How Can I Set My Pricing Based on the Value I Provide to Clients (And Not By the Hour)?

When it comes to selling your services and expertise, how much should you charge?

Price too low and you can’t put food on the table. Price too high and a client you might want to work with may go elsewhere.

How Can I Set My Pricing Based on the Value I Provide to Clients (And Not By the Hour)?

How much should you charge? Price too low and you can’t put food on the table. Price too high and a client you might want to work with may go elsewhere.

It’s a common question that freelancers struggle with.

Especially for newer contractors coming from traditional employment, setting an hourly rate might seem like the most logical way to get paid.

There are even great tools and guides out there to help you determine what you should charge.

But here’s a question that freelancers often overlook: How valuable are the services you provide to your client?

Setting an internal hourly rate is a great way to help you estimate projects, but one thing you should always consider when pricing out your services is how valuable the resulting product will be from the client’s perspective and what role your expertise plays in making that product a reality.

Approaching from that angle takes hourly rates out of the equation, and that’s important for a few reasons. Let’s take a look.

1. Value Has No Time Limit

Freelancers and subject matter experts specializing in a particular field may find themselves at a disadvantage when signing an hourly contract because the value of the hourly rate may not accurately reflect their expertise. Here’s a personal, career-neutral example:

When I’m not writing or running around with my dog, I fold origami. It’s a hobby that I’ve had for years, and I’ve gotten pretty good at it. Some higher-level models may take me hours or days to fold, but lower-end pieces — like an origami crane — might only take me a minute or two.

That wasn’t the case when I started. I struggled to figure out how to get the folds right. It took me about ten minutes to create something that passed as origami (rather than crumpled paper).

To date, I’ve folded well over 2000 paper cranes. I can do it in my sleep, in a fraction of the time it took when I first started out, and I can produce a better product in that timeframe.

All of those components (speed of execution, product quality, subject expertise) add value to the skill and service I could provide if someone paid me to fold a few origami cranes for them.

But I wouldn’t do it based on an hourly rate. If I can do it faster and better, why should I be paid less for being more efficient?

If you’re an expert in your field, an hourly rate can easily undercut your value because you’re too efficient at what you do.

Hourly rates reflect the time spent on the project, but often fail to account for the investment it’s taken for an expert to become an expert.

Maybe you spent years perfecting how to design or write LinkedIn bios and website biographical pages.

An hourly rate doesn’t allow you to leverage that knowledge in a profitable way.

On top of that, hourly rates can actually be harmful to your clients.

Consider this: All other things being equal, a client might end up paying more for a subpar product because someone who lacks your expertise or efficiency takes longer to complete the work!

2. Hourly Rates May Have a Psychological Component

The logical solution to combating hourly rates might seem obvious: Just raise the rate.

But that can only get you so far. In The $100 Startup, author Chris Guillebeau tells the story of a locksmith to illustrate this point.

After locking himself out of his car during a road trip, Guillebeau ended up phoning a local locksmith who could help him out.

Three minutes after the call, the locksmith van rolls around the corner. The locksmith hops out, pops the door open in less than ten seconds, and charges Guillebeau $50 for the service that took well under a minute to complete.

Guillebeau explains that, while he hadn’t discussed a price with the locksmith beforehand, he felt that $50 was too much to pay for a service that only took a few seconds. After he got in his car and drove away, he realized the source of his frustration: He wanted the job to take longer and be more of a struggle than it actually was.

But can you imagine how the conversation would’ve gone if the locksmith were negotiating on an hourly rate before he started the work? Maybe he’d have taken a few extra minutes on the project to rack up an extra charge, or maybe Guillebeau would’ve recoiled at the ridiculousness of the price and called around until he found someone who would do it on a fixed rate.

If you’re working an hourly contract, you can try to bake your value into your rate.

The problem is that, eventually, you’ll hit a wall where customers won’t be willing to pay for your services (no matter how valuable) because they’ll balk at the dollars-to-minutes conversion in their head.

Take my origami example from earlier.

I can create an excellent origami crane for you to give to your kids or your significant other. I might charge $5 for it. That might be acceptable if it takes me five or ten minutes to do it, but maybe not if I can do it in under 60 seconds.

By placing value on the product, rather than the time it takes to produce that product, you can shift expectations away from hourly logistics and over to the value of the item you’re able to produce.

That’s important because it also causes a shift in thinking for a client. When factoring hourly, it’s much easier for a client to say, “Well, I’ll just find someone who works longer (harder) for less.”

But when you’re placing value on your product (and not just yourself), your client not only has to find someone who can do it cheaper. They have to find someone who produces what you produced in a way that’s just as helpful.

By pricing based on value, you’re not only adding value to yourself. You’re adding value to what you create.


3. The Brand Name Difference

Did you know that consumers pay more for branded products?

This is particularly true if we have an emotional connection to a brand.

A recent study by Motista found that consumers with an emotional connection to a brand have a 306% higher lifetime value, continue shopping with a brand for a longer period of time, and are more likely to recommend the brand at a much higher rate.

There’s a reason the brand name product on the shelf is just a little more expensive.

It’s a product people recognize from a company that people trust — and that’s something that anyone can work to build into their brand.

The same is true for the customer journey.

Edelman reported recently that 80% of customers say they’re more likely to do business with a company if it offers a personalized experience.

A great experience, a strong emotional connection, and a great brand story all add value to your company, but here’s the question:

How do you put a price on those things?

One of the biggest benefits of pricing your services based on value is that you can account for the factors that differentiate you from your competitors.

If you’re an expert in a specific field, that knowledge is worth something. But if you can deliver that knowledge in a way that’s personalized and helpful, that experience is worth something, too.

When a prospective client asks for a quote, it should never be a simple hourly-to-fixed price conversion.

Consider all the factors, from what it takes to do the job to the kind of experience you can offer, and try to find a price that competitively reflects what you bring to the table.

More Than Hourly Rates

Let’s be clear: I’m not suggesting in any way that you use value pricing to unfairly gouge your clients out of their cash.

There’s an upper limit to what you can charge for most projects before your client chafes at the price and goes elsewhere.

What I’m suggesting is that you consider what makes you unique and factor that into your price.

Find a way to differentiate yourself from your competitors, produce a high-quality product, and build a great customer experience. And make sure that your pricing reflects all those key points.

One last thing to remember when pricing out your services: In the same way that you should offer value which goes beyond the time you invest in a project, your clients should add value to you which goes beyond your paycheck, whether that’s through collaboration, learning, or growth opportunities.

There is always value in finding ways to deepen that client relationship.

Please value yourself (and your clients) accordingly.

Scott Summers is a freelance copywriter and SEO strategist helping brands grow through powerful storytelling and smart content strategies. Visit the Hello, Summers blog to learn more about writing, business, and marketing on his website. You can also connect with him on LinkedIn.

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