I jumped on Seth Godin's blog today to see what he's writing about in the New Year and he's got an insightful post on changing pricing structure.
Most individual (or small firm) creative freelancers operate under a variable cost model whereby they bill the client on an hourly basis. The advantage to this approach is that even if you run into the indecisive, finicky "client from hell", you know you're still going to get paid.
So why would you ever go with a fixed rate?
Godin hits it right on the head by pointing out that you can find a whole new class of customers/clients. How would that improve things for the New Year? Nice, huh?
I can hear you groaning, "Fixed pricing, are you crazy?!?!"
Sure, there are inherent dangers to quoting clients a fixed rate, but think of how many clients out there are apprehensive about hiring a creative freelancer because she/he feels like they're handing out a blank check. By offering a fixed cost approach you'll be helping business owners accomplish one of their main goals - identify, plan for and control costs. You're minimizing the risk a client needs to accept to work with you - making it much more attractive to work with you over another firm.
In addition to allowing clients to pay in installments, I've found this approach has opened the door to a tremendous amount of business that might not previously been available.
- In order for this approach to work you'll need a fairly accurate idea of how long a project will take.
- Under this approach you're rewarded for efficiency (getting your project done faster), and penalized for going slower. If you take a long time to finish projects, a fixed rate might not be a good fit.
- You don't have to offer a fixed rate to ALL of your clients; just the select few that you feel you can accurately predict how long they'll take on a project.
- You may want to avoid offering this method of payment to noticeably indecisive or overly finicky clients.
- Make sure you have concrete processes and procedures.
- If you underestimate the number of hours, you may be forced to work for less than you typically make.
If you've never considered changing your pricing structure, give it some thought today. You may find there's a whole new segment of people you can target by shifting things around. In going this direction you're placing more of the risk on yourself (since your revenue is fixed and you're forced to accurately estimate costs), but the rewards of getting more clients certainly makes it worth a thought or two.
PS - If you don't subscribe to Godin's blog, do it today.