Last updated on January 14th, 2020
One of the most common questions in most freelance groups and forums is, “How to price my services?”
There is no doubt that pricing your services can be as challenging as learning to parallel park.
Questions compete for brain space all the time…
Do you charge as much as your nearest competitor?
Do you lower your prices when you’re going through a feast and famine cycle and really need the work?
Should you raise your rates and then, stress about converting prospects into paying clients?
And then… what does “charge what you’re worth” even mean?
Oh and let’s not forget the oft-repeated advice – Don’t trade dollars for hours.
Now while there is a grain of truth in that advice especially if you want to scale, the fact is time is one of the most important commodities at an
And that’s the reason you should know what (work) you do in an hour and how much you earn in an hour.
At the same time, this does NOT mean you charge by the hour!
What it does mean is this…
Be aware of what you earn in an hour and figure out how to keep increasing that number with every project.
The PAID Formula: How to Price Services Without Second-Guessing Yourself, Sinking to Bottom-of- the-Barrel Rates or Giving Sticker Shock to Your Best Clients
FULL disclosure: This PAID formula is actually part of Profits on Tap – our premium program for service providers who want to scale without the stress.
Yes, we’re pulling PAID out of a paid vault (very meta!) to share with you because we’re honestly tired of seeing service providers struggle with undercharging and staying stuck on the lowest rung of the ladder.
Want to be the first to know when Profits on Tap opens up? Drop those details below.
The reason we’re teaching this in Profits on Tap (and now to you!) is because using this pricing strategy for services and packages has helped us double our rates AND more importantly, cut our hours by half in the last 2 years.
Best part? Once you master this formula, you can use it across the board.
Yes, we’ve successfully used this formula not only for pricing our standalone services, packages, and productized services but also for digital products, like courses!
Price Your Services With PAID: A 4-Step Pricing Formula for Profit-Focused Service Providers
The PAID formula stands for
P – Put everything down
A – Assess your hours
I – Internal Hourly Rate
D – Do the math, get your price right
We’re going to dive deep into each of these steps to clearly understand how the formula works
Step 1 of PAID- P or Put Everything Down
P is for putting everything down or rather, listing all the tasks/activities you’ll do as part of offering a certain service.
For instance, as a copywriter/content writer you want to see at a glance:
· how much of your time will go into onboarding the client, email communication, research, calls, data mining, meetings, etc?
· how much time will it take for you to create all the assets?
· how much time will it take to deliver the service itself?
When we were reviewing the pricing for our top-tier offer- The Fully Loaded Launch copy package, we looked at elements like:
- time spent on market research to check on the viability of an offer like this.
- promoting the package on social and via email,
- package delivery – one-on-one calls with the clients, creating the custom copy elements. and the time needed for any revisions,
Know EXACTLY what goes into delivering the service. You can put everything down on paper if you have to, so you can see precisely what’s involved.
Moving on to the next step in the PAID formula…
Step 2 of PAID – A or Assess your Hours
For this step, you have to track your time… obsessively.
You need to know exactly how much time goes into different parts of running a project or offering a service.
This is why you need to know how much time each task takes.
Whether you’re offering photography, design, copywriting, content creation or strategy and consulting; you need to know, right down to the last minute, how much time each task will take.
You don’t want to play a guessing game.
Take into account all the activities that are involved in delivering your package.
When you do this, you ensure you don’t undersell or under-price yourself.
For instance, if you’re a designer and you have to create 10 Canva templates, you should be able to estimate your time accurately enough.
Or, let’s say, you’re a business coach. Then you should have a good idea of the amount of pre-and-post-work that goes with a coaching client apart from the 60/90 minutes that you actually spend on a call with them.
In essence, don’t just look at the time spent on the core deliverables.
All the time spent on the supporting activities that ensure your package is a success needs to be taken into account too.
You might need more or even less time, on occasion, to do the same task depending on a host of factors, but this will at least give you a baseline number to work with.
So, whatever you offer as a package, you should have this baseline metric of “time taken to execute” ready with you.
Once you are done with both Step 1 and Step 2, you can start calculating your Internal Hourly rate which is Step 3 of PAID.
Just to keep things simple, let’s say that at the end of step 2, the number you come up with is 10 hours.
Take that number and move to the next step which is…
Step 3 of PAID -I or Internal hourly rate
Once you are done with both Step 1 and Step 2, you can start calculating your Internal Hourly Rate.
