It’s perfectly fair to charge different customers different rates depending on the value they get from your work.
Published 7:00 am, Tuesday, June 19, 2018
Photo: Caiaimage | Paul Bradbury | Getty Images
Many economists will say, “You don’t set prices. The market does.” At some level, this is true. But, ultimately, it’s still your decision to make. If your price is too high, you may lose business or set the wrong expectations for a client. If your price is too low, you may become unprofitable or attract the wrong clients.
According to Marion McGovern, author of Thriving in the Gig Economy, the most common mistake free agents make is thinking there must be one rate for all clients. McGovern says, “people think it’s somehow unfair to charge ABC company differently than XYZ company. This is absolutely wrong.”
So, if you’re a free agent, how do you set your price most effectively? Do you stay within a market range? How do you charge each client differently? How do you avoid competing directly on price?
Ivory Coast is one of the major departure points for migrants travelling illegally to Europe. Without a job or a tangible future in their country, many risk their lives seeking a better one abroad. To combat this pattern, the European Union is working in conjunction with the International Organization for Migration (IOM). Collective reintegration projects, such as business partnerships between returning migrants and members of their community, aim to discourage risky irregular migration through sustainable work and dialogue at home. To see how it works, Euronews travels to Ivory Coast, which recently hosted the African Union-European Union summit. Abidjan, Ivory Coast’s economic capital, is one of West Africa’s most highly urbanised cities. But behind its apparent success story, and despite being among the world’s biggest exporters of cacao, coffee and bananas, Ivory Coast is still plagued by poverty, which affected nearly half the population in 2015. Many young people faced with unemployment try to reach Europe. According to the IOM and the EU, among the 155.000 migrants who reached Europe between January and November 2017, most came from West Africa. Europe isn’t the Eldorado We meet Jean-Marie in the capital Abidjan. He is one of many who was seduced by the prospect of a better life beyond his country’s borders. A promising football talent, he was lured to Tunisia by a so-called “sports agent” who took his money and disappeared. “In the first weeks everything went well, I only understood it was a scam after a while because I never saw that person again, he disappeared with the 2.500 euros I gave him,” Jean-Marie Gbougouri tells us. “So, in the end, I was stuck over there, I had nothing left. So for me, Eldorado is not necessarily Europe. Of course, we all dream of going to Europe, but not in those conditions. I’m in good shape, but taking a boat to Italy isn’t going to change my situation. So I’d rather go home and invest my energy in my own country and see what happens.” The IOM helped Jean-Marie return home and set up a business as a chicken farmer. Voluntary return and its follow-up are priorities for the EU, which funds the IOM’s projects. According to the EU’s foreign policy chief, Federica Mogherini, interviewed by Euronews, the EU has helped 14,000 people return home this year. Once home, the migrants need assistance says the IOM’s director in Ivory Coast, Marina Schramm: “There is this point of failure which is why it is extremely important for us to work on the psychological and psychosocial support, create an identity again, build self-confidence. And I think therefore training is extremely important, having a diploma makes someone out of you again, not just someone that came back with nothing.” Boosting cacao revenue To prevent Ivory Coast’s youth from leaving, there need to be jobs for them. The country is the world’s biggest producer of cacao, most of which is consumed as chocolate in Europe and North America. But cocoa farmers in Africa are deeply affected by the fluctuating prices of cocoa. Overproduction this year caused prices to drop. Moreover, what Ivory Coast lacks, says Euronews’ Isabel Marques da Silva, is the processing industry. “A cooperative working in the fair trade business gets better prices for its cacao. But the added value is in the transformation process, which does not takes place in Ivory Coast. So in the end, the farmers get less than 10 percent of the price of a chocolate bar made and sold in Europe,” she says. There are exceptions like the Société Coopérative Equitable du Bandama, in the town of M’Brimbo, northeast of Abidjan. It brings together Ivory Coast’s first certified organic and fair trade cocoa producers. Thanks to this certification they have developed their own trade channels and are therefore spared the price fluctuations of the regular market. The next step would be to make the chocolate locally. “We’ll need funding, or at least someone to help train us locally so that we can make the chocolate here,” says SCEB president Jean Evarist
Tips for setting effective prices.
It helps to know the market range for certain types of work. There are benchmarking tools available to show the median rate for common industries, as well as the range of common prices. This is a good starting point.
Another consideration is what it costs to be a free agent. Consider the time you will spend on prospecting clients, unbillable hours, marketing costs and upcoming vacation time. There are many online calculators to help you determine a rate that makes freelance work sustainable.
Once you know the market rate and a rate that will support you as a free agent, you’re almost there. McGovern suggests five other considerations:
- The riskier a project, whether due to the scope or aggressive goals, the more you should charge.
- The more a project allows you to deepen or broaden your skills, the more leniency you should have on price. Consider it an investment in building your business as a free agent. In the long run, you become more marketable and potentially able to command higher fees.
- The tighter the timeline for a project, the more you should charge. It’s a convenience tax. For example, you may not realize it, but Uber is much more expensive per mile than a rental car. Convenience and urgency costs a premium.
- Your daily rate should be approximately 1 percent of your annual revenue target. A marketing consultant who feels $200,000 would be the going salary for her expertise should charge $2,000 per day for her services or $250 per hour.
- Your anchor client should get a deal. An anchor client is one that pays your rent, so to speak, by giving you recurring business. Having a project year in and year out from one client is a wonderful thing. Some free agents may want to increase the fees after a few years. Unless your costs have risen dramatically, resist that impulse.
With this approach, you can choose a rate that supports your career independence and takes into account your clients’ needs. While market rates are helpful for understanding your place in the market, you’re better off competing on quality, personalization, convenience or other factors that make price a secondary consideration for your clients.
Online marketplaces are great when you’re just starting out.
A recent report found up to 27 million Americans want to switch from traditional jobs to self-employment by 2020. Whether you’re new to the workforce or simply yearning for career independence, getting started is often a big leap.
Online marketplaces, such Upwork, Fiverr and 99Designs, can help you get started by sourcing clients. Most of these marketplaces also set prices, which is a double-edged sword. The benefit is that it’s one less task for the free agent to manage. The challenge is that it’s hard to make a living when your only controllable variable is time. Just consider Uber as an example. When you can’t set your own price, your time becomes the limiting factor.
In order to stay independent for the long run, it’s important to prospect your own clients and learn how to price effectively.
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