Why you should lie less, and charge more

17th March 2010

Everywhere I go, everyone seems to be hunting a bargain. This is not unnatural; there is limited funding at your disposal and you seek to spend it wisely. But we draw a line somewhere and it’s arbitrary: there’s just some products and services you don’t bargain for. Sadly for me, web design isn’t and never will be one of these uber-respected fields. So what do I do? Tell the truth.

I almost didn’t write this post (the idea’s been brewing for a while) but I went on a bike trip and stayed at a lodge that was the ultimate bad example: no tarrif card, no bill, dirty rooms, no electricity and no freezer or cold water (it was hot, that’s fairly serious). On top of all that, they had claimed a price that was very obviously there for bargaining — and bargain we did. However, the process was incredibly annoying, and the management wasn’t even on site or reachable (we were given a wrong phone number).

You get the idea.

So it got me thinking: why is this the norm? What’s so complicated? Is it just greed?

I think it’s simple: disorganisation – a lack of an understanding of what should be charged. You have your costs: material, salaries, rent, expenses, deprecation, etc, and if you charge this and clients pay on time, everytime, you make no profit, but stay afloat (break even). You then have risk factors: annoying clients, excessive changes, absconding debts, force majeure; so you hike your cost on all projects to balance that out. This covers risk. On top of that, you have the profit that you want to make – this is a goal, and it’s whatever you decide. Bam! You have an incredibly logical rate and you believe in it. You can, if necessary, sacrifice some of your profit for certain projects, but there’s an absolute line below which you make a loss.

I think many businesses (and freelancers for sure) make the mistake of guessing their rate based on hearsay and therefore try and lower their costs and cut corners to make the most profit. When things turn sour, they haven’t planned for it, don’t know when they’ve actually made a profit/loss, and which section of which project did that… hence the spiralling downfall: everyone trying to charge as much as possible, while spending as little as possible – bargaining becomes the norm because no-one actually knows what their service is worth to them.

Enter this awesomely brilliant tool: http://freelanceswitch.com/rates/
It’s a beautifully made rate calculator, and factors in a lot of different things. Even if you have a rate you think makes sense, I’d recommend doing this once in a while to remind yourself of all the different things going on. A growing bank balance is a good sign, but it’s nice to know how that’s happening so you know where to concentrate future efforts. Also, it helps you be confident of the price you’re asking of a client, and gives you a point to walk out at instead of taking a project and then hating the client by the end.

How do you charge in your business? Do you prefer the system of padding your prices and bargaining? Am I missing something super important?

Note: And hourly rate is a great start, but it then becomes important to know what you spend you time on. I’d recommend http://www.actionmethod.com/ and https://www.toggl.com/ – awesome apps to keep you organised and concentrating on actual work instead of managing stuff.