Your hourly rate is the rate you’re happy charging for one hour’s worth of work.
It will depend on many factors that we can group neatly into two categories: Internal and External.
● What’s your level of expertise for that service?
● How much experience do you have in your niche?
● What are some of the proven results you can share?
● How fast do you work?
● What value do you bring to the client?
● What do others in the same niche or industry charge for similar
● What’s the impact you have on your client’s life/business?
Another important factor to consider is whether the hourly rate will help you reach your revenue goal.
So, if you want to make $10,000 in a month and you can work 25 hours a week or 100 hours in the month then a $100 /hour hourly rate will get you there.
Remember… this is an internal hourly rate. So, you keep it internal and NOT discuss it with clients.
Here’s something you need to know and keep in mind: The greater the impact your work has on the client the higher you can charge.
Continuing with our example, let’s assume you decide on $100/hour as your hourly rate after looking at all these factors.
Let’s move to the final step of this 4-step formula…
Step 4 of PAID, D or Do the Math
This is the LAST step of our pricing formula where you do the math and calculate the price for your package/service.
Here’s the formula to calculate this.
Total Number of Hours Taken to Create and Deliver the Package/Service
= Your Baseline Package/Service Price.
We had earlier assumed you needed a total of 10 hours to deliver the package and that the hourly rate was $100/hour.
Once you multiply the two you’ll know how much your package should make for you to meet your minimum hourly rate.
In this case, its 10×100 which is $1000.
This then is the baseline price for your standalone service, productized service or package.
How to Price Your Services with Confidence: Speed Ahead to Raising Your Rates and Working Fewer Hours
Once you start using the PAID formula, it becomes easier for you to know exactly what to charge and when to bump up your rates without second-guessing yourself.
In fact, once you sell a service for the first time, you’ve already set in motion the process of raising your internal hourly rate.
Because the next time you offer the same service, it might only take you 8 hours against the 10 hours that it took initially since you’ll fine-tune your process or deliverables. This means, the more you sell your services (or packages!) and refine them, the more you make in terms of a higher Internal Hourly Rate.
Not only that, once you have more expertise and authority to share, like additional training, industry certifications, case studies, client testimonials, etc, you can keep increasing your rate consistently.
And here’s where it gets really interesting.
Once you start increasing your rates you can choose to do one of three things:
Work the same number of hours and because you’re charging more your
revenue starts to increase steadily…
If you’re happy with where you are revenue-wise then you can work fewer
hours without impacting your earnings.
Do a bit of both, increase your rates consistently (to the point you can) and
gradually reduce the hours so your revenue keeps on increasing while
working fewer hours.
Are you ready to use the PAID formula? How do you currently price your services? What questions do YOU have about mastering pricing strategy for services? Share away in the comments.
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This is something we’re struggling with. We provide a one-of-a-kind monthly membership service. How do we go about pricing such a thing after determining how much time we spend monthly creating content and deliverables? The service was launched Dec 2019 so we’re still figuring out how many subscribers to expect monthly.
A great place to start is to see what your competitors are charging for their membership site in a similar niche. The Membership guys have this amazing report (https://www.themembershipguys.com/report/) on benchmarks and trends which you might find useful.
Since you just started last month you could focus on getting the most number of people in your membership site by keeping the price affordable (market research will help you arrive at that number) and slowly look to introduce tiers where you give them more one-on-one support for a higher price.
Hope this helps 🙂
This was really helpful! Thank you!!
Glad you found the post helpful 🙂
Thank you for this.
Do you add in a buffer when estimating a project’s time?
Do you add in a profit margin when quoting the project price to the prospect or do you just quote based on your internal rate * total estimated time to completion?
Most of the times we don’t add any buffer.
We’ve been timing all our activities for a while so we have a pretty accurate estimation of the time an activity will take but if we come across a project in a new niche or one where we estimate additional calls with the client or maybe more extensive research then we would add a buffer of 10-15%.
The Internal Hourly Rate that we’ve come up with is in line with our revenue goals and the hours that we want to/can work so we don’t add a profit margin. If we meet our Internal Hourly rate then we meet our revenue and profit goals.
Amazing article 🙂 I am also always confused and never thought of hours before finalising a client. I will look into that. I have 2 years of experience in writing with samples. Still, I charge very low.
Glad you found it useful Krati 🙂