Embrace project-based pricing - you're unlocking a ton of value
Consultant?
Freelancer?
Paid by the hour? Abandon per hour pricing and embrace project based pricing because you're unlocking a ton of value.
Don't neglect the ongoing value you're giving your client when you set your price
Most consultants price by the hour. They do things like $100/hr and say things like: this will take 20 hours.
Pricing by the hour is ok in some scenarios where you're fixing an issue without creating a solution.
Yet it makes more sense to create project-based pricing.
A lump sum of money based on the true, long-term value you deliver to your customer.
Let's pretend you're working on a content strategy piece for a SaaS company. They are your customer and their base plan is priced at $49 a month.
The work you're doing, this strategy you're creating for your customer, will allow them to 2x and 3x their traffic in 6-12 months.
Assume they currently convert 1% of their audience reading the content.
That for example could mean 20 hot leads per month.
With your new strategy - when executed correctly - you're allowing them to get 40 to 60 leads per month, a year from now.
At this point you might be spending 10-20 hour worth of work on a single client strategy. You are doing research and delivering a blueprint solution. A solution allowing your customer to gain 2 or 3 times more sales/demos in the long run.
That's 2x or 4x more $49/month users purchasing 12 months from now.
20 * $49 = $980 MRR
40 * $49 = $1960 MRR
60 * $49 = $2940 MRR
In 12 months you're delivering your customer with a way to make more money in the next 2 months than what they paid you. The money they paid for 10-20 hours of your time. (assuming they eat the cost of producing the content)
A year later, after month (3) they've already recuperated the cost of paying you. Going forward they are benefitting fully from your content strategy.
Is it okay to charge by the hour?
You charged this business $2000.
This business is now making $2000 a month forever thanks to you.
Doesn't make sense right?
That is why you shouldn't charge $1000 or $2000 for 10 or 20 hours of your time. The value you delivered to them is HUGE compared to what you charged.
A solution or some advice
Show this reasoning to your customer when negotiating project based pricing.
As long as you can show this data to your customer, you can seal the sale of your services.
Indie hackers selling to indie hackers?
I don't want to sound rude, but I think you have a deep misunderstanding of what the job of a freelancer is. You are basically saying that the pricing should be based on the POSSIBLE outcome that my work as a freelancer could produce, which is exactly what you never want, neither from the freelancer nor the business side.
With your line of reasoning, every logo designer should charge millions if not billions: "this company might get as big as Nike and my logo will be everywhere, might as well charge them NOW what they MIGHT be worth in the FUTURE".
The main part that you are missing is that even though a freelancer is making my content, or creating my payment gateway or making a logo, it still the business duty to make so that customers are using the product, enjoying it and coming back for more, it has nothing to do with the work of an external freelancer.
Haha appreciate the contrarian response: there are a number of extremely successful freelancers and agencies out there that price their work based on their knowledge and the outcome.
If you ask your logo to be designed by the guy who made the Nike logo perhaps you will get a very different outcome than if you bought it on fiverrr for $10 dollars.
I also think you should be reasonable, you're taking what I said to the extreme - no one is going to charge you 10m for a logo.
But, if I make you a logo that takes me 4 minutes to draw but I have the experience and knowledge of someone that has worked at Nike or any other superbrand as a logo-designer - and I know you will unlock tons of value from having me make a logo for you, then I will not charge you my hourly-rate / 4 minutes. More likely 5-10-20K
Hope this makes sense: think of it as my value delivered unlocking doors for you to help you boost your own value.
What about success fees?
The compensation comes from reality and not predictions...
In my experience, hourly-based pricing is what unlocks a ton of value. It easily allows you to turn a short-term engagement into a long-term one.
Project-based pricing only works if your services have predictable outcomes. Otherwise, you're creating a situation where you might have to overwork or the client overpays.
I trust this however it truly is in case you understand the entire quantity of the project. This though, may be tougher in case you're operating in a crew with arbitrary tasks.
Although, with what you described, it truly is a amazing manner to go!
I agree with this but that's if you know the full extent of the project. This though, will be harder if you're working in a team with arbitrary tasks.
Although, with what you described, that's a great way to go!
Thanks! haha...never said it was easy :)
Work for equity then?
That's a weird one, sometimes it makes sense if you truly believe in the company - but most times you don't know enough in the company that equity would make sense.
Also it goes two-way, the founders might not trust the freelancer enough...
Would you offer me equity?
As long as supply > demand. It's hard to ask for more. I mean you can always ask and get lucky but it's hard to get imho.
