To price your work properly, start with market research.
That’s the advice I was given when I first started working for myself. I did a bunch of research, comparing myself with others in my field. I came up with a reasonable number, one that seemed fair for my services and took into account both my expertise and my main competitors.
Still, I worried that I couldn’t measure up. I cut my fees in half.
Looking at objective market data first assumes that you and your clients are both eminently rational. But many independents don’t realize that pricing is an inside game—something that I didn't quite grasp at first. When you’re just starting out, you’re not as analytical as you may think you are. And no matter how experienced you become, one rule holds true: Humans are irrational, emotional beings—especially around money.
It’s not easy to take an objective measure (pricing) and filter it through a subjective lens (your mind-set). You fear you'll price yourself too high. But when you focus on calculations and research above all else, you’re more likely to undersell yourself. Worried you don’t yet measure up to all those other "experts" in your field, you'll be more likely to reduce your price in order to match that mind-set—thereby confirming it.
This is a huge mistake. You need to compete on value, not on price. After all, being underpriced is worse that being overpriced; once you’ve established an expectation with your clients, it’s hard to make massive adjustments. You’ll have to settle for incremental price increases unless you turn over your entire client base. So to avoid this predicament later on, you need hold off on the market research and address your mind-set first.
These are four of the most common attitudes that lead independent workers to sell themselves short.
It's true that being an expert in your line of work and running a full-fledged business are completely different skill sets. You may not know how to run a business—yet. But despite your fledgling business skills, you still offer value in your area of expertise. Separating your knowledge of running a business from the skills you offer to solve your clients' problems is the first step to letting go of this mind-set.
Going out on your own is a risk. There are all sorts of traps you can fall into, and there are plenty of stories about people who couldn’t make it, fleeing back to the safety of company life. Who can blame them? Working independently isn’t for everyone.
So ask yourself: Am I suited to uncertainty around my finances? Am I resilient enough to stay on the roller coaster? You may see this as personal questions—more about your worth ethic, tenacity, and temperament than about pricing, which is a business matter. But they have direct implications. So if the answers are "yes," stop worrying about whether you can make it. This will in short order help you set more sustainable rates.
If you've been working for someone else, chances are you don’t have a realistic sense of your skills and their value in the market.
After doing research, Jennifer set her rates 50% below the going rate for her level of expertise as an editor. When she came to me, she was barely charging more than a college internship would've paid, even though she had several years of experience. She figured she’d raise her rates once she had more experience as an independent consultant under her belt.
But while you do want to build a steady cadre of clients as quickly as you can, you don't need to steeply discount your services in order to do so. Resist the inner saboteur telling you that you need more expertise.
The biggest mind-set shift you need to make before pricing yourself is from employee to boss. Many independents fail to make this transition complete—and the term "freelancer" is probably a big culprit here.
As a freelancer, you implicitly or explicitly allow someone else to set the rate ("This is the job we need done and here's what we're willing paying for it"), the hours, and the location of the work. When you do this, you’re still acting like a full-time employee but without the benefits. You’ve effectively demoted yourself.
Employees hope for raises. Business owners (that's you!) give themselves regular raises, building it into their client relationships from the very beginning. Employees accept what they’re given; business owners ask for exactly what they want. Employees shy away from money conversations; business owners drive the money conversation. Employees undervalue themselves, feeling too often like beggars; business owners know their worth.
If you don’t make this crucial shift in attitude, you’ll end up with rates so low you have to work twice as hard to make a living. Eventually you’ll resent your clients, get awfully close to burnout, and may even start to wonder whether you should return to work for someone else.
Making the shift to being your own boss before you do one calculation or send out a single proposal can set you on the course to a sustainable living rather than failure.
I’m not advocating you eschew market analysis completely. They're both important; it's just the sequence most people get wrong.
Do the calculations once you’ve taken your emotions—and your attitude toward the work you do—into full and fair account. Rather than ignoring your feelings on that score, make room for your irrationality. Look your insecurity and fears squarely and head on. Then set your initial price.
It's only once you've done that that you can actually start conducting external research on the market. Finally, armed with your new attitude and market information, you can set an appropriate price—and start attracting the right kind of client to pay it.