Competitive pricing vs. value-based pricing - which strategy better positions a freelancer in the market?

Defining the price for your services as a freelancer can be a challenging task, but it’s important to ensure that you are being fairly compensated for your work. Everyone has different skills and expertise, and different prices will be applicable to different situations. However, there are certain things that can be done in order to ensure that you get the most out of your services and resources.

1. Learn what clients are willing to pay:

Being aware of the rates the market is willing to pay for your services is fundamental. Therefore, you need to understand the perceived value of your services and the demand for them. Rates can vary widely depending on the complexity of the work you are doing and on the demand for those services in the market. For example, a data entry freelancer will charge a different rate than a freelance graphic designer or a web developer.

A good practice is to search in freelance platforms for hourly projects that fit your experience and review the client’s budget and the rates proposed by other freelancers when they’re biding for such projects (Freelancer.com makes it very easy on their platform). Nonetheless, the key data point is the price that has been actually paid for hired services, which should be near the middle point between the client’s budget and the freelancer’s biding rate. Reviewing market research reports related to online freelancing pricing as the 2023 global freelancer income report could be a trustable data point.

2. What your competition is charging:

You must know the range of prices that other freelancers are asking for services alike yours. This will give you an idea of the going rate for your services and help you to determine a fair price.

Where to start? Look for freelancers in your platforms of choice, as if you were a potential client. Take note of the services freelancers are offering and the level of expertise they have. This will help you to determine how your services stack up against theirs and how you can adjust your rate to stay competitive on the game.

In addition, you can also look at how much they have earned on previous projects. This can give you an idea of what clients are willing to pay for the services you offer and can help you to set competitive prices that are not too low or too high.

3. Consider your experience and qualifications:

The more experience and qualifications you have, the more valuable your services are likely to be. Be sure to factor in your level of expertise when setting your prices.

For example, if you are a software developer with several years of experience, multiple programming languages under your belt, and a portfolio of successful projects, you can charge more for your services than a junior developer who is just starting out.

If you are an expert in your field, you can charge more for your services because you bring a unique set of skills and knowledge to the table. You can use your portfolio of previous work to showcase your expertise to potential clients. Your portfolio should highlight your best work and demonstrate the value you can provide to your clients.

4. Understand the value of your services:

Consider the impact that your services will have on your client’s business. It’s important to keep in mind that your clients are not just paying for your time or labor.

They are paying for the value that your services bring to their business. This could be anything from saving them time and effort, to increasing their revenue, to improving their efficiency and productivity.

To determine the value of your services, you should first identify the problem or need that your potential client has and how your services will help to address it. For example, if you are a copywriter, you can explain to your client that well-written copy can increase their search engine rankings, drive more traffic to their website, and ultimately lead to more conversions.

5. Think about your costs:

When setting prices for your services, it’s important to consider your costs to ensure that you are earning enough to cover then and make a profit . This includes both direct costs, such as materials and labor, and overhead costs, such as equipment and software expenses. Overhead costs can be particularly important to consider, as they are often fixed costs that must be covered regardless of how much work you take on. This can include expenses such as rent, utilities, office supplies, equipment, and software. For example, if you are a web designer, you may need to invest in software tools and licenses, such as Adobe Creative Suite or Sketch, to create your designs. These expenses can add up quickly, and you’ll need to factor them into your pricing.

6. Tailor your pricing for different projects:

You can customize your pricing strategy for different projects or clients, depending on the services and the complexity. For example, you may charge a higher rate for rush projects or for clients who require more customization. Similarly, you may offer discounts or lower rates for long-term projects to encourage client loyalty. This can be a win-win situation for both parties, as the client gets a lower rate, and you secure a steady stream of work.

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7. Be flexible:

Your pricing strategy is not set in stone and may need to be adjusted as your business evolves. Being flexible with your pricing strategy allows you to stay competitive, adapt to changes in the market, and maximize your profits. By regularly monitoring your sales, client feedback, and market conditions, you can identify opportunities to optimize your pricing strategy and stay ahead of the competition.

OTHER CONSIDERATIONS:

When creating your profile on platforms, you must define the rate of your services per hour. Keep in mind that it is an indicative value for the clients visiting your profile. You can adjust the rate for projects of different complexity when you submit proposals to clients. It’s important to remember that pricing is not an exact science, and there is no one-size-fits-all solution. What is important is that you find a price that is fair both for you and your clients.

Hourly vs. project-based pricing: It’s important to consider whether you want to charge hourly or project-based. Hourly pricing can be easier to understand and is a good option if the project is likely to take a long time. Project-based pricing or fixed pricing is better if the project has a clear end goal and can be completed in a set amount of time.

The choice between competitive pricing and value-based pricing depends on the freelancer’s goals, expertise, and target market. Both strategies have merits, but value-based pricing typically positions a freelancer more effectively for long-term success.

Competitive Pricing:
This approach involves setting rates based on what others in the market charge. It can be beneficial for new freelancers looking to establish a client base or for those entering highly competitive industries. However, this strategy may lead to underpricing and undervaluing one’s skills, which could make it challenging to sustain or grow over time.

Value-Based Pricing:
This strategy focuses on the unique value the freelancer provides to the client. It emphasizes the results, benefits, and impact of the freelancer’s work rather than just the effort or time spent. Value-based pricing allows experienced freelancers to differentiate themselves, attract premium clients, and establish themselves as experts. While it may narrow the pool of potential clients, it tends to attract those who appreciate quality and are willing to invest in it.

Conclusion:
Value-based pricing is generally the better strategy for freelancers aiming to build a strong brand, command higher rates, and foster lasting client relationships. Competitive pricing might be a stepping stone early in a freelancer’s career, but transitioning to value-based pricing enables sustainable growth and professional recognition.