Autonomy. Location independence. Being your own boss and doing the work you want whenever, wherever.
With the freedom to chart your own path and potential to earn as much money as you can as a freelancer or independent contractor comes the responsibility to negotiate for pay with customers. When you were an employee of Boring Company XYZ, you negotiated once, before starting the job, and maybe twice, if you’re an ambitious rockstar, to ask for a raise. Now that you work for yourself, you are constantly negotiating with every new prospective customer. On top of juggling sales, marketing, IT, and finance roles, you bear the burden of making or breaking your own livelihood by negotiating the value of your work.
Pricing your new product or service can feel like a scary dark art, especially for the first-time freelancer or independent consultant. Uncertainties are great, riddled with difficult questions: What’s the optimal price to charge a new customer? What if you ask for too little or too much?
For some of us, the desire to please customers — coupled with the insidious desire to have people like us without being threatened by our ambition and bullishness — can make us squeamish about asking to be paid for our value.
“You can pay me whatever you want for my virtual assistance/copywriting/graphic design services. I’ll happily redo your spreadsheets/rewrite your press releases/redesign your logo, bend over backwards and work the weekends for you.”
Worse yet, we pre-empt possible objections by cutting down our current prices, unwittingly lowering expectations and giving away our power even before a single word is uttered from the other side. Then at the end of the month, with the rent due and dark bags hanging under strained eyes, we wonder where things went wrong and shudder to consider the alternative: exchanging the entrepreneurial dream for a green Starbucks apron and a steady paycheck.
It doesn’t have to be this way. Setting your rate doesn’t have to be a stab in the dark. Making customers happy doesn’t have to entail underselling your value and working for peanuts. In fact, setting an ambitious anchor, or a reference point, for the monetary value of your work can not only help you earn more money but also increase your perceived value, making you more desirable in the eyes of the customer.
Here are five steps to set and negotiate your rate like the boss lady you are:
1. Run the numbers. How much should you charge per hour? To get down to brass tacks, your hourly rate is a function of 1) billable hours, 2) sum of expenses and 3) profit. Based on the number of hours you expect to charge your customers, you can guesstimate how much you need to bring in to cover your living and business expenses and have enough remaining to save and invest back into your business. For the sake of simplicity, let’s assume you have about 2,000 working hours in a year and can bill half, or 1,000 hours out to customers (the other half you spend networking at Meetup or industry events, writing emails to prospects, paying your bills, and doing other administrative tasks). Sum up all essential expenses such as rent, food, connectivity, computer, and legal expenses. To this figure, add your desired profit, or the amount you want to save for retirement, to cover future expenses, or to invest back into your business. Let’s say that this adds up to $50,000. $50,000 divided by 1,000 billable hours is $50/hour. Your standard hourly rate is $50.
How does your hourly rate feel in your mouth (humor me, ladies), when you say it out loud? If it doesn’t feel ambitious enough, raise it by another 20%. Then practice saying the following out loud, at least three times: “My standard rate is $X per hour.”
2. Listen to your customers. 80% of a successful negotiation is preparation. In other words, nearly all the work in a negotiation is done before you sit down to negotiate. Just as you invested countless hours to research into your field before you developed your services products, you’ll need to invest some time upfront to learn as much as possible about your customer before negotiating. The best way to do this is to ask open-ended, diagnostic questions that start with why, how, when, where, and who. Here are some sample questions to help you get started on the listening and learning process:
- What are key metrics that determine the success of this project/assignment?
- How can I help address your specific pain point or preferences?
- How long do you envision this project/assignment to take to complete?
- What is your budget for this project/role?
- Who has the final say in the budget and scope of this project/assignment? When can I speak to her?
3. Generously demonstrate your value. By now you know what to charge per hour and you are armed with enough knowledge to both ace the job and make your customers supremely happy. Resist the temptation to rush into work. Instead, generously demonstrate your know-how, expertise, and skills to your prospective client. This can take the form of a complimentary consultation, demo account, or a sampling of what you can offer.
4. Frame for high value based on credentials, experience, and expertise. When you make the pitch or offer your proposal, frame for high value based on your education, industry-specific know-how, or glowing references. You’ve worked hard to achieve your credentials, so don’t be shy about owning and sharing them with your prospective customer.
5. Offer options and paint the picture for alternatives. Your proposal would have helped your prospective client see a crystal clear picture of the end result of having worked with you. What would the alternative look like if they passed up on the opportunity to work with you? Working with you, your prospective client would benefit from the economic value of your contributions. If she were to pass you up, what would be the cost of missing out on the unique expertise, accountability, or convenience that you offer?
With the right mindset and preparation, you can confidently ask for your value and make your customer happy to hire and pay you. At core, the same basic principles for workplace negotiation applies to negotiating your pay as solopreneur: firmly believe in your value, and articulate your value based on the benefits your customer will reap from working with you. Then relish your freedom and success. After all, you’re the boss, so give yourself a pat on the back for a job well done!
Jamie Lee is a speaker at Bullish Conference 2013, happening this weekend. For more information on her workshop, click here. Follow her on Twitter here.