Selling your services? Here’s how to calculate your pricing and why you should charge premium!

Nocturnae

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Apr 12, 2017
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Okay, so this I wanted to do this one for my 100th post here on Influx, but some reactions to other more interesting threads got in the way.

The goal of this topic is to get you to think about the pricing for your services, if you’re selling them. And if you are not), but plan on doing so I hope this thread will be of some use when you are figuring out how to value your services.

I hope this thread won’t bore you. Should you have any questions, please don’t hesitate to contact me.

Who the F* am I to tell you how to run your business

Well to be fair, that’s a very legit question and I don’t have an answer for it. I’m not here to tell you what to do, I’m just here to offer you some advice from the things I’ve picked up over the years. But if it helps, almost my entire family is self-employed ^^. And I’ve been around for years on the internet market, started off selling World of Warcraft accounts, to dropshipping to IM.

But as I always say: do your own thorough research and find a path that works for YOU! That’s the only way forward.

Pricing models

On to the (gigantic) meaty part of this post!

Okay, so basically in almost all service / consultancy related sales there are 3 big pricing models out there:

  • Hourly Rates
  • Project Based
  • Monthly Recurring Services

Depending on what business model you see yourself working in, you might need all three. Or customers might want you to provide all three of them.

Hourly Rates

Hourly rates are best used when you are providing services like one-to-one consulting, coaching sessions, educational stuff (e.g. giving a class on “how to instagram for elderly people” <- booming business tip ;-) ).
Hourly rates don’t work well (at least not in my experience) when doing bigger projects. Customers will expect top notch high end premium quality, but will want to pay as few hours as possible. As is their right, but both of those wishes don’t match well.

Time is money, and your time is valuable so take these things into account when calculating hourly rates:

  • Overhead, expenses and taxes

Think of all the apps, tools, fees, hardware, conferences, continued education,... you will need to grow and maintain your business.
Make a list of your typical monthly expenses and project those 1 year into the future. Expect to pay somewhere between 30 - 50 % of overhead, expenses and taxes of your yearly income.

  • Marketing and administration

Getting customers will require putting an effort into marketing. Having customers and running a business means doing administration, doing invoices, filing taxes,...

  • Travel time

Often overlooked, but don't forget that if you go to meet customers you will be on the road, not earning any money doing something else.

  • Calculating the hourly rate

Let’s say you want to earn $50 000 a year (net income), plan on targeting between $65k - $100k in total income.

Factor in the amount of billable hours you have each week. If you have another job, take that out of this amount. Make sure not to OVERestimate the amount of time you can spend on each customer. I generally factor in 60% of my time to working with customers directly, and the other 40% on networking, learning, marketing, tech stuff,...

If you got all this use this formula to calculate your hourly rate:

Code:
 (Target yearly salary adjusted for overhead)
----------------------------------------------------------
(Amount of yearly workweeks) * (amount of billable hours in a week)

Practical example:
Code:
$65 000
----------
48 weeks * 20 billable hours in a week

= $67.70/hour

Ofcourse this is a rough estimate, but it gives an indication of where you should roughly be with your pricing. You will need to factor in your experience, region (Belgium for instance has gigantic income taxes of about 55%) and niche. So this formula is a starting point, from where you need to do adjustments in regard to your personal position.

Project base

Project work can be a bit different and might be tricky to do. You probably won’t be charging the same as the hourly rate you would use to do personal one-to-one sessions because you can schedule project work better into your working day. You might even be able to outsource some of the work to a partner or maybe a VA somewhere.

So for instance if your hourly rate would be $70/hour, your project rate could well be $50/hour.
Quoting a project will be challenging because there is no way to tell how many hours you will need to complete the project. Sure you are able to draw on previous jobs or test runs of something, but it will remain an estimate.

What I generally do is take a practice or test run and scale that to the whole project.
Let’s say a customer wants you to post 2 posts daily to his/her Instagram feed with relevant hashtags, with a total of 200 posts. I would try to create 10 posts first, do hashtag research for all 10 of them and then post them with a scheduler of some sort. This will give me an indication on how to calculate the amount of hours I will most likely spend to complete this job.

Don’t forget to ALWAYS factor in a buffer, especially if it is your first time doing a project like this. Murphy won’t be on your side either, so factor his ass in to!

