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How To Price Yourself

Lesson's Master Action

  1. Find out the real value of the project you're working on. Do this by asking your boss/client for exact deliverables they're expecting to get (leads, sales, subscriptions, etc.).
  2. Calculate the dollar profit it will bring per year. Multiply it by 0.4.
  3. Ask your boss/client for a proper compensation, based on the number you got in step 2. Explain the logic behind value-based pricing.
  4. If they don't agree, finish your current project as soon as possible and move on. There's no point in staying with people who are cheating on you.

If you're like most developers, you price yourself according to your competition.

You ask other people how much they earn, calculate the average and set this as your rate.

But you don't feel you're properly compensated and you'd like to earn more, don't you?

In this lesson, we will cover: 

If you're like most developers, you price yourself according to your competition.

You ask other people how much they earn, calculate the average and set this as your rate.

But you don't feel you're properly compensated and you'd like to earn more, don't you?

The Story About Cathedral Builders

You're walking past the construction zone and you see three builders, all doing the same thing.

  • The first one tells you: "I'm laying a brick".
  • The second one says: "I'm building a wall".
  • The third one proudly says: "I'm building the Cathedral of Sagrada Familia".

They were doing the same thing, but all got different wages.

The cash they brought home was determined just by the size of their thinking.

How Most Developers Price Themselves

Let's be honest. If you're looking for a job, you will most likely go to Glassdoor salary list, look for what kind of wages are on offer and price yourself according to what you saw.

If you're a freelancer, you will most likely calculate how much you spend per month, add up taxes and other liabilities, divide this by the number of hours available per month, and that's how you get your hourly rate.

Now what's wrong with that?

You're positioning yourself as a business expense.

From business owner's perspective, all expenses should be minimized.

Does that put you in a good position? Definitely not.

The Right Way Of Pricing Yourself

First, you need to ditch and forget the "employee/business expense" mindset and start seeing yourself as an investment for a business.

This means you have to start caring about the actual results and value your work brings on the table.

Imagine you work for a car rental company and your boss or client asks you to build a new website. Let's go over 2 scenarios:

Scenario A: Average Developer

If you're like most of developers, you will immediately start asking technical questions about what needs to be done.

It turns out it will need 100 hours of work.

So you multiply it by your hourly rate, which let's say, is $50/hour, and you say to the boss: it will cost $5,000.

As an entrepreneur, he says: can you go a bit lower? $4,500, my friend?

You feel a bit dissapointed but you agree since you're happy you've got the job.

Scenario B: Smart Developer

If you're a smart developer, you will ask your boss/client: "what's the purpose of this new website?"

He replies: "Well, the purpose is to get more rentals, since the new website will be more marketable and user friendly."

Then, you ask: "How many more rentals you expect this website will bring"?

"25 per month."

Now, you know one rental brings $100 profit on average. So 25 rentals will bring $2,500 additional profit per month, which is $30,000 per year.

Now, you're aware that you're actually doing a big part of the job and you also know that this new website will stay for at least a year.

So, being modest, you multiply the $30,000 by 40% and you get $12,000.

You ask your boss/client $12,000, plus a 50% share of profits above $30,000 for the first 6 months.

Does he like that?

Of course not. He frowns because that's almost 3 times more he expected to pay you and he knows he can outsource this job on Upwork for even cheaper.

Now you explain: "I will be more personally involved with the end result if we use value-based pricing. This will work as a guarantee of this website becoming profitable." 

"On top of that, I will be more motivated to push it beyond boundaries, because I'll be personally compensated for exceeding expectations."

At this point, in 90% of cases, your boss/client will happily shake hands with you.

Because he knows he got a partner, and not just another business expense that he needs to manage. 

Why working for cheap is toxic

As the Universal Law says: "you attract what you focus on."

From my personal experience, I remember when I agreed to work for less than my lowest possible rate, I attracted a whole bunch of problems.

First of all, communication between me and the client was horrible, because they didn't actually see me as a valuable person.

Secondly, it's never a pleasure to work at discounted rates - because you just try to get the work done as soon as possible (sacrificing the quality), so you can move on with your next project.

Lastly, when somebody asks your client "do you know any good developers?"

He will say: "Oh, I know this cheap guy who does the work pretty well - get in touch with him."

Now you're doomed to attracting even more low quality clients. And those clients are doomed to getting a low quality service.

It's a vicious cycle that gets you nowhere.

Trust me, I've been there, and it's really hard to get out of this cycle - so it's better to never actually get in.

Master Action

To immediately take benefit of this lesson, I ask you to do the following in 24 hours from now:

  1. Find out the real value of the project you're working on. Do this by asking your boss/client for exact deliverables they're expecting to get (leads, sales, subscriptions, etc.).
  2. Calculate the dollar profit it will bring per year. Multiply it by 0.4.
  3. Ask your boss/client for a proper compensation, based on the number you got in step 2. Explain the logic behind value-based pricing.
  4. If they don't agree, finish your current project as soon as possible and move on. There's no point in staying with people who are cheating on you.

Addressing Fears

You will probably have fears about making these steps, but trust me - you have to do it. Otherwise, you're dooming yourself for mediocrity.

If you continue seeing yourself as a mere business expense, you will never remove the "Average Developer" label from yourself.

And you will never get to enjoy life as much as you should.

As an Unbeatable Developer Academy student, your goal is to bring exceptional value to the world and to be among the rich.

If you follow the Master Action, being average will never be your destiny.

Remember: your dream is to be the Cathedral builder, not the brick layer. This is only determined by the size of your thinking. Nothing else.

Tomas is former CTO and expert developer with 12 years of experience.

He helps developers uncover their full potential at Unbeatable Developer Academy.

His mission is to help 100 million people achieve more freedom in their lives.

LEARN MORE ABOUT TOMAS

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