Why setting freelance and consulting rates is like selling your house . . . and what to do about it
Have you ever sold your house?
The easier the sale, the greater your seller’s remorse.
It’s the same with telling your rate to freelance and consulting clients—the quicker they agree to your rate, the more you fear you have set your rate too low.
Here’s how it works. Let’s start with selling your house.
You select a Realtor you trust. He (or she) suggests a listing price based on his market evaluation. (For ease of calculation, let’s say you want approximately $100,000.)
He tells you that it’s best not to overprice at the beginning in the hope you get top price because houses fare worse the longer they are on the market. His goal is to get an acceptable offer in a week.
He tells you to list at $100,000 (or maybe $99,999). He says they will offer $90,000, your counteroffer will be $97,000, and the final number will be $95,000. You agree to this.
The house is listed and there are several showings within a few days. You get an offer of $90,000 and sure enough, within a few days you have a deal wrapped up for $95,000.
At first you are happy. The process was easy and your house is sold. You don’t have to endure weeks of inconvenience from having your house on the market.
Then you start to resent it all. Maybe you could have gotten more if you had not settled so quickly. You think about how you got rid of unnecessary furniture and repainted the living room; you deserve more money. (Remember, the Realtor advised you on how to prepare the home for listing and calculated that into the sale price.)
You go ahead with the deal but you always think you settled too low.
Years later you see the old house estimated at $140,000 on Zillow. “If only I had waited,” you tell yourself, conveniently forgetting that you sold when you did so you could move years ago.
Freelancers and consultants face the same problem in pricing services, as proven by frequent stories of woe on the internet.
The stories go like this:
A solopro is speaking with a prospect who asks his rate. The solopro really wants the assignment. He blurts out a rate per hour, lower than what he desires. The prospect says “yes.” The solopro immediately regrets what he said and rues the low starting point in future negotiations ever after.
The problem is that the freelancer / consultant can never know that the client would have accepted the higher rate. Unless you are in a very narrow, specialized niche, there is no market rate to which you can compare yourself.
Here are six ways to prevent the problem:
Determine your rate in advance and write it down. You may wish to have different rates for different services or markets. (You do not have to post a rate for all to see on your website. It’s perfectly “fair” to vary your rate depending on any variables you choose. That’s why you are self-employed.)
Never let yourself want a certain assignment so desperately. Market all the time so you are never so needy for work. Then you won’t be so swayed by the possibility they may say no.
Tell the prospect you would prefer to price by the project rather than give an hourly rate and offer to get back to them in a day or two. It’s easier to explain why you need time to think if you quote by the project rather than by the hour since the prospect assumes you have a fixed hourly rate but not that you know the number of hours required off the top of your head. My price always goes up if I give myself time to consider all the effort involved and to analyze the situation.
Tell the prospect that you really want to work with them so you are giving them a special rate for the first assignment. Then you’ll be more comfortable raising the rate later on.
Give the higher rate and see how they react. If they react poorly, then negotiate. Most experts argue against this—or at least they recommend that you must also decrease the scope of the project if you reduce the fee—but again, you are self-employed and can do anything you want.
Accept the lower rate and be happy. You got what you asked for with no hassle. No use beating yourself up for losing a deal you never had in the first place. You can always raise your rate later, and if they like the relationship, you’ve proven your higher value.
Originally posted 9-23-14