10 Steps for Setting Up a Side Hustle - Step #7 How Do You Set Your Prices?
How do you price the services or products you're going to sell? This question brings us back to step 2, Am I Good Enough? If you're considering turning a side hustle into a full-time business, then you probably are, but do you believe in yourself? Your friends may be thrilled to say, "I got a guy…" or "My best friend does XYZ," but in the end, are they using you to help you? Or because they can get the product/service cheaper from you? And would they be willing to pay full price if you suddenly "went pro?" Well, you'll never know until you ask, but permanently offering a "friends and family" discount is definitely not going to turn your side hustle into a full-time business. Then again, perhaps a 6-month ramp-up will help them (and you) realize the value you're providing.
Do Your Homework Before Setting Your Prices.
Step #7 in this series involves research. Research on competitors, research on what you need, research on what you're providing, and how all of that adds up to a price for service or product. The amount a current employer pays you is different from what you'd ask as a side hustler (or a freelancer if you don't like that "hustle" name). You may get paid hourly at work, but does that mean you should when you're working for yourself? If you've got a network of freelancers or know others who are providing similar services ask around. You need to determine whether they set up payment by the hour, by the job, on retainer with a set expectation of minimum hours, and if the answer varies, dig a bit deeper. Is there a benefit to one over the other? Does one bring in more customers, but perhaps lower-paying? You need to know.
- Are tips usually included?
- If you're using a listing service, is there an option to receive benefits?
- Can you expect to see an increase in payment over time with that service?
- Is there a set growth structure, so maybe when you start, you earn at a 1-star level, then as you grow and improve, you receive commensurate pay levels?
- Or if you won't be listing with a service, in general, is there an entry-level that businesses start at, and then a precedent for increasing price structures?
Huffington Post published an article back in 2014 on setting prices, which is still an excellent guide for establishing reasonable prices on goods and services today. Don't be afraid to charge what your work is worth. So many times, self-employed people, or even hobbyists, underprice themselves because their work is "just something I do in my free time anyway." It happens all the time at craft shows, with musicians and performers, and sometimes with lawn care, pet sitters, you name it. Later, when they're ready to expand into a serious business, their client base isn't open to paying more. Find out what you're worth and stick to it! And maybe expand your client base while you're at it.
Pay Yourself With Benefits!
Yes, as a self-employed individual, benefits are going to be more costly. But these days, living without health insurance and the ability to take sick days or a vacation just isn't healthy, mentally or physically (or financially). Again, do some research. There may be cost-effective or at least reasonably discounted benefits available through a union or a professional organization. When it comes to setting prices, do the math. Nation1099.com has some great self-employment income worksheets to assist you and ensure you're not leaving anything out. If you want to start small and grow, you can certainly leave out coverage for time off or retirement funds, but healthcare? Marketing? Taxes? That's going to lead to either higher costs later, or a lack of business. I grew up in a family of self-employed people on both sides. My parents got one week off a year (even after working there almost 20 years, and no sick pay. Forget about a retirement fund or even a retirement party! Because that wasn't part of the budget. But you're early on in the process. Do it right and don't short-change yourself. Being your own boss should mean you can plan for perks like that and not live a life that is less, simply because you're self-employed. Take the time now, and reap the benefits later.
Plan To Give Yourself a Raise.
It helps to know what competitors charge for the work. Maybe you want to compete with them, so you set your costs lower, or perhaps you want to charge a bit more because you offer added benefits. Just don't undersell yourself or plan for negative net income. There's no reason for that. Growthlab.com offers scripts for discussing price changes with clients, and explains how you can start at lower rates, then "ask for a raise." Yes, being self-employed doesn't mean the end of raises, but now you're giving them to yourself. It's all about providing higher value that your clients can see, and are willing to pay for.
- Are you going to change up what you're offering and are asking for more because of that?
- Are you raising costs because you've gained more experience and now have a higher level of understanding with clients?
- CAN you offer more if they'll pay a bit more? Do they need more? Or can you bundle a few products/services and give a discount because now they're buying more?
Know the value, have the discussion, and even consider offering a tiered increase over time as you and the client grow together.
Think You Don't Need Resources? Think Again! And Include the Cost.
