Setting prices for freelance gigs is not an easy task. I am sure you know what I mean. It’s a dichotomy – you want to earn as much profit as you can, whilst at the same time offering an attractive price that your customer believes offers them value. Somewhere in the middle is the right price… ain’t it?

‘Price’ is a complex combination of real costs, emotional costs, perceived benefits (not always real ones), and expected profit. Unfortunately for us there is no accounting method for determining price based on all of the above factors. It’s also unfortunate for buyers too, so we’re all subjected to the same complex situation.
Existing pricing methods do not cover all the components. Cost-plus pricing could not be used because it deals with accounting cost plus expected profits. Value based pricing is based on the perceived benefits. Performance based pricing deals with outcomes only.

Price can be very subjective – especially around services pricing . For example, the prices for two software developers on a single development project can be very different, but the outcomes could well be the same. The client makes a subjective assessment on what factors they would use to judge rates of the individual programmers. The individuals may find it difficult to justify their rate back to the client.

A traditional approach is to determine your costs (often by intelligent guesswork), negotiate profit hard (without necessarily disclosing your costs) and schmooze the rest over an expensive dinner. It’s a tactic used by both customer and provider. It’s a game of wit and charm, and how great that meal tasted or how fine the wine is. The process is time consuming, costly, and lacks transparency. It assumes that rewards of finery create leverage for negotiation based on the pretext of a ‘good relationship’.

It also assumes that the social, political and economic agendas of both sides are irrelevant!

Schmoozing is not the way to set a price. It’s a risky method and it’s easy to be swept up in the moment. Avoid it!

Many ‘factors’ affect your costs, your profit margin and the good-will you apply in order to set a price. You won’t be sensitive to the same factors to each customer, not will those factors have the same weighting/impact. I can explain this best by giving you some examples:

• Will you set the same price for two customers when one of those customers costs you a lot more to service due to their poor management discipline?
• Would you set the same price for a gig that helped a business who clubbed seals for profit as you would a different gig for a charity that helped people, like your grandmother, pay their heating bills during the winter to survive?
• Or what if you’re a democrat pitching for a gig with your state’s democratic headquarters? What will you do then?

Here’s what you’ll do. You’re going to want to price yourself differently based on a number of factors you determine. But how do you do it?

The answer is that you will learn how to adjust prices against a number of factors through experience, or through the wisdom of a financial expert. If a financial expert isn’t on hand, then you’ll certainly have to learn such adjustments by trial-and-error. Quite often, the true cost of doing business isn’t known until the business is done, and then reviewed. Wait though – do you review how much profit you make (that’s if you did in fact make profit) after every gig? I guess not – because you’re chasing the next gig! So the learning process of setting price against numerous factors can be haphazard and far from even a rough science.

This is confirmed bu Mechele Pellebon at FreelanceVanity.com who described this quandry as one of the biggest issues for freelancer:

It takes even the most profitable freelancers a few months or even years to get into the rhythm of setting their prices properly.

But learn you must… or you will price yourself out of the market, or reduce (or even totally lose) your profit.

Learning is made easier, for example, if you work for a small number of clients. Over time, you learn about their behaviors, such as their management rigor, how they make decisions (and stick to them) or their social/political philosophies. Eventually, you strike on an acceptable configuration of price adjustments that match your factors, and you then only need to adjust one or two as your relationship develops or the importance of each factor changes.

If you’re setting a price for a brand-new customer, what then? You have to give it your best guess and suffer any financial losses, or damage to your integrity, whilst you learn about them, that’s what!

Under-pricing yourself is a costly mistake. Chris Garrett claimed that this was his number-one gaffe !

Many freelancers find this a gloomy prospect. I know I do.

So does Mr X (that’s not his real name… obviously, but Mr X chooses to remain anonymous). Mr X is a freelancer in Palm Springs who helps companies renegotiate commercial property leases. Therefore, he works with many customers as there are long delays between repeat custom. During the last 5 years Mr X discovered, much to his peril, that several customers required much more effort than others. Bound by a contract, Mr X experienced cashflow problems whilst customers delayed decision-making and requested further negotiation, before he received payment. Forced to finance his business through loans, Mr X has suffered terrible losses (over $55,000).

