Is it normal to undercharge when first starting out as a freelancer?
Are you having trouble finding clients willing to pay the rates you ask for? Especially when you’re starting out, the temptation is to cut your rates in order to get more work. Is that really the way to go in order to get a fair rate for your skills? I’ve struggled with the same question many times during my own freelance career and want to try and answer it for you once and for all.
The short answer is this:
It can help to undercharge – but only in the right circumstances and only by a certain amount.
I’ll go into more detail so that you can turn this answer into actionable advice.
What is a fair price for your work?
Please realise, first of all, that there is no such thing as a ‘fair’ or ‘correct’ price. The whole concept is fundamentally flawed. The ‘correct’ price is the price that the client is willing to pay.
Suppose you’re selling luxury cars and you try to pitch them to the unemployed. Try as you might, an unemployed person (as a rule) won’t buy a car costing £50,000, regardless of your skills as a salesperson and regardless of the car’s amazing features.
To make the luxury car accessible to an unemployed person, the price would need to come down massively, say 80 or 90%. That would be career suicide! More importantly, there is no way that this same client or their friends could afford to pay the full price in the foreseeable future.
So, under what circumstances would it have been worth for that salesperson to reduce the price? Let’s say the client had arrived in a Porsche and was wearing a gold watch. They clearly have a habit of buying luxury items! They’re hesitating to buy the new car but a 5% reduction and free home delivery might just sway them. They’re also likely to recommend your car showroom to their friends as they show off their new car.
Do you see the big difference in those two examples?
- The first client would have needed a MASSIVE reduction to accept your services and would not have brought in any useful referrals or new well-paying work in the future. This is the WRONG kind of client and there is NO POINT reducing your rates!
- The second client would have needed a SMALL reduction and could well result in useful referrals or more well-paying work in the future. This is the RIGHT kind of client and a small reduction can be a good way to close the deal.
Should you lower YOUR rates?
Here is a list of key questions that you can ask about your own clients, in order to decide whether it’s worth reducing your prices or not. Print out the list and stick it on your wall. The next time you’re faced with this problem, go through each question and decide what to do next.
- How much does the client spend on other things? You don’t need an exact figure, it is enough to use words like ‘a lot’, or ‘very little’, or ‘very cautiously’. How can you find out? Take a look at their website, their marketing material, their offices. How many people work there and how new are their computers? Where did you have meetings and what sort of biscuits did they provide? What suppliers do they work with and how do those suppliers charge? All these clues can help you make a decision on their spending.
- How much would you need to lower your prices to match your client’s spending habits? The answer you’re looking for is ‘a lot’ or ‘not much’. If you’re not sure, think back to the car sales example – do you offer a premium service or an affordable service? Does the client’s spending pattern fall into the same category, or is there a big mismatch?
- Is the client likely to pay your normal rates in the future? You may be able to sell a premium service to a low-paying customer as a one-off. Unless it can lead to repeatable business, this may be a waste of your time.
- Are your client’s friends and contacts likely to pay your normal rates in the future? Word of mouth and referrals are one of the most powerful ways to get business as a freelancer. If your client exists in a vacuum and doesn’t represent the market as a whole, then the work you do for them won’t be as useful when it comes to growing your business.
Now, answer this very important question:
Is this a client that’s worth pursuing?
And once you know whether the client is worth pursuing, you will know whether it’s worth lowering your rates a little in order to get the sale!