Easy Pricing Formulas for Services
If you’re a creative, a consultant, or moonlighting from your day job, then you know: Deciding your value is hard work.
In our podcast episode with Natasha Minasian, an interior designer and owner of DRC San Diego and the Studio at DRC (see their project), we talk about the trials and tribulations of invoicing clients in a creative field. As someone who’s never had a boss, I’ve personally tried every type of pricing structure out there, from flat rate projects to strict retainer hours, and my prices have changed over my 8 years in business too.
There are countless resources out there for deciding how to charge for services, and I’m excited to share my favorites with you.
Option 1: Divide your salary by 1,000, then add 15%
I recommend this option for someone who hasn’t tried freelancing before. It’s a quick calculation that, in my opinion, is fair for both parties as long as your “salary” is fair.
If you’re freelancing, you know that it’s hard to actually work 40 hours per week. In fact, you’re likely working about half the time (if that) and spending the rest of the time marketing yourself, taking complimentary calls to get the ball rolling, and educating yourself to become even better at your area of expertise.
The reason why this formula works is because it accounts for two things: You likely won’t work more than 20 billable hours per week, at least when you’re getting started, and you don’t get a benefits package because you’re your own boss.
To determine your ideal salary, I recommend researching job descriptions to see where you line up in terms of expertise. (In Los Angeles, a designer with a few years’ experience might be $60k salary, whereas a developer with 10+ years experience might be $120k salary.) Figure out where you are in a way that pays the bills but truly reflects your level of expertise. The more you charge hourly, the more your clients will (rightfully) expect, so it’s critical that you come to a conclusion that’s fair for both you and your client.
I’ll give an example. Let’s say that after researching, you decide that a fair salary for yourself is $75,000. If you divide $75,000 by 1,000, you’ll get $75. Add 15% and your hourly rate is $86.25. You might want to round down (charging for cents is quite frankly kind of weird), so I’d recommend billing $85 per hour.
Option 2: Flat rate to pay the bills
I did this when I first started out so I could accumulate clients and develop trust without checking the clock. Depending on your personality, this option may or may not work for you. If you’re someone who has a hard time drawing lines with clients, or you prefer the specificity of billing hourly, I’d recommend option 1. But, if you’re serious about being your own boss, know how much you need to live, and have a solid service that clients can outsource to you, a flat rate might be your new best friend.
The key to this working is first calculating the minimum amount you need to live. (And if you live in America, don’t forget to add ~20% tax to your minimum!) Now you know exactly what you need to survive in a worst-case scenario of minimal clients.
Next, you need to figure out a value offering to clients that allows you to provide long-term support to clients. For example, when I did this flat rate, I would have a weekly hour-long call with clients to write their social media posts together, then I’d take care of editing the posts, scheduling, posting, monitoring, and analyzing. Throughout the week, I’d keep my clients at ease by sending content ideas like articles, and they appreciated knowing that, on my flat rate, I’d always be around without any surprise fees.
For this flat rate to work, you need to be honest with yourself about how many clients you think you can maintain even in a worst-case scenario. Essentially, ask yourself how much you believe in your ability to sell if you’re pounding the pavement.
Let’s use an example. Imagine you need $3k per month to cover all expenses, baseline groceries, and your 20% estimated tax. And let’s say that, no matter what, you believe in your ability to sell services to two clients, even in the worst of the worst scenarios. If that’s the case, then you might want to consider charging a flat rate of $1,500 per month for a six-month period. This way, everyone wins: Your client doesn’t get surprise invoices and knows how much it costs to have your support, and you know how much you’re going to be raking in six months out.
What’s powerful about this option is its ability to scale. If you had four clients instead of two, you’d be earning double what you need in a worst-case scenario. It’s a powerful setup and if you feel comfortable being a steadfast support for your client, you could make a lot of money while, most importantly, providing really good work.
Option 3: Charge a retainer
The word retainer might send shivers up and down your spine, but trust me when I say, retainers are great! Retainers are essentially your client getting a guaranteed block of time from you for a certain period. It helps you because you, again, know how much is coming in (and often get an upfront payment - more on that later), but it helps your client because they know that you’ll be around to help them whenever they need it.
In creative work in particular, assignments come up that can never be anticipated, or emergencies arise on social media without warning. A retainer helps because instead of being slowed down by providing estimates, you can just get to work.
My recommendation: Go through option 1 to calculate your hourly rate, then offer a discount on your hourly rate for upfront retainer payments.
Let’s use the same $85/hour example from above. Your rate is $85/h and your client expects needing you for ~5 hours of work per week. Given this, you could propose a retainer for 20 hours of work per month for $1,360 (which is $85 * 20, less 20% discount) as long as payments are given upfront every month.
Some people have a “use it or lose it” approach with retainers (i.e. if you don’t use the full 20 hours you paid for in the month, they’re gone), but I don’t think this is beneficial for you or your client. If your client is paying you for a service, you should render it, whether it’s the 15th of the month or the 3rd. And if you’re trying to develop a long-term relationship with your client, telling them their money has been flushed down the toilet isn’t going to help. My recommendation: Add a clause that any unused retainer hours can “roll over” into one additional month. That way if you have 10 spare hours by the end of your three-month engagement, you can figure out how to use those 10 hours with your client in month four.
Before you commit to one of these options, I want you to know that the best way figure out your pricing is to just try it. See what works best for you and your clients. As long as you’re being fair to your client (and to yourself!), everyone wins.
Thoughts? Comment below what’s working (or what’s not)—I’d love to know.