As someone who offers a service as a freelancer, you have a major say in how you price a website project.
But how do you go about charging for a website project?
Sure, you can bill by the hour, but is there a better way?
In this article, we are going to do an analysis of the different pricing options available to you as a developer to see which option is best for you.
But before we go over the different ways to charge for a website project, let's take a look at the factors that can help you decide how you price your web design services.
Here's a 20-min video if you'd like to get an overview:
What to Consider When Pricing your Website Project
Skills and Experience
The more skills and experience you have, the more clients are willing to pay.
I don't mind paying a few more bucks if I know that this individual or company produces world-class results.
Why settle for something cheap when you can go with a reasonable option because it would be of the best quality?
It might be true that some website projects can be done in a week or two, but it doesn't mean it's of any less value than those that take a month or more.
Remember that clients are paying for your skills and years of experience, not the amount of time the project takes to be built (more on this later).
Type and Complexity of Website
Your pricing depends on the type and complexity of websites you create.
Whether it's a personal blog, an e-commerce website, small or big business website, it requires time and effort.
Complex websites require more work and maintenance to keep them online.
Scope and Size
There are times when a project stretches beyond the initial timeframe required. In those cases, you might want to plan for this outcome or try to avoid such a situation.
Now let's move on to a few advantages and disadvantages to help you make a better informed decision on the pricing strategy you choose.
Hourly-Based Pricing
Hourly-based pricing is the most popular pricing method and the easiest to understand and start with.
I'm going to discuss the disadvantages of using an hourly-based pricing approach before I present its advantages and what I believe is a better method.
Hourly Billing Can be Harmful to Your Client Relationship
Billing by the hour has the potential to be harmful to your client relationship.
Why?
The longer a project takes, the better it is for you and the worse it is for your client.
If your estimates are inaccurate, this causes trust problems that weaken the relationship over time.
This can happen in a variety of ways, but it's amplified when the client doesn't realize how long it'll take to implement a feature or change, leading them to believe you're working slowly on purpose.
Another way this can happen is if the project takes longer than expected, because your client might feel that you're exploiting them. Your client will begin to evaluate the timesheets you supplied them in search of inconsistencies, and trust will be weakened.
Plus, it also produces so many issues.
Even if you can prove X task took 4 hours, they can dispute it and say it should have taken 1 hour.
Hourly Billing Discourages Efficiency and Innovation
You don't get rewarded for finding time-efficient ways to finish a project. If anything, you're getting financially punished.
Some websites can be completed in a few hours or a few days if you know what you're doing. If you're charging by the hour, what incentive do you have to find a way to complete the project in the shortest amount of time?
If you price your projects by the hour, you will, as a more experienced developer, get projects done sooner meaning you earn less per project.
So you think you make up for this by charging more per hour?
Well, this might only serve to scare your future (or even current) clients off to another developer who charges less per hour.
If anything, even if you don't do it intentionally, your work rate and efficiency will not be something you're too concerned about optimizing.
Besides, hourly work normally requires time and screen trackers.
Example:
Imagine you're working on a project that has similarities to a previous project you worked on or maybe there's a plugin or template you can use to cut your time spent on the project by half.
But by doing so, you'd cut down the number of hours you'd spend on your current project.
In this way, you've directly lowered your income because of a better, more efficient way to build a website.
Your Income is Capped
Hourly billing places an artificial limit on your income!
Let me explain.
There are only so many hours you can work in a year.
By providing a price per hour, you're limiting how much you're practically able to earn each year.
If you suddenly decided to increase your hourly rate because you'd like to start earning more as a freelancer, your existing clients will often not understand.
"Why," they ask, "are you suddenly valuing your services so much higher for the same work?"
Even before you explain whatever your reasoning is, you're entering the conversation with them on the back foot – they're feeling an inkling of mistrust.
Potential new clients will simply turn away and look for another freelancer who can offer them the same service at a lower hourly rate.
If you think you can just earn more by working more, ask yourself:
Is that sustainable? If so, do it.
But know that there will come a point where there are simply not more hours in the day to get more work done.
The other thing to consider is what if you're ill for 2 weeks?
What if you want to go on vacation for another 2 weeks of the year?
That's a whole month you just earned $0.
Sure, if you're charging massive hourly rates and you can save and make up for this loss, that's perfectly fine, but for the majority of 'hourly-billers', this can be a major problem.
Now before we on, let's go over some advantages of hourly pricing first so you can still weigh your options.
Being paid hourly is a benefit itself
The hourly wage rate has the advantage of paying an individual for the hours they work. If you work for 8 hours a day, for example, you will be paid for the entire 8 hours, and if you work overtime, you will be paid more and get additional income.
Work and life balance
Since you have a set amount of time to work in a day, you are able to maintain the balance between your work and life activities. Once the working hours are over, you're free to do anything and even jump on another project (if you can still manage your time).
