Should You Bill by the Project or by the Hour?

Categories Blog, Business and Leadership, Marketing

You Have a Client, Now What?

Lots of start-up service businesses fail to think about how they will charge their customers until they actually have one. Then the awkward conversation starts: “so how much is this going to cost me?” your clients asks. And you aren’t quite sure. You want to charge enough to make a decent profit but not so much that your customer runs away from the deal. It’s hard to figure this out, especially on the fly. Don’t say something you will regret later.

Don’t Be that Business

It’s way, way better to figure out your pricing before you’re meeting with your first client and you have no idea what to say. So how do you determine which way to bill is best? Here’s what to think about:

  1. How “turnkey” is your service? When you work for your customers, are you providing something that will be the same or nearly the same every time, and you know how long it will take? If so, think about your offering more as a product and come up with a set price that makes you a good profit margin. If there are add-on services, create a pricing list for each one and stick to it.
  2. Will your deliverables require several rounds of revisions? Say you are a graphic designer who specializes in logo or identity packages. It could take three, four, or even a dozen rounds of back and forth feedback with your customer before they approve your creation. In this case, either set a certain number of revisions that you will allow and offer a fixed price, bill the entire project by the hour, or go for a “hybrid” format where you start out with a set price and then have an hourly rate for work that goes over your package time. Either way, make sure you set firm expectations with your customer up front, and get them to sign off on it before any work begins!
  3. How many hours does your service really take? If you are selling something that requires specialized skill or is very technical but really doesn’t take very long to create, definitely consider charging a fixed price. Don’t short-change yourself. Look at what you are offering from the customer’s eyes. How much value are you delivering? Will what you offer save your client time every day, or give them some capability that they would find really difficult or impossible to have without your help? Then charge accordingly.

Your Business is Not a Charity

A last word of warning: it’s tempting to start out with low rates or “make someone a deal” and charge rates that are way under market value when you are starting out. There are so many ways to justify this to yourself – “I’m new, my business is brand new, I need word of mouth” and so on. Don’t do this. If you offer a valuable service that your customers really appreciate, they won’t mind paying what you are actually worth.

If you start out low-balling your rates or package prices, you’ll find that it’s very hard to increase them later, because you will attract the kind of customer that expects an ultra-cheap price, and you will be setting the value of your offering in their mind at a level that isn’t sustainable. That’s not where you want to be for your business to survive long-term.

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