Pricing Your Services – Why Charging the Same Rates as Someone Else Is a Bad Idea
How much should I charge? I get this question quite a lot, and it’s a really difficult one to answer. Although I can teach you my method to help you calculate your rates, unless I know your circumstances, I can’t tell you exactly how much you should be charging. And the truth is that no one can.
As small business owners starting out in our freelance careers, we often allow ourselves to be influenced by other people and set our rates based on what someone else is charging. If you think about it, this is perfectly understandable. If you’re unsure how much to charge when you enter a new industry, you may well look at other people’s pricing to determine your own.
The thinking is that if you do this, you can’t go too far wrong. But unfortunately, nothing could be further from the truth.
The price of your services might be aligned with others in the industry, but will you be earning enough money to cover your expenses and make a decent living without having to work all hours?
In this blog post, I’m explaining why the one-size-fits-all rule isn’t something you want to apply to your pricing.
How to price your services
In my Charge with Confidence programme, I teach participants exactly how to go about calculating their rates. These calculations take into account their business expenses, the number of hours they want to work each day, their aspirations, and their individual cost of living.
This is the overall reason why I don’t believe a single price can work for everyone. If you want or need to be earning a certain amount, your rates need to reflect this, regardless of so-called industry standards.
Breaking this down into a more detailed explanation, here are three reasons why charging the exact same rates as someone else could be damaging for you and your business:
1) You can’t know someone else’s circumstances
One of the big problems with charging the same as someone else is that you don’t know what their circumstances are.
The other person that you’re holding your rates to might live somewhere with a much lower cost of living. Or perhaps they don’t have rent or mortgage payments to make.
If you base your pricing on theirs, you risk failing to earn enough to cover your living expenses.
Similarly, you might want to ensure you’re contributing to a pension or making investments for your future that this other person might not have considered in their calculations.
In fact, you have no idea how this other person is living. They might be struggling to earn enough to live comfortably and might be finding themselves working all hours of the day or night.
Just imagine if you chose to use their same rates and ended up facing the same difficulties.
2) What other freelancers with similar experience charge isn’t necessarily relevant
If another small business owner with the same years of experience is charging a certain rate for a specific service, this isn’t necessarily a good indicator of how much you should be charging for the same service.
There are so many variables to take into account, meaning that industry rates can actually vary widely.
You might work with different types of clients, which would account for very different rates. For example, let’s imagine that you and another service provider are both working in the same field and both have 5 years’ experience. If one of you works with agencies while the other works with direct clients, it would make sense for your prices to be different to reflect the varying demands on your time.
Or maybe you both work with direct clients but in completely different industries. If one of you is working with individuals or entrepreneurs while the other is working with large multinational companies, it’s only natural that your rates might be influenced by what your clients are willing and able to pay.
3) Trying to be competitive will damage the industry you’re working in
If everyone in your field of expertise tries to remain competitive according to what their peers charge, it will drive prices down over time.
Think about how this works for a minute. If you’re all competing to offer the lowest possible rates, someone will always be able to offer a lower price. This will send prices tumbling in a race to the bottom.
I always try to encourage my mentees not to worry about what anyone else is charging but to focus on themselves. Not all customers are looking for the lowest price available. Many would rather pay more in exchange for a service that is reliable, more considered, or simply offers something different.
If you think about how to make the services you offer stand out, whether that’s through your marketing or through word of mouth following on from services you’ve provided in the past, you will find clients who are willing to pay for them. There will even be some people who simply want to work with you regardless of whether or not your prices are 50% more than someone else’s.
How much to charge
When deciding how much to charge, it’s so important to take into account your own circumstances and nobody else’s. If you charge the same as someone else, you risk doing so to the detriment of your business, your standard of living, and even the industry you’re working in.
You need to make sure that your rates account for your personal situation and enable you to earn enough money to make a decent living without having to work extremely long hours. If this isn’t the case and you can’t earn enough, you may as well stop running your business and get into paid employment instead. You didn’t set up your business to struggle from one day to the next and work all the time.
Many of my mentees who joined me some years into their freelance business have told me that they wished they’d known the above when they started out, rather than basing their initial prices on what someone else in their industry was already charging. The problem with getting your rates wrong at the beginning of a relationship with a customer is that it makes it very hard to increase them to any significant extent at a later date.
If you’d like some support to calculate your rates and make sure that your pricing reflects your individual circumstances, you might be interested in my Charge with Confidence programme. I’m currently offering it 1:1, which is the best and most personalised way I can help you set your rates.