Long-term projects and clients
Rather than short, intermittent employment, hourly rates are better for long-term projects and clientele. Hourly billing also makes it simple to account for project variations and adjustments.
Transitioning from hourly billing to value pricing is tricky (but worth it) and takes time if you're used to an hourly-based approach.
It requires a change in thinking, but, once you realize how ineffective it is to trade your time for money, you will find your profitability increasing.
Value-Based Pricing
The key takeaways about the difference between value-based and hourly-based pricing are these:
- In hourly-based pricing, you sell your time.
- In value-based pricing, you sell results.
- In hourly-based pricing, you ask what they want to be built.
- In value-based pricing, you ask why they want something built.
This makes all the difference and can be a real game-changer if you're switching from hourly-based pricing.
With the focus on results, there are a lot more advantages for you and the client.
When you and your client understand the "why" (the value gained), value-based price will make perfect sense.
Before we get into that, let's look at how value-based pricing works:
- Find the potential value of a project to a client over a year.
- Base your price off of those returns.
Example:
Let's say a business sells an average of ten 3D printers at an average of $2,000 each per month ($20k sales per month). Then, after calculating that, I could potentially increase sales by 30% month after month (based on experience or CRO knowledge). This would equal an extra three sales per month (or $6,000).
Even if we work on just 2 extra sales per month, it adds up to an extra $48,000 per year in additional revenue just by the changes and improvements I will be doing.
Therefore, charging $5,000 once-off for the website to potentially increase sales by almost $50,000 in one year is a no-brainer.
Let's look into the advantages of this approach:
Freedom To Make Great Websites
You can focus on creating something great without worrying about going over the client's budget or counting every hour.
This means you're not tied with any hourly work, trying to get over a day being productive when you're not really in the right mind to do the project, but you have to do something productive because your time is being tracked. It's also a common thing these days that your screen is being tracked, too.
Incentivized Learning
Not only does this approach encourage you to find the most optimal solution, but it also incentivizes you to stay up to date with the latest technologies and tools that make your workflow easier and more productive.
No Hidden Costs for the Client
Since you've agreed on the price upfront, you take on all the risk. This means the client will have no financial surprises down the line which helps facilitate trust. In other words, the client experiences less risk. And this often leads to fewer arguments.
Work with Clients That You Enjoy
The nature of value-based pricing means that you will likely be earning significantly more. You can now start working with fewer clients and provide a much better service while earning the same or more than you did while using hourly-based pricing.
Scope Creep Insurance
Once a project has been defined in terms of the business outcomes (for example, increased traffic, more sales) instead of deliverables (like change the font size of the navigation bar items, the password reset form needs ReCAPTCHA) it’s fairly easy to control scope. This is because business needs don’t change that often, and random requests from the client can be judged against the desired outcome.
The crucial factor with value-based pricing is this: It is up to you to make the business see your services as a necessary investment and not a cost.
You need to show them that you are the right person by explaining how both of you benefit from the pricing approach you're taking.
Bring their focus to the importance of results and what value the project will bring them.
Ultimately, this approach takes a lot of trial and error but trust the process and your future self will be thanking you.
By basing your value-based price on the client’s perceived value of the project outcome instead of your estimated labor, you can set your fees significantly higher, deliver more effective results, increase client satisfaction, and more.
Win-win.
Disadvantages of Value-Based Pricing
Well, there's only one, to be honest. That is the difference between you and your client.
It's not easy to communicate this pricing method because the value in your mind might be different from the value your client sees. There are even some instances where your client might feel that they didn't get the right result for the price they paid.
It might be challenging to apply this method at first, but you do get better the more you do it.
Remember:
You want to charge for your head, not your hands.
Smarts, not labor.
Results, not deliverables.
Outcomes, not activities.
Other Pricing Methods
Monthly Retainer
In a monthly retainer arrangement, the client pays you a set monthly price regardless of the quantity of work you complete in a month.
A lot of clients like retainers because they make budgeting easier for them. They know what they will get each month in exchange for a certain payment because the focus is on work and not hours.
Fixed Fee
A fixed-fee pricing strategy establishes a single price for all services. You can also create two or more fixed pricing options for your clients to choose from. There is a specified scope of work you will and will not complete.
Performance-Based Pricing
Performance-based pricing (also known as results-based pricing) is a sort of value-based pricing in which the price is determined by real performance measurements.
So, Which Pricing Method Should You Use?
The method you choose is up to you and, for many people, hourly-based pricing works perfectly fine. But for me, it's value-based pricing.
If you do choose to switch to a value-based approach, remember that this new approach will take some getting used to but it will certainly be worth it in the long run.
Try experimenting on your own and combine a few methods to determine the right pricing for your freelancing services.
I hope you found value from this article.
Until next time,
Kyle