The Pricing Paradox
This blog summarizes learnings from The Future is Freelance Forums. In this collaborative events series, stakeholders from all levels of the freelance ecosystem (freelancers, agency leaders, coaches, platform CEOs, enterprise leaders, etc.) come together to surface and solve the biggest problems facing independent work. These summaries will serve as a place to house our collective wisdom on these topics. As such, I want to credit everyone who attended this forum for these insights.
Pricing is the most common issue people struggle with when running a freelance business. From novice freelancers to experienced business owners, pricing can feel like a puzzle because there is no one-size-fits-all approach, definitive guide, must-do rules, or event standard practices. The way we price our work is dependent on our context, the nature and purpose of our work, and the types of clients we serve.
Pricing is a paradox no matter how you slice it, but it is especially problematic when we only look at it through the lens of profit margins and bank balances.
What are the pricing structures, strategies, and criteria that lead to long-term success, freedom, and prosperity?
We set out to think about this as a collective, and here’s what we learned. For each area, I outline both learnings for freelancers and key questions for other stakeholders in the freelance ecosystem. For the sake of simplicity, I’ll refer to these stakeholders as “freelance leaders,” which means agency leaders, coaches, platform CEOs, enterprise leaders, etc.
Positioning is Key
Sustainable pricing is impossible if you’re trying to be everything to everyone. Your value to your clients is directly proportional to your specific expertise and experience in a defined market. The more you position yourself as a generalist, the harder it is for clients to understand why you’re worth more than your competitors.
Know who your ideal clients are, their problems, what keeps them up at night, and exactly how you solve those problems most effectively.
It is impossible to do this with a myriad of client types; the more focused you can be on a select group of clients, the better you’ll be able to speak their language and demonstrate your unique value.
This kind of distilled, coherent expertise takes time and experience to develop. No checklist, method, or course can help you find it (although some of those can get you there faster); the only way to find your expertise is to do, try, fail…and pay attention.
The more we use our experience as a testing ground, trust our instincts on the right types of clients and projects, and adjust our business model accordingly, the more we differentiate ourselves in the market.
The more we differentiate ourselves in the market, the better we approach our clients with authority instead of desperation, guiding them toward understanding their problems and providing the right solution. Clients will pay more for an expert who helps them understand their problems instead of saying yes to whatever they want.
Questions for Freelance Leaders
- How do your tools, practices, and structures encourage freelancers to focus on clear, narrow positioning instead of marketing themselves to everyone?
Balance Productization and Customization
Alongside precise positioning, having clear, systematized services and offerings changes the cost-value proposition for both the client and the freelancer. This is a delicate balance between “productizing” what you do and maintaining the type of customization that a client expects from a top-tier, top-paid expert.
No one wants to pay top rates for a one-size-fits-all approach. Each client wants to know that their unique context is being considered and solutions explicitly designed to address their core problems.
Simultaneously, building and growing a profitable, sustainable business is impossible if you’re reinventing the wheel every time you do a project.
This trial-and-error process will be unique for each business. In general, as you continue to narrow the types of clients you work with, you’ll also be able to narrow in on the services and offerings that offer the highest value to them. Once you do that, you can implement systematized processes that allow you to deliver top-tier service in less time without losing the feeling of customization.
Questions for Freelance Leaders
- How do your tools, practices, and structures balance systematization while maintaining a customized approach?
Decouple Time and Money
Time-based pricing is not only a norm across many sectors but also how everyone inevitably thinks about value, even if they’re paying a flat rate. One reason for this is that time is easier to quantify than value.
This takes us back to the two points above. Value becomes much more apparent when you know who you serve, their problems, and how you solve them systematically. It is much easier to price a contract at a flat rate, by project, or by deliverable when you know your clients like the back of your hand and your business runs like a well-oiled machine.
This is not a one-and-done process; all business owners encounter a threshold at which the time spent and money earned no longer make sense. We must push through this threshold by continuing to hone our positioning, expertise, and delivery as we grow.
Value-based pricing is also a mindset shift, not just for the freelancer but also for the client. When we are clear about our own value, it becomes much easier to explain that value to a client.
Questions for Freelance Leaders
- How do your tools, practices, and structures encourage pricing structures that connect time and money? How do they disrupt that connection?
Price Like a Business
As a business owner, you are not just charging for your time; you need to charge enough to cover overhead, taxes, benefits, PTO, and everything else involved in running a business.
One of the biggest mistakes freelancers make is charging a similar rate compared to what they were making when they worked for someone else. You are a business now, not an employee. What you were paid as an individual contributor will not cut it.
As a solo business owner, you might have much lower overhead than a larger company, so you justify rates that don't include the costs it takes to run your business. While this can give you a competitive advantage over larger companies, you must ensure you’re thinking about your business like a business and charging accordingly.
This might be more straightforward in a market like the US with a more standardized context around market rates, taxes, and regulations (even though there is some variability across states). In international arenas, pricing across different markets can be tricky, with some getting paid a lot more, relatively speaking, and others feeling like each project they propose ends up being a race to the bottom regarding rates.
Questions for Freelance Leaders
- How do your tools, practices, and structures encourage freelancers to take overhead into account?
How do your tools, practices, and structures help freelancers and clients consider local context with pricing?
Knowledge is Power
Price and income transparency were repeatedly cited in our conversation as the key lever that can help freelancers get paid what they deserve and build more sustainable businesses.
While incredible efforts are happening on this front at a platform level, with companies like Wethos offering anonymized, crowd-sourced pricing information, the concept of informal sharing amongst freelancers was cited as the best way to increase transparency.
Context and niche make standardized comparisons problematic, and peer-to-peer sharing might be a way to get the most customized information about pricing.
Questions for Freelance Leaders
- How do your tools, practices, and structures encourage price transparency?
Context Matters
Unsurprisingly, pricing is more about the internal workings of the business and the freelancer, not standardization or “best practices.” As we all continue to hone what we do and who we do it for, we get better and better at getting paid what we deserve. As we get better, we can help those around us do better by asking for top rates and being transparent with others about what we charge and make.