Generally I calculate my project quotes with this formula:

Code:
(% of project ) x (time it took to complete % of the project) x (project hourly rate) x (full project) x (buffer) = Project quote.

For a practical example, let’s use the 200 Instagram posts.
Code:
Start with preparing 10 posts (% of project)
This takes up 5 minutes / post (time it took to complete % of the project)
Multiply by hourly project rate
50 minutes x $50/hour = $41.67
Multiply the effort to the full project
$46.67 x 20 = $833.33
Add a buffer (let’s say 20%)
$833.33 x 1.2 = $1000

So if we calculate it like this, our project quote would be $1000. Again, this is just an example on how you could calculate your project price. This is just a starting point, change it to fit your own situation.

Monthly Recurring Services

Determining your price point for monthly recurring services is going to be a lot like quoting a project. Because it’s just a set of tasks or services your will be providing monthly. Having monthly recurring customers is by far the most desired situation to have your company in. You can close deals for 3, 6 or even 12 month management cycles, ensuring you of future income. This allows you to plan investments (car, office, that new hyped phone,...) but also taxes ;).

For Instagram you might offer full monthly services (or management) including: posting, commenting, follow/unfollow, answering DM’s,...

Before you determine a price point, be sure to agree with your customer exactly how much actions you will do. How many comments will you answer, how many DM’s? Ofcourse this depends on how popular the account itself is, but timewise it’s a big difference for you to respond to 10 comments or 200 comments,...

Also beware of customers who want to add just “one more little thing” to your services. These might seem like a on off at first, but customers will start to expect them month after month.. Make sure you adjust your rate if they do ;-).

  • Calculating the Monthly pricing

What I like to do here is combining the project quote and the hourly rate. I tend to offer clients packages where I will do a set fixed of tasks for them (e.g. create and post 30 posts a month) and also give them 10 hours a month to spend my time replying to DM’s and comments. This way they know what to expect and it makes it possible to schedule in time for me. I also ALWAYS add in a buffer!

I calculate this as follows:

Code:
(Project rate ) x (total project time) x (buffer) + (Hourly consulting rate) x (hours) = Monthly pricing

So for example let’s say i’m offering my clients 30 researched posts a month and 10 hours of my time spent on commenting / DM’ing:

Code:
( ($50/hour) x (150 minutes / 60 ) x 1.20 buffer) + ($75 hourly rate) x 10 hours = $120 + $750 = $870 / month

At this point it might make sense to average it up / down a bit. People like prices that are ‘just not $$$$' so I might charge $849 or $899.
 
Last edited:

Nocturnae

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Because of the fact that the above post was to big to handle here's the 'why you should charge Premium' part I had to leave out:

Why would you charge premium?

I wanted to finish with this part, but I guessed it made more sense to put it up high as an attention grabber!

Charging premium (let’s say >$100/month) will enable you to land good customers. I have had a lot of experience over the years with people on Fiverr and let me tell you, selling a $30/month mgmt service to a customer might make you feel like Captain America (especially if you're just starting out) but people who want to pay little ask a lot!

Example:
I sold a $30/month Instagram management service to a photographer from Greece once. He wanted to reach as much followers as soon as possible and get loads of photography jobs from Instagram.

Confident I could get him a targeted audience and followers base (thank you gramous ;-) ) I onboarded him as a customer, agreed to do 2 posts a day (he delivered the content, I took care of hashtags) and set up a following / liking / unfollowing schedule.

I provided a daily list of tasks executed (drawn from automation tool) of who I followed / unfollowed,... etc.

After 1 day (!!!) he already started complaining: “you are using to few hashtags on the posts, Instagram allows you to use 30 in the post and 30 in the comments!!” “You are not following enough people”, “Why am I not gaining 200 new followers a day?”...
After trying to explain to him that 1) you don’t need to use 30 hashtags for exposure, 2) I didn’t want to get his newbie acc blocked + i was getting him targeted followers and 3) see 2) . I ended the job and cancelled from my end.

This made 1 thing very clear to me: charging a low fee gets you overly demanding customers who aren’t worth spending your time on. If I wanted to earn $25 a month I would be better of working 2-3 hours in a McDonald's than having 10 questions a day from this guy.

