The success of your business depends on how you work on the financials regarding your development and design work. Imbalance can be highly dangerous for your business – when you charge too much for your development work, you may end up never getting a client; and on the other hand, when you charge too little, you run the risk of never covering your operating costs. Running a successful business needs proper and strategic thinking about your services and resources.
How you think about and calculate the money that you charge is actually as important as how much you charge the client. There is no fixed formula that you can work on to calculate the right amount that you should charge your client for your development or design work, but a checklist of some parameters can definitely help you remain on the right path and get to a thought-through and strategic figure that works for both your company and your client.
Each parameter has its pros and cons and we have tried to pull together some of that as part of our list below.
Also referred to as pricing based on a project, a fixed price approach helps you to charge a flat fee to the client for all the work that you do as part of a project with them. In this approach, a client is usually charged a flat fee or a total fee instead of being charged by the hour.
In this approach, you will have to get a clear idea from the client on what the magnitude of work is on a project before you can calculate the reasonable flat fee that you should be charging the client. How you make a decent start on a f is by understanding the overall scope of the work needed to achieve the required outcomes of the project and coming up with a minimum amount of money to charge the client for that amount. The minimum amount is generally the money that will help you break even on the project. Coming up with a minimum amount of money also lets you have a bit of a play if the scope changes during the course of the project – a scenario that is very common with development and design work for a client as business requirements and market trends change.
It can be challenging to calculate your minimum fixed price for the first project that you work on, but as you mature in the market and complete more projects for a variety of clients, it becomes easier for you to gauge scope on projects with similar kind of work you have completed in the past and come up with more accurate figures at the state of the project. Of course, being more accurate at the beginning brings in more confidence in your work for the client, which is always a win-win situation.
Hourly price or time-based price
The most common type of pricing model in the development industry is called the hourly based pricing model – also referred to as time-based pricing model. In this model, you charge your client based on the number of hours you work for that client. This model comes in handy mostly when you work for an agency that involves different skill sets at different times in a project. For each resource you dedicate to that project, you work out an hourly rate with the client. Towards the end of the project when all the required work on the project is completed, you multiply the hourly rate for the resources provided for all the development and design work with the number of hours required to complete the work to calculate the total amount of money the client owes you.
If as part of delivering the work, you ended up hiring more resources, you should also take into account their fees to come up with the hourly rate, so at the end of the project after paying all the resources, you are left with some extra as profit.
As you deliver timely work to the client, it is important that your work is appreciated for also the quality of work and the expertise you bring to the table for the client by not just delivering what is asked but coming up with creative and better solutions during the course of the project. Both the approaches discussed above, fixed price and hourly price, are heavily dependent on the tangible services you deliver to the client, this pricing model is based on your consultancy skills and think about other intangible things you provide to your client – thought leadership, creative solutions, time-saving solutions, other business process improvements, etc.
With value-based pricing, coming up with a fixed price at the beginning of the project can be challenging because the pricing can vary based on the skills, expertise and experience you share with the client during the course of the project. This pricing model is very beneficial when you have previously worked on a number of projects for a client and they understand the level of expertise you can bring to the table. In such cases, the client often comes to you with their business problem and works together with you for an appropriate solution. Of course, there is more room to play with in this case for the pricing model.
Regardless of which pricing strategy or model you use, what is important for you to understand is that pricing is subjective. What this means is that a formula that you will find works great for one client may not work that seamlessly for another client.
As long as the pricing strategy you come up with is measured correctly against the type of work, the type of client you are working with and the maturity level of your skill or your business, you find yourself in a great situation and relationship with every client you work with.