Monday, June 06, 2011

The Freelance Rules #6 - Know your worth

I love Jessica Hische's contribution to the unending debate microsbusineses and our clients get into around price and value. For me, the bottom line when it comes to commercial organisations is never work for free. I'd add another strand to that: establish your real value and stick to it. In essence, don't give your services away cheaply.

That's been really tough in the downturn, but once you know your worth, aligning your charges to the real value you bring to a client it helps you, the market and clients too.

I hate quoting a day rate to potential clients: in terms of £ per hour/day, I'm by no means the cheapest (though, I surprised myself on a rates survey recently to find out I'd dropped from upper quartile to middle) - and far too many service procurers are driven only by price. I don't actually know anyone who does what I do as fast as I do it. Equally, I have 20 + years experience in my field, and work with a group of people equally experienced. So, what the client 'gets' for a day's worth of my time is far more than they'd get from someone who may charge less, but may also not deal so well with the real issues - and may end up reworking (and recharging) several times before the client is satisfied.

Price-driven procurement is fine when the procurer is sourcing widgets that will meet the same need in the same way day in and day out. Buying a service is very different - but the pressure on the smallest businesses is to keep cutting prices to satisfy the client's desire to cut their costs. But microsbusinesses have to be braver: we have to recognise the value we provide and stick to it. The easiest way with procurement teams is actually a cop-out: it's to start higher than you would expect and compromise pretty much at the point you would normally charge anyway. They feel better - and you still get your expected return. But overall, this probably has the effect of inflating the market: not what 'procurement' is supposed to do.

Once you know the client and are dealing with the real commissioner not their procurement team, you can actually negotiate on the basis that they'll understand the value you bring to their team. If you merely duplicate something they can already achieve in-house or can buy in cheaper from another supplier, you can't expect to charge huge rates. But if you have specific experience or a skill that they can't duplicate elsewhere, your service will be at a premium and you're in a much stronger position to stick to your guns on price.

The flips side is that you have to offer service levels that justify your charges - there's absolutely no room for complacency.

Somehow clients seem to think they can pay an independent or two-person business considerably less than their high-powered, all-singing-all-dancing agencies. I'd contend that if I'm guaranteeing to provide as good a service as that agency - or indeed a service that the agency can't offer - there should not be a difference in the price the client pays. The reality of course is that I don't carry the overhead of that agency so Leapfrog can be a far more cost effective vehicle for getting the job done. And, of course, many agencies are little more than a front. The business developers and a small core team work directly for the agencies - and many services sold on to clients are actually bought in from independents (and we're charged out at well over the price we charge the agency).

Occasionally, clients have a very naive view of payments though, and assume that the £xxx a day I charge them goes straight in my pocket. Somehow the fact that I have to cover pension, insurance, office costs, legal and accountancy costs, VAT, corporation tax and all the rest before I even see any of the income passes them by. Though there are undoubtedly some tax advantages in operating as a limited company, it's marginal these days. What I would say is that it's apples and pears to try and equate a day rate to a salary.

Driving down on price has a harmful effect on clients in the end as many really good small suppliers are simply driven out of business - and those that remain will, in due course, simply push up prices again as their services will be scarce. It's all terribly cyclical when it doesn't need to be.

Meanwhile, those independents who deliberately undercut the market do themselves no favours. Names soon get around in what's a pretty small, tightly-knit community - and once you set a value on your services, it's hard to increase your prices later. If your clients know you as a £200 a day person, how can you expect to justify double and triple that - even if that actually reflects your market worth?

So, as a microbusiness, it's essential to check out what the rest of the market is charging, not just when you start, but on a regular basis. You will have to justify your worth time and again. You'll know what it costs you to run your business - you have to get to know your break-even point and the point at which you can make the money that delivers the lifestyle you want. If your service justifies it, price around that (without being greedy). If not, it may be time to get a job.

1 comment:

Alison Boothby said...

Mark, I'm loving reading your wise - and frequently amusing - takes on corporate vs freelance life. I'm learning heaps too. I hope in a decade's time I'll be sharing my successes too. Thank you.