Avoid the commodity trap and double your rate.
I think the biggest problem freelancers face is determining what they’re actually worth. As an industry we’re so bad at it there are websites that exist where freelancers engage in a race to the bottom bidding war to build web sites for people who clearly don’t have a clue about software (I’m looking at you Elance and Rentacoder). Can you image a site called RentADoctor.com or RentABridgeEngineer.com?
I get it, the feast or famine aspect of freelancing can make us desperate at times to get a project, any project that will bring in some kind of revenue. Also the client promises that more work will come, they just need to get this one little thing done and they’ll be ready to start the big project.
Ha! If I had a dime every-time a client’s promise of more work actually happened I’d be writing this post at my beach house.
Don’t fall into the trap of less rate=more work. Sure in economics a lower price will lead to an increase in demand. But that really only works on commodities. Here’s the definition from Wikipedia:
The exact definition of the term commodity is specifically used to describe a class of good for which there is demand, but which is supplied without quantitative differentiation across a market.
The “quantitative differentiation” term is import here, there’s a significant differentiation between consultants. Simply because we each have different skills and experiences we bring to client’s projects. You are also investment in the client’s business. Your work is custom tailored to the client and it’s not interchangable. In order to increase your rate you need to change your way of thinking away commodity-based thinking.
Let me give you an example of what commodity-based thinking looks like. A couple of years ago I was at a local Wordpress meet up, at the meeting a member told the group that someone they know charged a client $30,000 for twenty hours of work. That’s $1500 per hour!
“Horrible!” “Unethical!” “Con Artist” “I would have charged a tenth of that!” Came the shocked replies from the group of freelancers and consultants in the group. I hate to admit even I, with a lot of jealously, thought it was exorbitant.
Not one person asked how much money that $30,000 made for the client. I have a feeling it was 5x the investment and is probably still making the client money today (heck the consultant is probably still working with them). The consultant won that project because instead of thinking of themselves and their work as a commodity, they positioned the $30K as an investment.
Do you think the client cares when there’s $150K on the table whether it costs them $5K, $10K or even $30K? As long as they know they’re going to make a significant return the cost is marginal. Patrick McKenzie (patio11) has stated that when it comes to large business spending, $50 is the same as $500.
Because the whole rigamarole costs several hundred dollars in employee salary to approve any PO, most internal Purchasing Departments have a few enumerated exceptions. One is an upper limit on expenses a worker or low-level manager can approve on their own authority without ceremony, generally by putting them on a corporate credit card. This limit is customarily $500 or $1,000. . . substantially every SaaS business should have a plan priced between $250 and $499 a month, because corporate employees will expense it on the card. It is not their money so it doesn’t matter whether it is $99, $250, or $4999 a month, as all those figures are literally rounding error
Businesses know that making money requires spending it. The job we have as consultants is to clearly explain just how much they’ll get from their investment.
So how do we focus on the value we add instead of the cost we incur. Tragically we often shoot ourselves in the foot when we write proposals.
Open a recent proposal you’ve created, how much time and attention did you give to the cost of the project? Time estimates, material costs, timelines, if you’re like me I’m sure it takes up a significant portion of the document. How much time did you spend on figuring out how much money the client will make once they project is finished? Is there a section in your proposal projecting in dollars how much estimated revenue they’ll make after the project is finished?
I’m guessing you don’t.
Most of us (myself included) focus more on the cost when we write our proposals. It’s no wonder our clients think of us as a commodity, we’re practically asking them to!
So how do we attach a dollar value to the projects we work on? Well one way is to ask the client a few questions about their busines when we’re discussing the project. For example:
For monthly SaaS apps:
- What’s your average monthly signup up rate?
- How much are your membership plans?
- What’s your churn rate?
Ecommerce:
- How many orders do you process a month?
- What’s your cart abandonment rate?
General:
- How many hours does it take to update the website every week?
- Who does it, what’s in general their salary?
Notice we didn’t ask or mention anything about technology, instead we asking questions focusing on their business. What if the client doesn’t want to give us this information? Understandable, it’s sensitive info that naturally they don’t want getting out. So how do we assure them?
One approach is to sign a mutual NDA with the client. Just let them know that in order to understand their project you’ll need to ask them questions about their business they might find sensitive. If you get it out the way early it won’t be a big deal later on. Plus the act of signing an agreement between your two businesses helps solidify the relationship.
From there it’s a mater of getting the client to discuss their goals for after the project has been completed. How much are they wanting to reduce cart abandonment, churn, hours to maintain the site? Making simple projections from there is simple math.
If you’re looking to increase your rate and expand your business. I can’t recommend Brennan Dunn’s “Double your Freelancing Rate” course enough. Brennan went from charing $50 an hour as a developer to now making over $20,000 a week in consulting. He’s still doing the same type of work, but he’s changed his mindset towards focusing on his value.
He’s documented it all in the DYFR course. For $129 you get the ebook, videos, and document templates, it’s an incredible deal.
Breaking away from the commodity trap can be difficult. You need to keep the client and yourself away from thinking about costs and start thinking about value. If the client understands that your work will directly lead to either more customers or less costs (or both) then they’ll be focused less on the cost and more on the buckets of money they’re going to make.
This article was originally posted on http://www.patpohler.com/increase-your-rate/