These days it seems everyone has a side hustle. The Pandemic and more people working from home or redefining what they want out of a job have resulted in significant growth in online resources for freelancers and side hustlers. You may be new to the freelance arena, but don't discount the years of experience you have in the business. If you've got certifications, have worked on some big projects, or for some big-name clients who don't mind you referencing them (check with your employer since, in fact, THEY did the work, not you) and have specialized knowledge of specific industries, put it into your marketing! Consider trying out your skills and pricing on sites like
- The list goes on
ServiceTitan offers a broad range of other sites that can help spread the word about your business. Many of them provide free listings for self-employed/small businesses. Then, once you've found 2 or 3 that work for you and your business needs, it's time to write up some content about your business (or hire a freelancer to do it for you!). These listing sites can be an excellent resource for spreading the word about your business and finding other freelancers to help you out with things you might need. That could include:
- CAD work
- Website management
- Legal consultation
- Just to name a few
Maybe you are perfectly capable of doing all you need. But having a list of resources to provide support now or when things start to really pop, is essential. Keep a list of contacts handy. Whether your business takes off on day one, or you decide to take a few weeks off during the summer and need someone to cover your clients, having the list BEFORE you need them is the vital piece. Waiting until you can't provide service for all your clients or the day before you've booked that two-week trip to the islands is definitely too late, and can have a negative impact on your business. You'll end up having to cancel orders (or your vacation) or let clients know they'll need to go elsewhere (really? unless you have a friend in the business who will respect your client relationship, this is never a good idea).
Your Price Needs to Cover It All.
A fair rate for your work, the cost of equipment, paying taxes, paying for outsourced work, even utilities, internet, rent, it all needs to be covered by what you charge. And don't overlook those added fees no one thinks about.
- Are you listing services on a site that charges a fee?
- Have you taken into account the cost to process payments?
- Are there shipping and insurance charges involved that you don't pass on to the client?
Again, you need to decide how this will work. Perhaps you'll offer a "bulk rate" if a client is ordering your work steadily. There are pluses and minuses to consider when you're looking at hourly vs. flat-rate vs. retainer. If you're a fast worker, hourly may bring in less money. On the other hand, if your client doesn't always have the same need month to month, a retainer or flat rate may not be attractive. Website planet offers a list of questions and explanations for everything needing to be considered part of your freelance pricing. While it seems like a lot of time spent researching and deciding, it's time well spent and will save you from running into trouble later.
Don't Sell Yourself Short.
Freelancers commonly undervalue services because they usually forget overhead costs or feel like they shouldn't ask for more because they're just doing this work in their free time. But if you're thinking of turning your hobby or side hustle into a full-time cash source, it's time to put on the "employer hat" rather than the employee one. You now own your business and will be responsible for it all, so you deserve to be paid for that work. Are you using space in your home? Did you give up your garage to provide space for your business? Did you have to upgrade internet access, pay for assistance in drawing up your business' legal papers? Freelandermap.com walks you step by step through determining your freelance expenses. It's an important journey for a small business owner to ensure you haven't left anything out.
"If you're unsure about what some of the expenses are going to be yet as a new freelancer, reach out to freelancers within your industry and get talking!" - Freelancermap.com
And that takes us back to Step #3 Getting Customers and building your network. In reality, networks are more than something to build to expand your customer base. They can be an excellent resource for determining needs and helping you set prices and determine expenses. Consider it a source for mentors, outsourcing vendors, research, and all things industry-related, regardless of your industry. Given these ideas, you may decide you need to grow your network a bit more. It's all good. Your network should be constantly evolving. You'll quickly learn how others are pricing products and services, and whether their process is successful for them. Remember, that unique aspect is why you can't just copy someone else. Every business has its own unique set of parameters. Get a good feel for how others are pricing, and using that information, make decisions about your own pricing. Sure you can just set prices in the middle and hope for the best, or let it ride for a while and see what happens, but that's not really doing your business justice. If you've got extra credentials, more experience, or have a unique aspect to your business, consider pricing higher. Or give yourself a starting point, and strategize for an increase in pricing as you go. Don't let the industry drive the bus. Take that wheel and make some choices. At this point, you're well on your way, and it's time to take that position of control, right down to what you charge for your services/products.
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