How To: The Science of Pricing
How to price your services this is the science of pricing and it's actually uh simple so don't be afraid by this word science but I want to start with this question do you pull numbers out of the air when asked to price something or is there a science to your pricing and this is a rhetorical question so I don't expect answers because most of the people I talk to if they haven't thought through much pricing they're essentially pulling numbers out of the air plus imagining what the client or prospect can't afford without asking the questions that's the problem if you imagine oh no they're not gonna be able to afford that oh no that's too much but you don't know for sure then you are definitely not commanding the fees you deserve and you're goingto underprice yourself all right so if you are one of these people pulling prices out out of the air don't raise your hand just know for yourself that there is another way there is a better way and that is the science of pricing so what is the dat...
a you need for this science all right so we've already talked a little bit about this you need to know what your financial goals are for justin he said I want to make one hundred fifty thousand dollars in a year that's a financial goal you need to know also what your expenses are right so there's the actual data then you need to figure out what your hourly rate iss now I'm going to talk at length about hourly pricing soon but let me just say here that knowing your hourly rate is not the same as charging by the hour you do need to know how much your time is worth so that you can use that as a basis for your pricing and in the extra goodies bundle which I will talk about at the end of this segment and give the length four but some people already have it and in fact on the facebook page I saw someone yesterday talking about how they had I filled out the work sheet which is the hourly pricing worksheet and figured out that they're under charging right you may not know whether or not you're under charging the works in there will help you figure it out and come up with what the hourly rate is that you should be charging based on your expenses alright that's really important number to know and again back to the data what is the actual time it takes you per project to do what needs to be done and this may be different from one project to the next but the goal is to track this information over time so that you can get averages and estimates so that off the top of your head you can say that's usually a hundred two hundred and fifty our project right at your hourly rate, you can come up on the fly in your head with a number or arrange so that you can have the conversation that we talked about in session to where you gauge the budget of a client by throwing numbers on the table. All right, so the data is your financial goals and expenses, your hourly rate, the amount of time it actually takes to do a project which equals your pricing floor, the minimum you must charge. That is not your price. This is the minimum you must charge. Kelly and five different people have voted on this I think is quite popular. How do you handle trying to quote your hourly rate of time for projects when you're not sure really how many hours of project will take so you can arrive at this equation? So, um, you know, this is based on history, usually so you may be guessing at the beginning, and if you are guessing, I would overestimate, most people tend to underestimate right there wish their wishfully pricing their services. In fact, I often suggest if you're really not sure come up with a price and then double it, because that way you will be sure that you're not underpricing, right, so that's again to come up with a price to start the conversation. All right now I have an example because sometimes this isn't quite clear and this is a very generic example so if your goal is five thousand dollars a month and twenty five hundred dollars of that is your expenses so twenty five hundred is going to be your profit uh and it takes you twenty five hours to design a website and your hourly rate is fifty dollars an hour then you must charge at minimum five thousand dollars and two websites a month will get you the five thousand dollars does not make sense all right. So now I want to give you some tools to help track the data because my one of my favorite time tracking tools is function fox dot com and you can find them at junction box dot com there's their home page and I also wanted to share with you um fresh books dot com which is an invoicing ah software also free and this is related to what we call the standard pricing memo which essentially the way you keep track of what project's cost and what you charge over time so that you can come up with this on average a website costs this much to do right? So that kind of response to the question you track it over time you have a standard pricing memo and that way over time you can say this is what our average price is for an ex justin about the about fresh books yes does that require like client stopped in to that system teo to pay? I don't think so no, I think you you khun send invoices through them and then they can just go to the website and pay without being a fresh books member or anything like that absolutely it's very popular and very easy you started when I started the business I used fresh books very cool, very simple to use. Excellent, yes so the tools I just want to go over them time tracking standard pricing memo and an estimating worksheet so this is it will be different for each person based on the kind of work that you're doing, but you should have some kind of intake form that you use that has all the different things involved in producing the projects that you produce so that you can make sure that you're covering all your expenses all of your billing, everything that you need all in one worksheet and that just puts a system in place to make it easier for you absolutely internal nobody else sees