Pricing Projects Right: 7 Tips From Experts
The revenue potential of businesses depends on several factors, being a good pricing strategy is one of them.
But pricing projects right can be tricky. You will lose business if you price them too high for what your target audience is willing to pay. Likewise, if you underprice them, you might find yourself breaking even (if at all).
How to find the perfect balance where you not only cover your expenses but also make a profit? There are so many pricing models and theories. How do you know which one is best for your business?
We’ve spoken to experts in the creative industry about pricing strategies and gathered their best tips to help you price your projects like a pro. Let's take a look at what they have to say.
1. Know your worth, for real
According to Content Strategist & Digital Storyteller Linda N. Spencer, “Staying on top of what the top performers [in the industry] make” is the biggest challenge regarding pricing projects.
“My tip is to know your worth,” adds Spencer. “You must be at the top of your work in today's competitive environment. Don't worry about what others charge or any race to the bottom. Charge what you know is a competitive rate for your industry and deliver on that rate. Companies want high-quality work, and if you deliver it, you can price it accordingly.”
Tom Lawrence, author, online course creator, and thought leader at Highly Effective Leader, shares a similar view: “Know your worth. Understand your services and products and listen”. Lawrence's biggest challenge in pricing his projects comes down to knowing how to offer his services: “We need to be 100% certain that what we are offering is 100% right for ourselves and our potential clients/customers.”
Related: 7 Steps to Best Track Project Budgets & Maximize Profits
2. Establish your budget upfront
When pricing your projects, Mita Mallick, who hosts Brown Table Talk on Apple Podcasts believes that “being clear on your budget from the start, what your needs are, and when you need things delivered” is key.
According to Mallick, transparency goes a long way: “This can make the foundation for a great relationship and create co-accountability in the relationship with a supplier. Transparency on both budget, and pricing, is critical to ensure that there's an opportunity to do more business together in the future.”
Clearly, understanding your budget from the beginning is not an easy task though. That’s why project management tools with budgeting features can help you along the process.
Related: How To Keep Your Projects Under Budget: 8 Useful Tips
3. Stay on top of your quarterly strategic plans
For creative and software consultant at aiNANSI SEO, Andrew Rennie, staying on top of your quarterly strategic plans is a must when pricing projects: “Stick to your quarterly strategic plans, make use of the tools and application training module to ensure you understand your software to the best of its ability to make it work for you.”
Managing projects and goals could get tricky, especially when you add several layers of complexity to the mix – and using project management software to track them makes a huge difference. “Our work is heavily focused on projections of localized energy distribution,” says Rennie. “As this fluctuates exponentially, it becomes difficult to adapt constantly and our project software helps.”
Related: How to Create a Winning Marketing Project Plan
4. Forecast for different possible outcomes
To help determine the proper pricing for projects, Bobby Steinbach, founder and partner of MeanPug Digital suggests forecasting for different scenarios: “Take the amount of time you think the project will require and immediately add at least 25% for communication lag, requirement refining, QA, and final launch jitters.”
Steinbach adds that communication quickly becomes challenging, including “clients not understanding, or not appreciating what the scope of work means.” And when clients don’t fully understand the scope of projects, it leads “to a negotiation process where the scope is reduced proportionally to the price.”
According to Steinbach, this back and forth and entire process become more complex “At the end of this process, many stakeholders don’t appreciate that the initial scope of the work is no longer in effect, which leads to miscommunications and tension around expectations in the delivered product.”
Also read: 12 Free Project Budget Templates
5. Ensure contracts have your back
Bobby Steinbach also stressed the importance of contracts: “Make sure your contracts have your back. Baking in conditions around overages, unexpected delays, and out-of-scope requests can be a lifesaver.”
“Know that you don’t know what you don’t know” is a crucial aspect that ties back to forecasting for different scenarios, as suggested by Steinbach earlier.
He also adds, “When spec’ing out a project, start by circling, underlining, or otherwise flagging features that are ambiguous in any way. If possible, remove the ambiguity. If that is not possible–e.g. due to the nature of the problem, nature of the client, or act of nature–then make sure you factor that ambiguity into your estimate.”
6. Consider these three things
Before pricing out a project, Megan Grant–Owner & Founder of Spark Content Agency and Lead Generation & Client Acquisition Coach–considers more than just the time required to deliver it. According to Grant, make sure to also “consider the time, energy, and expertise it’ll take. As you excel in your career, you’ll work faster.”
Grant warns, “This doesn’t mean you should get paid less. Also, don’t obsess too much over what your competition is charging. They’re not you, and you’re not them.”
“Putting a numerical value on your expertise can be challenging,”–Grant adds–“It’s largely in the eye of the beholder, so clients won’t always agree with your pricing (but that’s okay).” If clients disagree with your prices, maybe they aren’t your right target after all. So focus on targeting the right audience that will value your work.
7. Create flexibility within the price
Price negotiation is inevitable, especially for projects and services. Eric Keith, CEO and Executive Producer at SPACEMOB Studio suggests that you always “price higher than you think or create some flexibility in pricing to make the deal fair for both parties.” This will give you some wiggle room and better chances for profits and also help anticipate unexpected costs.
As others have also pointed out, Keith explains: “Changes in the scope of the project or a client not fully understanding the scope is the biggest challenge to accurate pricing.” This will help you establish your lowest price, helping you walk away from unprofitable projects.
Related: Project Cost Management: Everything You Need to Know
Pricing projects right is a complex process that could take some trial and error. Targeting the right audience, the ones that will best benefit from your expertise and projects is an important step in this process too as it will help you better understand expectations and budgets.
Most importantly, you need to precisely track all resources and expenses involved with a project, including time.
A project might seem profitable on the surface, but as you start to calculate the time spent against budgets, resources, and expenses, you might find you are barely breaking even.
Using a project management tool like Rodeo, that covers all aspects of projects will help you identify not only inefficiencies but also where you are spending the most resources on.
According to Axell Avalon-van Staveren, Brand Director at Digital Agency JaxX, “Using Rodeo has made our projects about 30% more profitable.” That’s because all features are connected in Rodeo, allowing users to get real-time insights into their projects. Rodeo’s reporting feature, for example, allows you to compare logged hours against budget hours so you know where you stand with each project.
Using Rodeo’s time tracker helped Digital Agency JaxX understand how much time their team really needed to complete a project: “For the first time, we were able to pinpoint discrepancies exactly in comparison with our estimates” says Axell.
This allows you to uncover insights such as profit margins so that you can better determine price, plan timelines, and allocate resources for similar projects in the future.
Sounds promising, right? Take advantage of Rodeo’s 14-day free trial and see how easy it is to use.