5 tips on pricing your work right when you run a business by yourself
The self-employed and owners of knowledge-based businesses are forced to think about the valuation of their work.
One of the most difficult questions a business owner faces is setting prices for services. In particular, business owners providing intangible, knowledge-based specialist services may have questions about valuing their own skills and time.
The creative sector entrepreneurs and journalists Rosanna Marila and Sanna Wallenius provide answers to this and other questions faced by new business owners in their book Lisää liksaa! (“More money!”) “A book to encourage the self-employed to charge higher rates.”
Each author set up her own business around four years ago, but the two had known each other for a long time.
“We realized that setting rates for intangible specialist services is hard when the product isn’t concrete. That thought remained at the back of our minds, and we told ourselves other people were probably thinking about the same questions,” Marila says.
They wanted to write a book that would provide concrete answers and information in an understandable form. For that reason, the book presents the experiences and views of single-person business owners from various sectors and hard monetary sums as examples.
1. Hundred is a good starting point
Marila said she learnt a lot while writing the book. An experienced businessperson can set prices too low and an inexperienced one can set them too high, as advice and tables do not necessarily give a realistic picture of rate levels.
“What is essential is establishing the real price level. Of course, an expert must be able to do their job well in exchange for a proper price,” Marila says.
The authors of the book suggest knowledge entrepreneurs invoice one hundred euro as an hourly rate. That is not the entire truth, however. A consultant’s hourly rate may be €500–1,000. Others never reach the stage of invoicing one hundred per hour.
2. Not every working hour in the week is billable
Some time is spent on paperwork, customer acquisition and other fringe work that nobody pays for. A business owner may only have one billable day a week.
Larger projects are often priced separately.
“Realistically, you hit a price ceiling at some point, and as a business owner you can’t always dictate your own price. In the book, we encourage you to talk to people in your sector and expand your understanding. We believe in openness about the general price level in dialogue with fellow business owners. People can’t always speak about exact prices, but they can talk about the general price level,” Marila says.
3. Giving a quote demands nerve
Giving a quote may be nerve-racking if the general price level is not clear. In the creative sectors, in particular, it is even more nerve-racking if a business owner binds the price to his or her own self-esteem or defines his or her professional skill through it.
“It’s important to remember that a price negotiation is a normal part of business. If everything doesn’t go entirely according to the entrepreneur’s plan, it doesn’t mean they’ve failed,” Marila says.
She recommends the three-price tactic when giving quotes. In that case, the quote contains the lowest possible price, which does not cover much work. The middle price is for somewhat more hours and is a little higher. The third price is so high that the entrepreneur almost does not dare to say it aloud.
“Different prices make it easier to handle embarrassment but also give some indication of what the final price could be in relation to the amount of work,” Marila says.
4. Examine your skills from a fresh perspective
One worrying aspect in price negotiations is that some knowledge entrepreneurs’ price level has stalled or even dropped as other costs of living rise. Marila has witnessed this in her own work.
“According to a report by the Union of Journalists in Finland, an employee journalist’s euro is equivalent to 57 cents for a freelance journalist. Because of Spotify and other audio app services, other content producers’ rates have at worst been reduced to pennies. Rates are being pushed down,” Marila says.
The solution is a “doer’s” attitude and examining your own expertise from a fresh perspective.
“We’ve thought about what other expertise we have that could be sold. In our situation, it’s training, texts in various forms, consulting and speaking gigs, but in other sectors it could be something different. Many people are already thinking in this way,” Marila says.
5. Pricing can change
In the future, pricing may change due to various digital platforms, but the diversification of the professional field provides an opportunity for self-development and expanding networks, even internationally.
“Various trend reports show that in the 2030s more of us will want to cut pointless distractions and burdens out of our lives. So, in the future, we will begin to prioritize our time management even more. Hopefully, that means that in the future we single-person business owners and professional communities will dare to ask more boldly for the kind of compensation that allows us to have a life outside of our work.”