How to Set Your First Price as a New Entrepreneur or Freelancer

Starting a new business or freelancing career brings exciting opportunities, but also the immediate challenge of pricing your offerings. Many new entrepreneurs default to undercharging, fearing they won't get clients, or overthinking it until they're paralyzed. The goal is to find a sweet spot where you attract your ideal customer while covering costs and making a profit.

Understand Your Costs and Desired Income

Before you even think about what a client might pay, you need to understand your own numbers. For services, calculate your desired annual income, then divide by the number of billable hours you realistically want to work. Don't forget to factor in non-billable hours like marketing, admin, and professional development. Include all business expenses: software, insurance, marketing tools, office supplies, and even your health insurance if you're fully self-employed. For products, calculate material costs, labor, overhead, and distribution. Knowing these figures provides a baseline for what you *need* to charge.

Research Your Market and Competitors

While you shouldn't blindly copy competitors, understanding the market rate is crucial. Look at what similar businesses or freelancers with comparable experience and expertise are charging. Pay attention to their service packages or product features. This research helps you understand customer expectations and identify where your offering might fit into the market. Are you premium, mid-range, or budget-friendly? Your pricing should reflect your position.

Define Your Value Proposition

What makes your service or product unique? What specific problem do you solve for your client? What results do you deliver? Articulating your value proposition clearly helps justify your price. Clients pay for solutions and outcomes, not just hours logged or items produced. Focus on the benefits your clients will receive when they work with you. For example, instead of "website design," think "custom websites that convert visitors into paying customers."

Choose a Pricing Model to Start

Several common pricing models can work for new businesses:

• **Hourly Rates:** Simple for services, but can cap your income and penalize efficiency. Useful for project-based work with unclear scope.
• **Project-Based/Fixed Rates:** Great for well-defined projects, offering clarity to clients and ensuring you get paid for value, not just time. Requires accurate scoping.
• **Value-Based Pricing:** You charge based on the perceived or actual value your service/product delivers to the client. This is often the most profitable but requires strong confidence and client understanding.
• **Tiered Packages:** Offer different levels (e.g., Basic, Standard, Premium) with varying features and prices. This caters to different client needs and budgets.

For new entrepreneurs, a combination of project-based or tiered packages often works best, as it moves away from trading time for money. Starting with a slightly lower, introductory rate for your first few clients can also be a strategy to build testimonials and a portfolio, but ensure it's still profitable.

Build Confidence and Practice Your Pricing Conversation

Imposter syndrome is common, but don't let it dictate your prices. Believe in the value you provide. Practice explaining your pricing clearly and confidently. Be prepared to discuss why your rates are what they are, linking them back to the value and results you offer. Don't discount immediately when a client questions your price; instead, reiterate the benefits and outcomes they will achieve. Remember, not every client is your ideal client, and it's okay if some find your prices too high.

Frequently asked questions

**Should I offer discounts for my first few clients?** Offering an introductory rate or a small discount can be a strategy to gain initial clients and gather testimonials. However, ensure it's a temporary tactic and clearly communicated as such, to avoid devaluing your services long-term. Always ensure the discounted rate still covers your costs and provides some profit.

**How often should I review my pricing?** You should plan to review your pricing at least once a year, or whenever your experience increases significantly, your costs change, or you add new value to your offerings. Market conditions and demand can also influence when a review is necessary.

**What if a client says my price is too high?** Instead of immediately lowering your price, ask open-ended questions to understand their concerns. They might have budget constraints, or they might not fully understand the value you're providing. You can then reiterate benefits, adjust scope, or offer a different package that aligns better with their budget and needs.

Setting your first price doesn't have to be guesswork. By understanding your costs, researching the market, defining your value, and choosing an appropriate model, you can confidently set prices that sustain and grow your new venture. Jaxon V. Rhodes, in "Price It Right," provides even more actionable strategies to help new entrepreneurs and freelancers navigate these crucial decisions effectively, ensuring you get paid what you're worth from day one.