Pricing your products or services can be pretty hard, right? I’m guessing that most self-employed people can relate to this, especially at the beginning of their careers. How much is too little? Too much? Do you charge an hourly rate? A fixed rate based on estimated time? A fixes rate based on value? Of course, as we all know deep down, there are no clear answers to these questions, and everyone does things a little bit differently anyway.
I’ve been running my business full time for almost a year now (!) so I’ve had a bit of time to try different things. After accumulating almost year of data on pricing my projects, I finally put it all together last week and analyzed it by taking each project and comparing how much time I estimated it would take, how long it actually took, how much I charged, and how much I really made per hour I worked on it.
What I found… was a little surprising.
First, a brief note on how I priced my projects this past year
About a year before I went full-time, I started to use fixed pricing based on time instead of billing by the hour, which is how I started off. That means that I would imagine how long the project would take, multiply it by an appropriate hourly rate, and that would be the price. If a project took less time than I’d anticipated, hurray! If it took more time, then oh well, my fault for estimating poorly.
This past year, I took a fairly similar approach, but with a couple of refinements. Instead of scoping each project from scratch, I created an internal price sheet to save myself some time when quoting similar projects, and I used a multiplier for complexity. When I got the sense that some projects would be more challenging than others (for whatever reason), I bumped up my quote, knowing that they were likely to take more of my time and energy. At this point I’m really interested in value based pricing, and am currently working on implementing that in my business.
And now, my main takeaways
Track your time like your life depends on it
When you’re charging fixed prices, tracking your time can feel like frivolous pain in the ass. But, if you don’t, you won’t have the proper data to refine your business practices, and every pricing change you make will be based on guesses. That’s no good! When I worked at Jet Cooper, I was sometimes a little lax about my time tracking, and I feel badly about it now that I understand how important it is. SORRY, GUYS!
I use a really simple app called TimeKeeper, which lets me tag every time entry both by project and by task type. It’s almost perfect for my purposes, aside from the fact that it doesn’t sync to Dropbox automatically. C’mon, TimeKeeper devs! Get on it! (Plz?)
Coding my own designs takes way less time than coding someone else’s
I take on two main types of projects: full websites (design and development) and development only. When I was putting my price list together, I came up with base prices for design and base prices for development, which seemed to make sense at the time. This means that I was scoping developing my own designs exactly the same way I scoped developing other people’s designs.
BIG MISTAKE!
After “crunching the numbers”, as they say, I found out that sites I designed and developed sometimes earned up to three times more per hour worked than developing sites by other designers. That, friends, was pretty shocking, though when I think about it, it really shouldn’t have been. I didn’t take the additional complexity of working with another person into consideration, and I didn’t think about the fact that I would never design something that I knew was impossible (or just irritating) to code, so I would never be putting myself in a difficult development situation. If that wasn’t enlightening enough, I then found out that…
The least fun projects were generally the most lucrative
Wait, what?!
This really surprised me when I saw this pattern, but then I thought about it for 5 seconds and realized that it actually makes a bunch of sense. I think we all have a tendency to overestimate the time and difficulty of something we’re not as enthusiastic about, and underestimate the things that sound like fun. Though this is a totally natural thing to do, it essentially means that we’re rewarding ourselves for taking on projects that we’re not too fond of. That’s a little backwards, isn’t it? Oops!
In conclusion…
When you’re running your own business, every day is an opportunity to learn something! Also… track your damn time.
This is an AMAZING post! Thanks for sharing Dara! I know I definitely lack in the time keeping department for fixed price projects, it makes total sense to keep track of everything, not just to figure out how if I’m over/undercharging but also to keep myself in check and making sure I’m spending the adequate amount of time on each project (read not procrastinating!)
Heylen – thanks so much! So glad you found it helpful! Time tracking is an awesome tool for not procrastinating, because if you’ve told the time tracker that you’re working on Project X, you’ll feel extra guilty when you drift off into doing something else! I’ve started to track non-project related stuff too, like how much time I’m spending writing emails. I’m sure that’ll be equally enlightening/scary, haha.
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GAH I need to track my time. We started with a new bookkeeper this year and he almost spit out his drink when we told him we weren’t tracking time (only our developer does). Checking out timekeeper now!! Thanks lady!
Hey Allie! You’ll be totally glad you track your time once you do – having all that data gives you lots of interesting info :D I actually switched time tracking software since I wrote this post – Timekeeper was OK(ish) but didn’t sync well across computers/devices, so now I use Toggl which is free and has a web interface and syncs with all the things!