that that's for you these air your tools for pricing, we're going to get to the proposal later that's the external peace all right, so that is the science of pricing and of course in the workbook that we haven't yet talked about uh we have a short article on each of these tools and so the exercise also is in the workbook and my question is which of the data and tools mentioned do you have in place and which do you need to put in place and that's something we can talk about here in the room and let's see what the people in the chat room will say about what they have in place and what they need to put in place. Justin what tools do you have in place if any if you don't have any that's okay, um, I have a, um well, this I don't have it now, but I update it when I was a freelancer before, I always had just kind of a list of what, what I charge for all my services and what like a price list price list on dh kind of what I've had two columns basically like what it costed me and what I was going to charge my client s I kind of could see the wiggle room if I wanted to, you know, somehow reduced costs, so I have that in place and it update that every year kind of obviously up the rates every year and yeah, that's the that's, the main thing you do you track your time um, you know, I don't try I've never tracked my time, eh? I charged per day it was always a day rate so and I guess it's kind of around the value pricing I wasn't doing an hourly rate I guess like the goal was just great content at the end rather than how many hours I was spending on that but I don't actually know how many hours it would be very helpful to you to know how much time it actually takes to put together a project I mean, when I was putting together the material for this course, I have tracked my time because I want to know exactly how much time I was watching michelle board who did a course a couple of months ago and she as she was promoting was I spent hundreds and hundreds of hours on this course sounds like I don't know that I have hundreds and hundreds of hours, so I better track my time to see how much time it will actually take me I haven't added it up yet, but he's definitely not hundreds and hundreds but that's important, right? Because your time is a value and you need to know what the value is that you just put into something and especially I would think for you with the prep, you know, there's some there's a difference between all right now we're shooting now we're doing the work with the client but there's all this prep time and project management and administrative time that most people aren't tracking even if they are tracking their time, and I think that I don't know why it seems like people don't count it as real work, or maybe because the client doesn't see it or the client isn't aware of it, it shouldn't be counted as real work, but again, this is your business, right? You decide what is work and what is not work, and you really do need to be charging for everything that you're doing per project and per client. Even the marketing time you spent can be built into your pricing thing. I, um I was just going to ask you, if you think that the administrative work that goes towards the project should be built or counted towards that projects, I always just count that as my own office time's, so to speak. It depends on what the specifics are, but I would say in general, if it's project related it's part of the project, yeah, yeah, that that problem, like, I actually charged less during my free production days, and I do, because somehow I think the clients not seen that I'm actually doing lots of work to prepare for this, for this is that mood, parental things we were talking about the other day, right? Mommy's not watching so but the reality is this is your business it's your work you decide what's worth what may be the administration and the prep is actually mohr important critical and the shoot yeah, in fact, I think that's a really important point because I think that people don't realize that everything you do especially designers, to build up to creating the logo like all of that is the most important part in the process. And so it should be valued higher. The discovery, perhaps should be valued higher. Zan you wanna add anything? Yeah, sure, I use a number of tools for for time tracking. Specifically, I use a tool called rescue time that allows me to it automatically tracks the times that after, like, log and every time and hit the start button so it gives, like, at the end of the week, it gives a nice graph of what? What software is that spending the most time. And I could just take that data and, uh, look at look at it when I I want to have to actually there's another tool that I know of called creative works dotcom creative works w o r x dot com, which does something similar it's built into all the adobe software, and so you don't have to turn it on and off it just knows when you're working on which project oh, I don't know. Just but look, yeah. It's technology is kind of an amazing you tell it what kind is for, but it tracks what you're doing. In what? Software? Okay. Any other tools you want to share? Yes, I use, quote, roller like I mentioned our proposal proposals. And then I also use a tool called wave accounting for invoicing and bookkeeping. So you just link up your bank account and automatically categorizes all your different areas. Uh, and I just send that over to my accountant and they just filed a tax. Excellent. You're on the technology. Zane. Excellent. Okay, this is an area where I think carl online audience are clearly very strong because they're they're sharing a ll the tips and tricks that they already use. They are all using a lot of majority using time tracking, good already, and they're sharing what they using. They also seemed very strong accountings where they're sharing all of the accounting software they used this's, something I think you have identified there actually already doing quite well. Excellent. I'm glad to hear that.