Conclusion: if you want decent customers, charge decent money. It’s my experience that as soon as you start charging >$100/ month customers leave you alone a lot more and allow you to do things the way you want. Ofcourse solo-entrepreneurs might not be able to pay this in the start, but established businesses will. Get those customers, don’t waste your time working for pennies!
 

Harry

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Jan 21, 2017
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For my latest project, with offline clients, I've found that going in with 0 pricing structure is the best idea.

After hearing about their individual situation I assess things like How many months will the clients hire me for before their problem is fixed? Can I do it myself or do I need to outsource and, if so, how much would that cost me? How big is the company and what can they afford to pay? How much is it going to cost me to get the software/ resources working?

I also take into account how keen they are when I actually talk to them. If they're begging me to take them on then I increase my fee, but if they're skeptical I may give them an "exclusive" (not really) discount.
 

Nocturnae

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Apr 12, 2017
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For my latest project, with offline clients, I've found that going in with 0 pricing structure is the best idea.

After hearing about their individual situation I assess things like How many months will the clients hire me for before their problem is fixed? Can I do it myself or do I need to outsource and, if so, how much would that cost me? How big is the company and what can they afford to pay? How much is it going to cost me to get the software/ resources working?

I also take into account how keen they are when I actually talk to them. If they're begging me to take them on then I increase my fee, but if they're skeptical I may give them an "exclusive" (not really) discount.

Yup exactly :) I always do things on a customer to customer base. Factoring in the things you mentioned.

Something that's also important but unrelated to pricing is wether or not they believe in your approach. Most of the people will want to know what you do, to some degree. And you can always see if they think it works or not. If they think it doesn't you can try to convince them. But a lot of those 'persuaded' customers will give you a hard time and critique you along the way. While this is good because it keeps you on the top of your game and it might force you to look at things differently, you need to decide for yourself if you want customers like that. And if you can afford not to have them.

Over the years i've learned to say no, which is hard when you need the money. But I want to enjoy my work. :)
 
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Folgore

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Really nice guide you have here. Neat and straight to the point.

Was wondering, do you have any thoughts on customer acquisition strategies?
 

Nocturnae

Instagram Legend
Apr 12, 2017
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I absolutely agree with the charging a premium because you value you time and work. Great post !

For sure, if you don't value your time properly, nobody else will. People are experts at asking the : 'oh just one more thing, could you do X before...' question.


Really nice guide you have here. Neat and straight to the point.

Was wondering, do you have any thoughts on customer acquisition strategies?

Well I have a few :p it depends what answer you want. Would you like to know how to get your name out there, and land the first lead? Or how to go from lead to getting plaid? :)
 
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TheKlozer

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May 30, 2017
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Solid 100+ post mark!

I'm interested in pure cold client acquisition and closing them to become a client. Could cover that?
 
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Wormy

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May 23, 2017
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This made 1 thing very clear to me: charging a low fee gets you overly demanding customers who aren’t worth spending your time on. If I wanted to earn $25 a month I would be better of working 2-3 hours in a McDonald's than having 10 questions a day from this guy.

This is so true! My experience too, customers that pay minimal, b***h the most
 
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Jimmy

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Love the post!

I also find that going after the big fish is a win win situation for everyone. However if you set very strict guidelines with the cheaper clients and over deliver on your service you can stop some of the complaining from clients.
 
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DeLaGarde

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I LOL'ed about your Greek customer, having worked in advertising in Greece for a long time I know the type. One thing I told myself over and over is that when I have my own business I will not take on waste-of-time customers, and am staying true to my word.

When someone hires me for something, I make clear that its because I know what to do, and the customer does not. Otherwise they can do it by themselves or hire someone else who wants to function as their marionette. I tell them "find some student who lives with his parents, they will do exactly as you say and are very cheap. That's not the service I offer." Being an old jaded cynic helps me pull it off... lol.

I also tell them that if my price seems high, then my service is probably not for them. There are plenty of companies for whom $250 per month is peanuts. We need customers with a marketing budget in place, not strugglers who can't afford what they want and will likely break your balls trying to squeeze blood out of a stone.

At any rate, here's my business tip, if you have a potentially good customer who's on the edge, give him a convincing discount if he brings you a referral. Discount lasts as long as the referral stays on as a subscriber, that's how I do it. Yeah, its not rocket science, but it works for me.
 
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