we still worry that clients will view our prices as unreasonable.

Of course, we don’t want to underprice our services, either.

Where does this leave us?

Most of the time, it leaves us paralyzed and stuck. So when it comes time to actually give a prospective client a price estimate, we often just take a wild guess.

That’s a huge mistake.

To help you calculate your service prices accurately, I’m going to share a step-by-step method for setting your project rates.

Let’s get started.

Step #1: Perform research and determine your hourly rate

The first step in figuring out your rate is researching the project and asking yourself critical questions (examples below). These questions help you clarify all the details of the project.

You’ll also use the information you gather to determine your hourly rate, and that’s the starting point for the entire process.

Quoting a project rate, rather than an hourly rate, helps protects you and the client.

When you carefully consider your project price, you’ll be able to work comfortably until the project is completed — and you won’t be penalized if you finish faster than anticipated.

And because freelance services are notoriously variable in cost, your client will appreciate knowing their fixed cost going into a new project.

Why, then, do you need to determine your hourly rate if you’re going to quote a project rate?

Your hourly rate is the first variable in your project price. Your client doesn’t need to know this rate — it’s for your own calculations only.

During this step, consider:

• The project scope. Make sure you have a clear understanding of the client’s expectations and your role in helping him meet his goals for the project.
• Whether or not this project will lead to ongoing work. Is the client already talking about additional projects he’ll need help with, or is this a one-time assignment?
• The client’s budget for the project. Carol Tice, a freelance writer and founder of Freelance Writers Den, recommends inquiring about the budget for a new project. Clients won’t always have an answer, but when they do, it gives you a great piece of data to work with. Carol also adds that asking about the prospective client’s budget helps you weed out low-paying clients who don’t value your services!

After you’ve researched the project, your role as the service provider, and the budget, determine an hourly rate. This is the first component you’ll use to calculate your project base rate.

Step #2: Estimate how many hours the project will take

Break down the project into parts, and then estimate how many hours each part will take to complete.

Add up the hours for each part to get the total number of hours for the entire project. This is the second component you’ll use to calculate your project base rate.

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Step #3: Multiply your hourly rate by the number of hours, then add padding

Calculate your project base rate by multiplying your hourly rate (from Step #1) by the total number of hours the project will take to complete (from Step #2).

Base rate = (Hourly rate) x (Hours the project will take to complete)

Then add some padding. We recommend adding a markup of 25-50 percent to your project base rate to cover additional expenses, overhead, and that affliction most service providers suffer from, which we call “Acute This-will-be-easy-itis.”

In other words, pad your total time just in case you’re underestimating it (which is extremely common).

Padding will cover aspects of the project like:

• Client interaction and ongoing project questions. To provide great service, you’ll want to be available to answer client questions and provide status updates — that time can add up.
• Revisions and additional changes. Are revisions included in your project fee? If so, include them in your markup number if that time isn’t already reflected in Step #2.
• Other unexpected additions. Ideally, the project will unfold as expected. But if it doesn’t, padding allows you to be flexible (within reason). It enables you to be a helpful service provider who goes the extra mile to meet your client’s needs — because you know your own needs are covered.

Once you’ve added your markup, you have your final project price.

Project price = (Base rate) + (Markup)

Step #4: Communicate the price clearly to the client

Now you can clearly communicate the project price to your client and how you will proceed if the work scope expands beyond the original expectations set for the project.

Actively manage your client’s expectations and avoid miscommunications during this stage of the process.

Step #5: Track your hours and adjust future pricing accordingly

Here’s a critical last step of the pricing process that many service providers overlook: If you want to get better at pricing your services, you must track your hours when working on a project to determine if your original estimate was accurate.

Carol advises:

“Track your time, and find out how long it really takes you to do a project. Most people underbid when they’re getting started, so careful time tracking makes it all about the data. That’s useful.”

If you closely monitor your time and discover you consistently underestimate or overestimate the amount of time you spend on your client projects, you can adjust your future price quotes accordingly.

My favorite time-tracking tools are Harvest and FreshBooks.

Price your services with confidence and clarity

Pricing your services doesn’t have to be a nerve-racking process. When you use a smart method like this, creating price quotes can even be (dare I say it?) fun.

Check out the first two articles in this series on pricing your services:

• Are You Cheap or Are You Exceptional? How to Price Your Services
• How to Craft Winning Pitches for Your Service Business

And remember:

Communicate price quotes to clients with confidence and don’t apologize for your prices.

What’s your method for assessing a project and calculating your fee?

Share in the comments below.