Value based pricing: how it helps your mental health & how to calculate it
Pricing by the hour or by the day is a mug’s game, mate.
Not only does it put an absolute ceiling on what you can earn as a freelancer/self-employed person/small business owner, it also pushes us to overwork. NO THANK YOU BOB.
SO it’s time for another way. Enter: Value-based pricing.
This might sound like an alien concept, but by the end of this blog you’ll know what it is, how it will benefit your mind and your business AND how to start pricing this way in your business.
Why pricing by the hour is BAD for your mental health as a freelancer
How can the way you price affect your mental heath? Oh pal. Let me count the ways (and tell you about them).
It puts a ceiling on what you can earn
First up, we need to earn money, right? And if we have mental health stuff going on, chronic health stuff going on, or a beautiful neurodivergent brain, we need to make enough money to pay for treatment, therapy, support.
WELL if you price by the hour, or by the day, then you’re putting an absolute ceiling on what you can earn. You will only ever be able to earn as much as the hours you’re willing to work.
Never mind a glass ceiling, this is a CONCRETE one.
And I want you to earn MORE than you need, I want you to earn more than you can IMAGINE – you deserve to earn good money!
It drives you to overwork [read: one way ticket to burnout]
The second way that hourly pricing affects our mental health as freelancers is that it encourages, nay, FORCES, us to overwork.
If you’re charging by the hour or day and you’re already at capacity really, but you want to bring in some extra cash, well you need to find more hours in the day/night/weekend.
If a job runs over, you have to magically find more time.
If you struggle to determine how long work will take you, you’re probably already massively under-charging as I bet you’re spending more than you’re allotted hours on each client.
It makes you think your value is found in your time
And lastly, pricing by the hour reinforces the frankly damaging idea that the most valuable thing about us is our time.
When we’re employed we’re contracted to work 35 hours a week, with an hour a day for lunch. Starting at 9, finishing at 5. If we’re 30 minutes late because we needed to take the kids to school, buy emergency tampons on the way in, or because we were having an anxiety attack on the bus, we need to make up that 30 minutes from our lunch or stay later at the end of the day.
Let me be clear about this: YOUR TIME HAS NOTHING TO DO WITH YOUR VALUE.
Here’s a wee story time.
Say I’m a potter. My first pot takes me a good 30 hours to make. It’s wonky and the glaze is a bit cracked and there’s a good finger print on the side. Lovely.
Ten years later when I’m a master potter, I’m making STUN HUN pots in half the time. No finger prints, just the wonks I intended. As I said: STUN HUN.
Using the principle that our time is the most valuable thing about us, I’d be charging way more for that first dodgy, wonky, let’s face it, slightly crap pot than I would for the stunners I’m making now.
If you price based on time, as your skill grows, your value diminishes.
Told you it was bad for you, didn’t I?
So how can value-based pricing benefit your mental health?
If we move away from pricing by the hour, we can work less and earn more. [Which, funnily enough, is the title of my new course and how to move away from pricing by the hour is one of the five lessons!]
Planning your pricing based on value allows you to:
- Acknowledge that you bring value to the people you work with
- Focus on doing the work when works for you, your brain and your health, rather than an arbitrary time limit
- Set your own working hours and capacity
- Think about what price feels like a good exchange of value to YOU
- Ignore ‘industry standards’ – which are just a race to the ruddy bottom if you ask me
- Continue the life-long work of trying not to over-work
The nuts and bolts: How to calculate your prices based on value
Right, enough talking about the theory, let’s gown down to the action: how to actually calculate your prices based on value.
First up, figure out a healthy capacity. When I say HEALTHY capacity, I mean one that has some contingency in there, that includes breaks, holidays, rest time, JOY time.
Then look at how many clients you can comfortably work with within those hours. Again – COMFORTABLE. Not ‘how many people can I squeeze in,’ but how many people can I comfortably work with?
If you’re always pricing based on how many people you can squeeze in, you’re never allowing yourself time for breaks or to grow your income.
Next, think about what you want to bring into the business each month. Not just your salary, but how much do you need to bring in to cover: your fixed running costs (software, hosting, insurance, all those things that go out every month), as well as the salary you’d like to pay yourself, plus what you’d like to put away for tax.
Now, divide that revenue target by the number of clients you can comfortably work with. So say you need to bring in £5k a month and you can comfortably work with 8 clients, that’s £625 per client, per month.
Next comes the value bit. This is the intangible bit, so strap in.
Firstly, think about the value of your thing to your client. This is probably NOT going to be tangible. Very few of us can (ethically) say: my thing will make sure you earn ten grand.
So to get an understanding of the value of your thing: ask your people. Ask them regularly, especially if you’ve just finished a project with them, or you’ve been working together a while.
Then think about what a ‘value premium’ would be that you’d add onto that £625 per client base cost.
Secondly, I want you to think about whether that £625 + value premium feels like a good return for your energetic investment.
You want your price to make you feel, ‘oohh yay!’ when someone books with you. You don’t want it to make you feel, ‘oh god, now I’ve got a ton more work to do and I’m already knackered.’
If you’re feeling that way, your price is too low.
Value based pricing: An action list
- Stop pricing based on hours or days
- Figure out a healthy capacity [how many hours/days you WANT to work per week]
- Get a number for how many clients you can COMFORTABLY work with at one time
- Work out how much you want to bring into the business each month [fixed costs + salary + tax savings]
- Divide that £ total by the number of clients to get a base price
- Add a loose ‘value premium’ to that base price
- Review that price based on whether it feels like a good return on your energetic investment
- If it doesn’t, increase it until it does feel good
- Put your new prices on your website, your marketing – TELL PEOPLE ABOUT YOUR THINGS AND HOW MUCH THEY COST
I promise you, you’ll be happier.
You’ll hopefully be working less and earning more!
If you want my support to figure out how to work less and earn more in your business, a good place to start is my Heartwood Way workshop, where I’ll teach you how to base your business on your needs, not others.