Many of the best online platforms for finding freelance work — sites like Fiverr, Wyzant, Taskrabbit and Rover — allow freelancers to set their own rates. But pricing your side gig for success can feel like walking a tightrope.
Set your prices too high and you might scare off potential customers. But set them too low, and you could end up working hard for very little reward.
Finding the right balance is key to ensuring your side hustle is both profitable and sustainable. In this guide, we’ll walk you through the essentials of pricing strategy to help maximize your earnings and grow your business with confidence.
Understand Your Costs
Before you even think about setting a price for your side gig, you need a clear understanding of your costs. That’s relatively straightforward when you’re selling a product, like a t-shirt. But it’s a little trickier when you’re selling a service, like your time and expertise.
But either way, the one mistake many entrepreneurs make is failing to account for their indirect costs.
These are the expenses that might not be immediately linked to your product or service but are essential for running your business. This can include things like internet bills, rent for a workspace, or even a portion of your home utilities if you’re operating from a home office. If you’re selling through an online platform, there are also platform fees or commissions that must be factored into your pricing too.
To be sure, accounting for indirect costs is tricky and requires some estimating.
You might, for example, estimate that your office expenses cost you $500 a month. Now consider roughly how many products — be that freelance articles or t-shirts — you sell in any given month. Divide the cost by the number of products to come up with a rough estimate of your indirect expenses.
Cost-plus pricing for products
When you’re selling a physical product, cost-plus pricing is usually your best strategy. It’s simple and tends to deliver an appropriate profit, without gouging your customers. Here’s how it works.
Let’s say you’re selling t-shirts on Etsy. Your job is to add up all of your costs, including the indirect costs, and add a profit margin that adequately reimburses you for your tim.
So, let’s say the t-shirt costs $7; the shipping materials and postage run $3.50. And it takes your assistant, who earns $20 an hour, 10 minutes to mail each item. And your office expenses amount to another $1 per item sold. That overhead expense is roughly $4.30. Altogether, your hard costs add to $14. If you want to earn at least $5 on each sale, your price is $19 before accounting for Etsy’s commission.
Etsy’s normal commission is 6.5%, but it’s levied on the final sale amount, so it adds up to a little more. For simplicity’s sake, just round the estimated commission to 10% of your costs. That would mean you should charge $21 for each shirt. (Etsy’s commission on this would be $1.37, so you’d walk away with $19.63 — or $5.63 after costs.)
Pricing services
But how do you price a service that requires your time, but has no direct costs? One way is to look at “opportunity costs.” Simply put, what could you earn to provide this service if you were working for someone else?
If you don’t have a clue, Google your job description and see what comes up. Job sites like Indeed and Glassdoor publish estimates and averages for many types of jobs. These can at least give you a starting point.
However, independent contractors should also factor in the cost of employee benefits that they don’t receive when they’re self-employed. These benefits, which range from company-subsidized health insurance to paid time off, often amount to 30% to 40% of pay. So, if pricing your side gig for success means having enough to providing yourself with some worker benefits, you’d want to multiply your hourly wage by, say, 35%.
Thus, if you would earn $40 an hour doing this job as an employee, you should charge $54 as an independent contractor. That’s the $40 per hour, plus the $14 estimated cost of benefits.
Think that might price you out of the market? There’s only one way to know
Research the Market
It doesn’t matter what you think you should make if people aren’t willing to pay that price. But it’s pretty easy to check, especially if you’re offering a service through an online platform like Wyzant or Taskrabbit. You simply need to view these sites as customer, rather than a supplier.
As a customer on Taskrabbit, your competitors will be sorted by geography and service. So, if you’re planning to offer painting services in Los Angeles, you’d see more than a dozen painters, charging rates ranging from $30 to nearly $100 an hour. The higher-priced painters have hundreds of reviews, so if you were planning to price your service in the $30 to $75 range, you’d know your pricing isn’t out of line.
At Wyzant, an online tutoring platform, the competition is sorted by subject. So, if you want to tutor high school algebra, you’d search for, say, Algebra 2 tutors. You’ll see dozens of tutors with various levels of math experience charging between $50 to $150 per hour. Again, by looking at the number of reviews that these tutors have received, you can see that these prices are well within the range of what the market will bear.
Identify Your Unique Selling Points
While analyzing competitors, also identify your competitor’s unique selling points. When you look at their profiles, what would make you want to hire that person? Is it the photos of their past work? Testimonials from former customers? Is it a description of their unique experience or work process?
Use this market research to help identify your own unique selling points. What sets your service apart? Is it your experience? Your empathy? Your ability to work well with teams? Maybe you offer higher quality, faster turnaround, or more personalized service. Focus on what makes you shine.
But be realistic about the quality and uniqueness of what you’re providing. Customers will gladly pay extra for things like superior materials, excellent craftsmanship, or one-of-a-kind services. On the other hand, you may want to price your products and services more competitively if they are more ordinary.
Write your profile
This is the main message that tells people why they want to buy from you. You say who you are and what makes your product or service worth the money. This takes your unique selling points and turns them into a pitch that tells potential customers the value of buying this service from you rather than someone else.
Test and Adjust
Pricing isn’t a one-time thing, even if you do a lot of research and know what your product or service is worth. You should put your price plan to the test in the real world and be ready to change it based on the market reaction.
It’s pretty common, for instance, offer low prices when you are first starting out on a new work platform. That price could be a way to get your first users and build a customer base. As people tell you they like what you’re selling and you gain more confidence in it, you can slowly raise your prices. Offering introductory prices can also help you learn more about how price conscious your target market is.
Gather Feedback
As soon as your product or service goes live, get as much feedback from customers as you can. Are they happy with the purchase they made and the value they got? Did they think the price was worth it? As them for reviews and testimonials, if they’re happy with your work. If your customers feel that your service is a bargain, it may be time to inch up your prices.
If, on the other hand, you run into pushback, you might need to change your prices — or practices — to make your service more valuable.
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