I get asked a lot about the best way to price services. Hourly? Retainer? Fixed price?
I have done all three, and I prefer firm fixed pricing if the scope of the work allows for that. It keeps the client from focusing on my hourly rate and wondering if I'm really worth it (!), and gives me the incentive to do the job in an optimum amount of time (in other words, it gives me more profit).
Setting a fixed price is a learning experience when first starting out, so don't be too hard on yourself or this method of pricing. Learn as you go, and you will arrive at the recipe that works for you.
Here's my recipe:
- Estimate the number of hours needed based on scope of project and your experience (be sure to include all tasks you'll need to do).
- Mutiply hours by your “rack rate" (the rate you would prefer to receive) to get subtotal.
- Calculate and add in a contingency (e. g. , 10%) to cover unexpected issues/items. This is an important step-fixed price projects expose you to a certain amount of risk (you will have to deliver for the price no matter how much work it takes), and it is common practice to include a contingency.
- Compare the resulting number to the market (you should know what your competition charges and what is expected/acceptable in the market(s) you serve).
- Adjust price as you see fit to provide a fair price relative to the market.
Another way to go (in cases where the scope isn't crisp enough to go with a firm fixed price) is a “not to exceed" price: Bid a maximum amount; if it takes less time for you to complete it, the client only pays for that amount of time; if it takes more, the client only pays the maximum. I have gotten really good reception from clients on this one, because it sets an upper limit to cost and provides more flexibility to the scope of work than a fixed price project.
With the “not to exceed" model, pricing is still tied to your hourly rate-but I recommend that you stick to your rack rate (no discounts) and make sure you've allowed plenty of time for contingencies when arriving at the not to exceed amount. Follow the same recipe for fixed pricing, but add another 10% in addition to the contingency in order to manage your own risk. Remember that in your client's mind this is the amount they will pay, so be sure to double check the resulting amount against your market before finalizing your quote. And if at all possible, make the maximum price an amount that you know you won't reach; clients love paying less than they expected to, which sets you up nicely for repeat engagements!
Trish Lambert (http://www.4rmarketing.com ) is president of 4R Marketing, a marketing consultancy for service firms that works entirely over the Internet. 4R is comprised of two practices-Copywriting and Marketing Project Management. The Copywriting practice delivers a wide range of written and ghostwritten content to services businesses ranging from one-person offices to Fortune 300 corporations.