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This is a hot topic at the moment in the web and design space. It's a topic that is very intriguing to me and I enjoy talking about it. It can be a bit of a grey area in some cases. Unfortunately, there is no right and wrong way when it comes to pricing a project, but there are definitely pros and cons of each method. Some methods are more preferable to others. This video from The Futur opened my eyes into this topic.
Hour based pricing is pretty self-explanatory. You charge a client for every hour you work on a given project.
Pros: This method is great if you don't know what you are getting into or need to add a new feature to an existing website. I would use this method only in some cases.
Cons: I would not advise using this method; so I've learned the hard way. It can get expensive for the client and then they refuse to pay you and then you get this back and forth complain and justifying what you've done. In my past experience, you feel rushed to get the job done in the time you quoted. An added con to this is, for me, I can set up a website in no time, so I am being punished for earning more by working faster. Conversely, if I work slow I am being paid more. In this case, I would highly recommend not using hourly based pricing. It just doesn't work.
This method is where the client ultimately determines the price, not you. You can think of it as serving the client and not selling them a product/service. Here, you are taking the time o understand what the client's needs are, problems they are facing, and goals that they want to achieve.
Pros: By having discovery sessions you can clearly plan out exactly what your client wants, their goals, and desired outcome. This may avoid unnecessary changes and revisions, ultimately saving time in the end.
Cons: Valued-based pricing can be time-consuming to set up multiple discovery sessions. In this method, you need to know what you are doing and provide the perceived value to the client. This type of method is traditionally more costly than the other two. This may be a potential downfall if a client decides you are too expansive and goes with another company.
Cost-based pricing is similar to value-based, however, there is a fundamental difference. This type of method is basically what it costs you, the business/company, to make/create/design the project. The price is based on time and cost. Cost-based pricing traditionally has a minimum and a maximum cost that is given to the client to decide on what they can afford and what's best for them.
Pros: Quick and easy to calculate the cost of a project. It does not take skills and previous experience to set up this pricing method.
Cons: Because this method is based on time and cost, very little or no profit was taken into consideration. This can be dangerous and lead you to a downward loss-making spiral. Prospective clients are likely to challenge the cost, which can lead you to decrease your price.
I would highly recommend watching a few videos from The Futur on Youtube. They really opened my eyes and made me think a little. It made me think about all the times where I might have to undercharge because I felt too bad for the client or just didn't know better. I guess that's the beauty of the tech and design industry; things are constantly changing.
I would love to know your take on pricing for a website or design project?