What Mr X desires is a structured method to set prices against risk factors. He doesn’t have the option of learning about the idiosyncrasies of each customer to set the price accordingly.

In general, freelancers need a complete and structured method which accounts for any number of factors resulting in a way of setting competitive and profitable prices.

The thing is, traditional processes around negotiating pricing lacks a finite framework (i.e. step A, step B, and then step C and Hey Presto! You have a price!). Telephone calls can be exchanged and contracts can be vetted, however while these may show that buyer and seller have established a rate – they do not lead the parties down an equitable path to establishing that rate. Having a point-by-point framework for price negotiation could create equity in the process and deliver a win-win outcome to both parties – or what might feel like one anyway (see my thoughts on ‘win-win’ negotiation here ). The best outcome is that you’re not screwed over, by your customer or by your own efforts.

When I heard Mr X’s story, I searched for such tools… I found only one: FactorHub .

FactorHub claims to provide tools and techniques for determining what price you should charge based on a series of factors that you determine. This tool can be applied consistently over any business request that might affect your costs and subsequently your pricing.

When you use FactorHub, you tell it what factors are important, and how important, and it tells you your ideal price to charge. When I ran through several evaluations I could see the effect of different factors on the price I was recommended. These numbers weren’t plucked out of the air though. This is where the power of FactorHub comes in…

The best thing about FactorHub is that it consolidates the experiences of a whole community of freelancers to weight the effect of factors to produce a recommended price. This means that as a user of FactorHub, you’re enjoying the benefit of experience from a plethora of your freelancing peers.

This is the way it works. Freelancers using FactorHub can choose to share their actual pricing adjustments with the community who use a common ‘template’ of factors – these adjustments are aggregated and levelled to produce a ‘standard’ recommended adjustment which can be used by any other freelancer using that template. By using the standard, you’re adjusting your price towards the industry norm – the norm being all other gigs where those factors have relevance.

FactorHub is a powerful tool for ensuring that all the relevant factors are accounted for and have an influence on how we set price, so it solves the problem! (I must tell Mr X…)

I can’t find any competitors to FactorHub on the market, so there is nothing to compare it to (well, except to the pain of learning how to factor manually, that is). This makes it a unique proposition. Well done to the guys at FactorHub!

Cut out that painful and expensive process of setting prices using Trial-and-Error. Leverage the experiences of your peer-group - FactorHub .

Keep your eyes peeled – next time I will be looking more at factoring and FactorHub as I learn more about how it works, and hopefully I will land an interview with one of the guys there too! To find out when I publish this article, subscribe to my RSS Feed !

©2012 SimonStapleton.com. All Rights Reserved.

Fact: Taxes Are A Pain In The Ass, But They’re  Part Of Business

Any business, whether online or not, really has to pay its due taxes. Some people would resort to starting an online business thinking that they can evade tax payments if they do so but the truth is, the tax dues will surely catch up with them one way or another.

Is it Fair?

Righteous as this may sound, but any business that does not pay its taxes cannot be considered as a business. The tax system, in whatever country you operate from, should be a level playing field. Sure, there are differences across international boundaries, but that is something you will have to deal with rather than fight against.

So, You Want To Start Your Online Freelancing Business?

Trying to start an online business is pretty much the same as starting any business in the world. Some people who are involved with online businesses usually use their ignorance as an excuse not to pay taxes.

They would say that they didn’t really know where to go or what government department to approach so they just went ahead with their online business without actually referring to the government or the state that they are under.

The first thing that you should do if you want to start your online business is to go to your local town hall and try to list down the requirements needed to form a business in your location.

You should also ask what is required at both state and federal levels. Most communities would actually require you to register a trade name. If you wish or choose to operate from your home, you should ask about the local zoning laws.

Learn About The Sales Tax Requirements

Your online business may more or less fall under the category of a mail order business (that is if you are also planning to sell productsonline). You will need to learn about the sales tax requirements that come along with your online business so that you will not encounter any problems in the future.

