live your life. Your day rate is your baseline and forms part of the project’s price.
Knowing the value you’re bringing to your clients will be integral for future growth. The only way to understand that value you bring is to ask.
Ask why they want a new website, a new logo, a new product. How will it change their business? Why have they decided to start now? What will they lose if they don’t complete this project?
Warren Buffet rightly said…
Price is what you pay. Value is what you get.
There are 3 elements to this:
Your client is investing X (cash) to get Y (deliverables) to accomplish Z (desired outcome). For you to deliver value for X, you need to first understand Z, as often they’ll come to you asking for Y.
Many people price for Y, when they should be pricing for Z.
The market has a cap on what you can charge for Y due to supply and demand. Many people offer Y. Less can offer Z. Y has little value without accomplishing Z.
PriceUp can help with pricing Y, but you’ll need to work out Z beforehand if you want to maximise your income.
There will be projects where you are too expensive because you can’t deliver more or equal value than the price you charge. These are the projects you walk away from.
They will not end well.
There’s 4 core areas which we’ll need to fill in first before we start tweaking some of the other numbers.
Who will be working on the project, it could be you, or perhaps it’s a team of people.
Fill this area in with their respective roles and base day rate. If you have a standalone project manager then great, otherwise we’ll account for PM later.
How many days will the project take for each member on the team?
This can be tricky if it’s a new project you’ve not had experience with before, or there’s lots of features.
Feature Estimator, a tool to help break the project down and estimate timings. You can send it to your team members to fill in, or screen share and work on it collaboratively.
This will help break the project down, build in buffers, and provide a more accurate estimate.
As you gain more experience this will get much quicker, until then we recommend timing any project work you do. This will help build a picture of how long tasks typically take.
💡 Tip: If you’re outsourcing some of the labour ensure they’re marked as a contractor by checking the box. PriceUp will automatically add a markup to the final estimate. You can tweak the percentage of this in the settings.
This section is often forgotten, and it’s so important! Make sure to list out every outgoing business expense and how much it costs you per annum.
The total is then divided by the number of working days you have in a year. If you work certain days then you can update this number in the Settings. Make sure to account for holidays, potential sick days and bank holidays.
The total will let you know how much it costs to run your business per day and we’ll build it into the project cost later.
Think about what expenses this project will incur. We’ve added some common examples. This helps build an accurate estimate for the project.
Other notable items would be to add in some Contingency, Added Value or Extra Risk. It’s good practice to build in some buffer, in case anything crops up. Hope for the best, prepare for the worst.
Once the above is complete, you’ve got a realistic idea of what it will cost your business to make this project happen. Nice!
Last but not least is Settings, once you’ve found what works for you this area may not change all that much.
So often as a freelancer you only think about your day rate. But as a business you should be accounting for profit too.
Reinvest your profits to scale your business. This could mean training, marketing, hiring staff or developing products to add additional revenue streams.
All projects big or small require project management, at minimum we add 10% on top of the total project cost.
Depending on the project, how many parties involved, or there’s a lot of back and forth it’d be wise to increase it. This will avoid eating into your profit margin.
If you have a dedicated project manager then you can put this to 0% and add them in the labour section.
If you’d like to offer a charity discount to your client then this is the area to add it. PriceUp will automatically discount the rate from the project estimate.
Always remember to add some markup to any external labour you bring in for their services. Should the project go over budget then there’s some extra leeway too.
The amount of markup will depend on the size of the project and the type of client. Play around with this figure as you see fit, we usually kick off with 50%.
To apply this markup make sure you check the “Contractor?” checkbox next to the external contractor in the Labour section.
Taking on a project is a commitment of your time. Rather than go on feels we found it helps to score a project on its merits. So we created the Project Gauge - feel free to add your own considerations to it.
PriceUp is completely free, so if you found some value please share it with others.
If you think we’re missing something, let us know, we’re always looking to improve our processes.
For more products and updates follow us on Twitter.
Happy pricing from Team Caboodle! 🎉