Are You Selling a Commodity, a Skill, or a Service?

Are You Selling a Commodity, a Skill, or a Service?

How much should I charge? It’s the first question that new freelancers or consultants ask. And the truth is, the question never goes away. You’ll always encounter new projects, new clients, and new twists that demand adjustments to your rate schedule.

First let’s look at the big picture.  How do you view the work that you charge for?

As a commodity. If you charge by the word, or by the page, you are treating words like a commodity.  It’s sort of like a drive-through business model.

As a skill. If you charge by the hour, you are treating your abilities like a trade. It’s akin to a plumber or electrician. Yes, you can fiddle with your leaking pipes, but the job will get done faster and better if you hire a pro. It’s the same with planning, writing, design, or whatever you offer. Everyone can do it at some level, but most people don’t do it very well. They need someone with skills — you! If you believe this is the right mindset for you, I recommend that you see how much beginning plumbers or electricians charge in your community. Use that as a baseline for your hourly rate and adjust from there.

If you charge primarily by the hour, however, you end up penalizing yourself for getting better and faster at the work you do. Let’s see, you produce a better product in less time, and you get paid less? That’s crazy! At the same time, knowing your hourly rate, even if you never share it with clients, can help you estimate project fees.

As a professional service. If you charge by the project, you are treating what you do like a professional service, much like a doctor. You aren’t billed by the minute when you get a check-up; you are billed for the service, regardless if it takes 5 or 50 minutes. The outcome, not the time spent on it, is what matters.

In most cases, I believe this approach works best.  Clients like it because they know the bottom line, which is especially important for nonprofits. You know the bottom line, too. If you work quickly, you can make more than your typical hourly rate. If you work slowly, you may lose money. In other words, your success with project fees depends entirely on your ability to estimate accurately. You need well-defined projects and you need to know yourself and how long it will really take you to produce the work.

If a project is not well-defined, or you believe it’s likely that you will be asked to produce additional drafts, you can incorporate an hourly rate into a project fee and specify in the contract when the hourly rate kicks in.

Here’s the truth: I didn’t really start to make what I consider “real money” — not living month to month — until I moved exclusively to project fees.

How about you? Share your experiences in the comments.

  • http://www.moflow.ca/ Marlene Oliveira

    I love this post, Kivi and the way you summed it all up. I charged hourly and ‘per word’ for the first few months of my consulting career and very quickly switched to project fees for all of the reasons you provide.

    Funny anecdote from those early days: I was once asked by whether ‘if’ ‘a’ ‘and’ or ‘the’ counted in my per word fee. A definite sign that I needed to move away from that kind of fee – and that kind of client!

    • http://www.nonprofitmarketingguide.com/blog Kivi Leroux Miller

      Oh, wow, Marlene, that’s funny, and yes, a perfect example for why charging that way is ridiculous!

  • http://www.caitlinsislin.com Caitlin Sislin

    Very helpful and clarifying, thank you Kivi! I’m interested to hear (from anyone) — how did you reframe your offering when you switched from hourly to project rates? Or did you have to? As a fundraiser, my work right now is managing strategy and implementation for foundation grants + donor communications for my clients — and these are both ongoing efforts without a clear beginning or end. Curious about how to put a package around what I do. Thanks so much for all this great info!!

    • http://www.nonprofitmarketingguide.com/blog Kivi Leroux Miller

      Caitlin — for ongoing support like that, I would move to a retainer model. You agree to handle a certain amount of workload for a certain time, say three to six months, and you get a set monthly fee. The slower months make up for the busier months. No one has to track hours or specific deliverables as long as the work in the “job description” is getting done.

      • http://www.caitlinsislin.com Caitlin Sislin

        I’ve started moving toward a retainer model with my clients. Good to know I’m on the right track :) Thanks again!

  • https://bmtmedia.org/ turner_bethany

    This is very helpful. I am going to make the switch to charging as a professional services.

    • http://www.nonprofitmarketingguide.com/blog Kivi Leroux Miller

      Good move!

  • Tim Smith

    For the past 20 years, I’ve charged my clients on what I call a “value” basis. As an example, I know from experience that a newsletter requires more design hours, often with each page requiring a unique treatment. By contrast, a brochure might be more text oriented and follow a layout that’s simpler and less time consuming. When I estimate I take that into consideration. A newsletter is based on a higher per-page price because of the complexity, therefore a 4-page newsletter can be more expensive than an 8-page brochure.

    I quote a range ($X,XXX to $X,XXX) and stick within that range no matter what, only billing the high end when client AAs or changes in direction make it necessary. I like to think that my experience brings a value all its own and the end product reflects that. Maybe a bit pricier compared to someone starting out but the product is delivered on time and (hopefully) exceeds expectations.

    • http://www.nonprofitmarketingguide.com/blog Kivi Leroux Miller

      Great examples, Tim. Thanks for sharing!