Saturday, May 12, 2018

How to Set Your Price: Factors for setting the correct pricing

Namaste Friends and Freelancers.

One question that I find people asking me almost all the time is about pricing. “How much should I ask for a project?” “How much should I put my hourly rate?” “How should I set the correct price tag to my services?” Is this your question too? If it is, you are at the right place.

In this post today, I am going to write exactly about this. Fasten your seat belt and let’s get started!

WHAT IS THE PROBLEM?

The real problem is that in most cases the freelancers or sellers do not have enough experience of selling their services online. Hence, they are not sure if what they are asking is justified.

Some of us are not sure how much our skills are valued by other sellers or the buyers, in turn. We do not know how much the ongoing rate in the market for something (that we are selling ourselves) is. We do not know what other freelancers are getting or asking for. And hence, there is a chance that we either ask for lesser than we deserve and end up being paid less or ask more than what it should be and scare away the client.

The worst of the lot is that we do not know our own value. I mean, we fail to judge our own worth in terms of the time and effort that we spend on a particular project. Even when we take care of the top two issues, most of us fail in fixing this one. This is the main thing I will try to solve in this post. Know your worth! Read on…


THE SOLUTION 1 & 2.

There is no sure shot solution to this problem, actually. Though the common recommendation is to research on the internet and try to find out how much others in your niche are asking. I truly believe that it will not give you a clear picture of the market. The only way to know this is to keep working in the same niche, trying to find out from the buyers if they have had earlier interactions and how much they are willing to pay. Well, this is what I can tell from my experience in Active income.

One workaround that I can think of is to hire (or try negotiating with) other sellers from your own niche and see how much they are asking for a similar job. That will definitely give you a much better idea. Just pray that that guy is not another rookie with no idea, like you. That will ruin it for sure.

THE SOLUTION.

Please read carefully and try to understand what I am going to tell you now; for, this is very important for a freelancer and if you can understand this and implement in your business, I am more than sure that you will never have to ask that question regarding pricing again. I am going to tell you a powerful, practical and mathematical way to value yourself and set your own price.

The first step that you would take here in trying to fix your price is to put a price tag on your own. It solely depends on you and your aspirations. (Well, don’t worry. We will keep things real.) How much do you want to earn per hour? $5 an hour? $10? $20? Or $50? Or even more? What is that what you want? Think about it and answer this question – not to me, but to yourself.

Well, if you ask this question to anyone else, everyone will want to earn more – as much as possible! So, the rate would go just higher and higher. But we need to check the reality as well. We cannot just quote anything we want and expect the buyer to pay. So, we need to choose something which will keep up happy. Hold on to your thoughts here and check the next step.

Now, I have done a small mathematical calculation myself which helped me to reach to a number. Let’s try explaining that here. It is easier if we ask the same question in a slightly different way. Let’s now ask, “how much do you want to earn in a year?” Answer in Indian Rupees (or your local currency). ₹1,00,000? ₹5,00,000? ₹20,00,000? What is that number that will satisfy you?

Let’s select ₹10,00,000 for the sake of calculations. Let’s break this down to the hourly rate. If someone wants to earn this much amount, how much should be the income per hour? Or, if someone is earning ₹10,00,000 annually, how much is he earning per hour? Let’s find out.

₹10,00,000 in a year means ₹83,000 a month, approximately.
In a month, we normally work for 40 x 4 = 160 hours, considering 40 hours a week and 4 weeks a month. I know we work more, but let’s consider this number of hours just for the sake of it.
So, we can say that we are earning ₹83,000 ÷ 160 = ₹520 per hour.
The current rate of USD vs INR is ₹65.
So, ₹520 is $8. Just $8.00!

Remember that I have not considered the taxes and other cuts in your ₹10,00,000 salary. (Even the freelancers need to pay taxes!) And you are getting only $8 per hour. This is not even the minimum wage in many states in the US. Well, we are not getting into those right now.

All I wanted to show here is if you are looking to earn ₹10,00,000 per year, you need to have a minimum hourly rate of $8. Simple? Not yet! We must remember here that we are not going to get 40 hours of work every week. (Food for Thought: Even if you get, are you ready to work for 40 hours a week?)

So, it boils down to this: predict how much work you will get or you are ready to work, in hours. 20 hours? If it is 20 hours a week, you need to have a minimum rate of $16 and that too, after 10-20% fees that you will need to pay to the freelancing portals (Fiverr or Upwork etc.). So, your minimum hourly charges need to be $20.

Too much maths? Nay! Only a little bit, but I am sure you can consume this much. And once you do, I am sure you will have a clear idea of how much you should ask, per hour. There are a few other factors as well, like market trend and demand for your skills which you need to consider before arriving at this final rate.

Once you are done with this calculation, primarily based on your aspirations, you can easily set your hourly price. Right? Now, what about ad hoc projects? Let’s check it out. It is simple too.

PRICING FOR AD-HOC PROJECTS.

When you get an ad-hoc project, where you are not paid on an hourly basis but as a lump sum amount for the entire project, here is how you need to set the price.

You have already calculated your per hour rate. Now, predict how many hours you will actually spend on this project. This may sound overwhelming, but it will become easier with more projects that you complete. So, if it is 5 hours that you are going to work on the project, multiple 5 with the calculated rate. If that is $20/hour, the cost will be $100. Then add your adjustments considering that the project is only for 5 hours and won’t provide for the entire 20 hours of weekly work that you have predicted earlier. Again, consider if you have more work in hand. How much do you have now? If you are working on freelance projects only on a part-time basis, then it will be easier to adjust or negotiate with these numbers.

I am sure you are wise enough to calculate your own numbers from hereon. Do write to me if you have more questions. I will be happy to answer your queries.

Set your own price. Be your own Boss (BYOB) and go for the kill!
Cheers!


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Thanks a lot,
The Indian Freelancer
Let's Learn and Grow Together!

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