As you said two-way. There is no guarantee on freelancer's work to increase business' revenue. What if I go bankrupt within a few weeks, should I knock his door to ask for a refund :)
I can offer you anything you like. Cause I'm not making much, would you be okay to work on something generated ~$500
this yearpast 12 months?reach out, my DMs on twitter are open :)
As a developer, project-based pricing always goes wrong for me. When I estimate a project to take 80 hours then have to spend an extra 12 hours fixing a single bug I feel ripped off and try to cut corners with performance and bugs.
It's better to charge hourly since fixing bugs and the rest of the development lifecycle (tests, performance, etc) should be counted in the price that are hard to estimate before starting.
How about doing a hybrid approach? You can do both - a project-based pricing for the delivery of the main part, and then an hourly for fixing or alter anything the customer has requested at the very end?
Well not all bugs are found at the end + customers expect a completed project.
Interesting. What if you can't easily say how much it will improve their MRR? Writers, designers, project managers -- it isn't an easy thing to do.
In that case - you can't use this method, then you can probably do a retainer or a packaged deal.
If you think about it, SaaS has "project-based" pricing; the business gets an ongoing value from the code you wrote once.
What you're suggesting is to apply this if you're a freelancer which is much more difficult.
Again, agree with one of the commenters who said the pricing is based on a possible outcome. The nice thing with SaaS is that people get the outcome immediately.
Yeah: Scope project, show value delivered, get paid lump sum.
Nice post @orliesaurus! Just wondering - do you use any analytical tools to help you make reasonable projections? For example, let's say I was a freelance writer and I wrote an article for a company, how can I make a reasonable estimation of (i) the number of views my article could get, and (ii) what these views mean from a monetary perspective for my client?
I use excel - and I ask the customer during my first or second meeting with them a couple of key questions, such as:
then I dig deep into their frenemies and I look at what they're doing.
I then talk to them and show them what I found and I map out a happy path.
This is the goal I am setting for them (call it a KPI if you want) - if everything goes as expected they will reach that KPI and based on that agreed KPI I price my service.
Ah cool, thank you, this is super helpful. Very smart approach, by the way, I'm impressed. Considering doing the same!
It would be interesting to hear more about this part of your process. This is the difficult bit. Selling/Justifying it the client in a way that clearly illustrates the roi, is what makes this approach work. It's so easy for this step to be full of pretty words without much weight.
Your use of metric's to set your KPI would definitely make things more tangible to our clients. This is something I'm focusing on atm as I'm putting together my website speed optimisation service. Thankfully there are some clear metrics I can use as well.
It obviously only works when you can draw a full picture and whoever you are working for has given you the data points you need to paint that picture.
In advertising marketing, and SEO it's simple, you have always a good data set to back up your work. Just look at past customers and if you average X% increase lead gen, then that's ur baseline
So it sounds like this strategy your proposing is specific to the content business, yes? I tend to agree with you. I've sold articles for flat fees for a while, and it's always made decent sense when the flat rate is solid. Some people, though, do pay by the hour and that rate is better then the flat fee (enterprises mostly do this, and pay you the same hourly wage they'd pay an in-house writer as if they were on salary).
The problem with flat fee is when the price just doesn't match the amount of hours that your going to need to put into the project. This happens a lot in the writing world, and people don't want to spend the money it requires to make the article solid. So, like anything, flat fees have pros/cons and I wouldn't say it works in all situations. But in most content service situations it should be alright.
The content business was only an example: here's another example for tech devs ->
Installing payment gateways. You spend 50-100 hours but the company's benefits are 10x (tenfold). Are you really just going to charge 10k?
You do not get a share in the upside upfront because it is uncertain and the 10X benefit may depend on a multitude of other factors that are beyond your control. While the freelancer may be viewing it as business value delivered (which is already hard to know in advance) the business may be hiring internal employees and other freelancers to do dozens of projects to make the 10X future value a reality. Most likely, no one project will get you there by itself. Imagine a scenario where the freelancer installs a payment gateway, the company may hire SEO consultants for improving conversions, hire designers to improve the website and brand copy, hire developers to code enhancements, etc. How do you confidently say that they deserve a share of the bigger pie? Even if that's true you really have to work for equity (or rev-share) to justify getting a share of the upside. The company exists to assemble these disparate pieces in order to capture the surplus. If everyone gets a perfectly divided share the upside to the end of time i fail to see what surplus the company can capture.
Couldn't disagree more with this. There's always stuff that needs tweaking or things the client isn't happy with; and this is where project based pricing goes wrong.