If for example you don’t have a nexus in another state, you can still sell and ship your merchandise to costumers residing in another state without actually charging Sales Tax. However, sales to the residents in the same state that you are living in will definitely require a collection of Sales Tax and remittance to the Sales Tax Department of your state.

Operate Your Business Honestly

If you want to have a successful business, you  should try to keep it as clean and honest as possible. Don’t even try to pull off any illegal or mischievous tricks in your business or it may jeopardize your success. Freelancers TOTALLY depend on their reputation, as you will, so don’t even think about fudging the system.

Make sure that you abide by the Truth in Advertising requirements; do not give customers misleading ads because they will only end up being disappointed or unsatisfied with your services which could lead to more trouble.

In a nutshell, trying to start and operate an online business requires ample time, effort, honest and sincerity. It’s a sad fact that a lot of people use the Internet for scamming others and earning money illegally.

However, it does not mean that it should be a trend that should be followed. It is greatly possible to have an online business that is clean, honest and legal. If you really want to pursue your online business, the tips mentioned here will be truly of help to you and if you still need more help and assistance, a visit to a lawyer will surely be of greater help.

Remember, taxes and your online freelancing business go hand in hand for success.

©2012 SimonStapleton.com. All Rights Reserved.

You may have noticed that SimonStapleton.com has been focusing a lot lately on landing that top job. It’s no surprise these posts have received a lot of feedback, as in this global economy, landing a well paying job is something that is highly desired. But how do you perceive your worth? Do your perceptions on your competitors success or failures factor into your overall rate as a freelancer? If not, it should. Today, we will go over some tips for setting your rate based on how you perceive your competition and financial well being.

Thinking about the competition.

Are you in a freelancing niche that has a lot of competition? For example, you could be a premium WordPress theme designer (any out there that want to pitch for the next theme of SimonStapleton.com?), in which case, you certainly know your competition is vast and spread worldwide. How you perceive and react to this competition, however, is vital. Have a look at your competitors, are they undercutting you with your rates? Perhaps they charge much more but offer more services? Freelancers must take this information in and put it to an advantage and to gain more success/leads. Some tips for gaining information on and keeping up with your competition are:

• Keep an eye on what your competition is up to and how you perceive their success level.
• Contact your competitors and ask questions, they will be more friendly than you think and you might just meet some vital contacts.
• Use your competitors pricing to your advantage. You cant always keep up with rates, so if they don’t charge very much, offer more quality instead.

Your perception of success.

Check out nearly any freelancer article/blog and you will find all kinds of advice for pricing. Most of these articles advise you to price for your overall yearly or quarterly budget. This is sound advice but there is a flaw in this logic. By setting your pricing by looking at your current budget, you neglect to take into account the future and your goals for the future. Instead of setting your rate per your budget, ask yourself, "What level of income would I be comfortable with in 3 years from now? ", "If I charged more, are there more things I can do/enjoy in my life? ". Questions like these will open your eyes and force you to look at your goals for the future, not just your budget of the present. Next time you sit down budget, consider your life goals (you do have some don’t you?) and you will find your level of happiness is likely to increase.

Quality, Speed, Price.

Three factors vital to any freelancer and to anyone who is going to hire a freelance designer/developer are: quality, speed, and price. These three items will play a huge role in the final price you charge. Freelance switch recently had a great article , in which the "Fast, Good, Cheap" pricing method was discussed. It would be nice if our clients (and ourselves as well) could have our cake and eat it too. However, in the real world, Great quality, extremely fast service, and a bottom end price are not very practical. So how does one balance the three factors mention and at the same time achieve success in todays market? The answer I believe, is a elegant balance of managing your competition and your goals for success. So we can use the techniques mentioned in the previous paragraphs to optimize out quality, speed, and price. For example, you know your competition can offer a very low price and fast work. This is where you come in, and offer quality and speed with your work, allowing you to successfully compete in the marker. In other words, pick the two you can focus on greatly and that you find your competition is lacking in, you’ll be sure to get a boost in your overall sales. Resources for pricing yourself:

• Hourly Rate Calculator
• Setting your rates without going broke
• Mistakes I’ve Made as a Freelancer

©2012 SimonStapleton.com. All Rights Reserved.