Everyone wants to make more money, right?
The reasons why people want to make more money are as varied as the number of people on the planet.
The challenge is… How do you insure you are getting what you are worth?
And, the sub-question is… How do you value your time properly so that you are getting what you’re worth?
This is especially true for freelancers and people that are working and the gig economy.
This post is designed to help you understand how to value your time.
As my friend Maria Duron pointed out in this article How to Raise Your Freelancing Rates you should be looking for ways to steadily increase your rate of pay. As the author noted you typically will start at a lower rate in order to obtain to secure the work. Once you secure the work then it becomes a challenge to insure the people paying for your products or services realize you are worth more AND are willing to pay more. This is no small feat and is quite a balancing act.
What is your time worth?
This is an age-old question that is always asked both of yourself and of the people that are paying you. They may not be stating it quite so explicitly. But, the fact remains that you need to provide value that is greater than what you were being paid.
Only in rare cases is this not true. Think Celebrity Endorsements.
Clearly celebrity endorsements work. However, they are not always easily measured and for that reason alone they are subject to question with regards to efficacy. Regardless, it is up to the person funding the effort to decide if that person / brand is worth the money they spend on them. That’s their judgement call, their decision, and ultimately their money.
But, back in the real world… unless you happen to be a celebrity… we need to determine how to value our time the old fashioned way.
The rule of 10 X
A simple rule of thumb is to use the rule of 10 X. That is, whatever product or services you’re providing, should provide 10 times more than the price of your services. Does this work in all situations? Absolutely not. There are scenarios where luxury goods, celebrity endorsements, and life-style brands can charge significantly more than the cost of the product or service. If your product or service fits in this category… good for you.
For the rest of us with more traditional products and services… How do you decide what to charge?
There are as many ways to determine what to charge as there are days in the week (and perhaps a few more). But, let’s start with a few simple examples:
- Check with others
- Do a calculation
The Simplest Model in Two Questions
- What’s your greatest pain today?
- What would it be worth to you if I could solve that?
Let’s expand the points above a bit more:
- Check with others – ask your peers, ask others in business or social groups you’re part of, check with industry trends. Some vendors will pay more / some less, depending on a lot of factors: where you are in the world; what level of experience you have; and sometimes based on the time of year (seasonality, criticality, etc.). Ask pointed, yet open ended questions to insure you are getting a breadth and depth of the ranges available.
- Ask the vendor / Ask the person that pays – Often times they will have rate cards and guidelines for payments. This is great and a good starting point if they will share them with you. Oftentimes you’ll be surprised at the value companies apply to specific services offerings. So much so that you might tweak your offerings to align your skills with specific pricing / valuation models. But, they key point here is… ASK! Just ask them what they would typically pay for a service like yours.
Caveat: Be ready for a shrug of the shoulders … this is especially true if you have a new or unique service. Then you’ll need to rely upon the other facts and your gut feel (see the 2 simple questions)
- Criticality – How important and/or time sensitive is the need? If there is an immediate need to tamp down a PR fiasco or some other burning issue you may want to increase your rate. Realize this might be a short lived valuation and be candid with your expectations and timelines.
Caveat: This should not apply in life-or-death situations, but we’ve all seen scenarios where money was made off the back of tragedy.
- Do a calculation – this one is a little more complex, but it will tell you where you really stand at the end of each pay period. This is akin to traditional cost accounting. Where you calculate the actual costs. This is where you roll up all of your actual costs and then put a multiplier on that to align with your needs. You can work this forwards or backwards. I find backwards is a good way to get started.
For example, if you know your costs are $2000 per month you can work backwards to determine how many hours or projects (if you do fixed bid) you’ll need to make your nut. Where your nut is $2000. Then you can add a multiplier to this to come up with the price you want to end up with. Note I said “end up with”… you may need to increase this number to allow for discounting.
These are pretty common and straightforward examples. If you have a preferred method for determining your cost basis.
That’s it. You can apply these techniques to your own business or to your role within a larger company. As you become more adept at understanding the cost model for bringing projects in on time and on budget you will become more valuable and you will stand out in your career. Whether you are applying these on a large scale for huge construction projects or for a local PR campaign the model works the same as you scale it up or down.
Give it a try. Let me know in the comments how these work for you. Also, please share your ideas here so we all can learn.