The Benefits of Tiered Pricing

By Elizabeth Wellington, Contributor, on December 7, 2016

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Figuring out what (and how) to charge your clients is one of the most complicated aspects of freelancing. A lot of independent contractors choose to charge an hourly rate or a flat free for projects. Unfortunately, by implementing hourly rates and working with flat fees, you fail to anchor the price point, leaving clients in the dark about the value they receive.

By utilizing the benefits of tiered pricing models, you give potential clients more options while converting additional leads to sales. If all you offer a potential client is that you work for $X per hour, all they have to gauge your value is your portfolio and how that number stacks up against your competition. How can you start to implement multiple price points in your business?

The Basics

Tiered pricing models offer different levels of service. Based on the needs and budget of clients, leads can choose the option that works best for their current circumstances. Ideally, you create three different levels of service: basic, standard and premium, as writer Andrea Emerson details. If you work as a graphic designer, for example, you could offer three options for rebranding projects. With the basic option, you create a new logo. The standard option would offer a new brand identity, including alternative logos and a business card. The premium level would include all of the other deliverables with a website redesign, as well.

If you can’t offer different levels of service, you can package products together for increased value. A freelance dog walker could offer a package of five, ten or twenty dog walks, with five dog walks costing $100, ten dog walks costing $175 and twenty dog walks costing $450. The bigger the commitment the client makes, the more value they receive from their investment.

Why It Works

This kind of tiered pricing model is more effective than other pricing options for two reasons. As Emerson summarized, the conversation in the minds of potential clients shifts from “Should I hire this person?” to “Which service level will I buy?” Additionally, when freelancers include three price points, people are more likely to choose the standard or premium options.

A study cited by Bidsketch revealed that by taking this approach, you encourage people to choose a higher level of service. In this scenario, the majority of people choose the middle option, with a perception buffer from the higher and lower options helping to guide purchasing decisions. Some will always choose the highest price point, bringing in extra revenue; to increase revenue, a freelancer should shift their highest price point to the standard (or middle) payment and offer an even higher option with greater value for the client.

There are tangible benefits of tiered pricing if you’re willing to implement a new way of charging clients. Rather than customize each proposal for clients, make a template in advance that you can tailor each time an opportunity arises.

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