3 ways freelancers can break free of the hourly rate pricing model

One of the biggest challenges creatives share with me is knowing how much to charge for their services.

Can you relate?

If you can, you’re not alone. Pricing something as subjective as creativity can feel like a confounding riddle at best and an impossible task at worst. Throw in limiting beliefs, scarcity thinking, and discomfort talking about money, and you’ve got a holy mess on your hands. Is it any wonder pricing remains an issue for so many?

So, you stick to what you know (even though you know they suck!):

Hourly rates

Now, as a business coach who helps creative entrepreneurs and freelancers build profitable creative businesses, it’s probably no surprise that I really, really, really don’t like hourly rates as a measure of value and results. Not least of all because the more experienced you get, the faster (and seemingly easier) you’re able to deliver out-of-this-world solutions. And in an hourly model, the only way to get paid for the value you deliver is to charge a sticker-shock hourly rate.

And who wants to be on a sales call quoting that number?

Now, I want to be clear. This post is not your typical coach rah-rah about charging what you’re worth with no support or tools to back you up. This post is based on 20+ years of creative industry experience, 15 of which were as a rep writing proposals and negotiating fees for some of New York’s top-tier talent. This post is based on what works.

If you’ve been stuck in an hourly model you don’t know how to break out, read on for 3 things you need to know to price your services with confidence.

Want to take a deeper dive into Pricing Your Creative Services? Download my free guide, Creative Business Pricing Guide for Freelancers and Small Agencies

Before we jump in, I have some good news and some bad news.  Which one do you want first?

Let’s start with the bad news and get it out of the way. I regret to inform you that there is no “pricing menu” that you just don’t know about yet.  I wish there were. However, there are some fantastic guidelines and best practices, one of my favorites being The Pricing & Ethical Guidelines by the Graphic Artists Guild. But ultimately, the art of pricing is part industry standard, part experience, and expertise, and part defining your way to a price that feels fair to you and the client.

While there’s no universal formula for this magic, there is a framework for finding your way to pricing with confidence.

Step 1: Look at pricing within the context of your whole business.

One of the biggest pricing challenges I see entrepreneurs experience is looking at pricing without context. They may see so-and-so charging a certain rate with no knowledge of what it takes to run that person’s business. Revenue has surprisingly little bearing on profitability.

So, let’s start with the definition of a profitable business. To me, it’s a system that reliably generates consistent and predictable revenue with money left over (after all expenses are paid) to be used however the business owner chooses. Examples might include expansion, equipment, hiring, education, marketing, profit distributions, etc.

Which is not to say there will always be money left over. Or even that you’ll always make your monthly nut (good months and bad months come with the territory).  But this is the gold standard of what we’re aiming for.  Sound good?

Here’s where pricing comes in.

If your goal is to grow as a business owner (which requires investing in yourself), hire a support person or two (investing in operations), or grow your business in any way (branding, marketing, technology, etc.), you need to generate more revenue.

Pricing is the lever you pull to increase revenue.

Step 2: Define what kind of business you want

As entrepreneurs, we need a highly attuned BS detector. Why? Because from morning to night we receive messaging that the only business worth having is 6 or 7 figures (+).  Maybe. Maybe not. Neither is wrong, but the question is, are they right for you? Instead of chasing an arbitrary number and reverse engineering into a pricing model that supports it, I encourage you to ask yourself a few questions. Here are a few to get you started:

  • What do I want my business to do for me?
  • What do I want my business to do for others?
  • Is my business model high-touch/low volume, or high-volume/low touch?
  • How many customers or clients do I want or need?
  • How simple or complex do I want my business to be?
  • Do I want to manage people or have a one-person shop?
  • How much time am I willing to invest in my business?
  • What do I want to spend the majority of my time doing?
  • Do I want to work in my business or do I ultimately want it to run without me?
  • How do I want to get/attract new customers or clients?
  • What’s the end goal? Do I want to sell the business, or am I happy to close up shop when I’m done?

The answers to these questions will help you identify what kind of revenue you want to generate and therefore the services and pricing that support that outcome.

Step 3: Choose the pricing structure that supports your goals

If the only pricing lever available to you is increasing your hourly rate, you’re going to hit your ceiling sooner or later.  And once you do, you also hit your ceiling for expansion and growth. And that might be just fine with you, that’s a perfectly acceptable business model.  But if it feels limiting, then we need to look at alternative pricing strategies.

Let’s start with a couple of different scenarios.

Let’s say, you answered the questions above and determined that you want to build a marketing agency with several people working for you, freeing you up to position and market the business to your target clients. Maybe your ultimate goal is to have the business run without you, so you can travel, start a family, work on a new project, and sell the business when you’re ready.  This kind of business will most likely need to be billing multiple 6 figures to 7 figures.

To reach these numbers you’re looking at a value-based pricing model, rather than hourly or hourly-based project rates. Think retainer fees, membership fees, or value-based project/consulting fees.

Now, let’s say you’re a sole practitioner and you determine that you love working with your clients in a high-touch way.  Because you are personally delivering much of the value, you want and need fewer, better clients.  Ideally, those clients are high-quality, well-paying, good referral partners, and ongoing, (minimizing your need to be constantly looking for new clients). This model still allows you to increase your revenue and grow, as long as you make the shift from hourly rate quotes, to value-based fees. To keep overhead low (and profitability high), the name of the game is streamlining your efficiency to enable you to spend the majority of your time doing your zone of genius work.  This kind of business might generate $250,000 and be highly profitable and satisfying. Pricing models might include package, project, or retainer fees.

Of course, there are approximately a gazillion ways you can slice and dice business models and pricing strategies. Hopefully, these two brief examples give you a few ideas about how to think through your unique model.

If pricing still feels like a beast you don’t much feel like taking on, let me share this: after 20+ years of doing this, I’ve learned that pricing is as much of an art as it is math. The more you think about it, learn about different ways to do it, experiment, and practice, the better you get at it.

Don’t be afraid of it.  Just give it a whirl.

And if you’re really ready to take action and get your pricing mojo onto firm ground, I’d love to support you. Click here, tell me a bit more about yourself, and let’s talk about how I might support you in building a more profitable creative business!

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