Pricing a Website Project

Pricing projects is one of the toughest challenges when running a digital agency or freelancing as a web designer. It’s a frequent topic of conversation in my Agency Academy.

Three Common Approaches to Pricing

After years in the industry, I’ve found that most pricing strategies fall into three categories:

1. Fixed Price
2. Time and Materials
3. Value-Based Pricing

Each has its advantages and drawbacks, and understanding them can help you make more informed decisions for your business. Let’s break each one down and explore what I believe to be the most effective strategy.

Fixed Price

Clients often prefer fixed pricing because it limits risk and makes comparing proposals more straightforward. On the surface, it seems simple: quote a price, get the client’s agreement and deliver the project for that amount. However, this method presents challenges for agencies and freelancers:

• Accurate Estimation: Providing an accurate quote is tough when you don’t have full project details upfront. Clients may be unclear about their requirements, or technical complexities might emerge later, leading to underquoting or overquoting, both of which can hurt your business.
• Lack of Flexibility: Fixed price models don’t allow for adjustments based on insights gained during the project. Web design is often an evolving process; limiting changes can prevent you from delivering the best results.
• Focus on Scope over Quality: With a fixed price, the goal often becomes staying within the agreed scope, which can hinder creativity and lead to missed opportunities for improvement.

Fixed pricing might appear straightforward, but it can stifle innovation and flexibility, which are vital to delivering successful web projects.

Time and Materials (T&M)

The T&M approach ensures clients only pay for the time spent on their project. It offers several key benefits:

• Adaptability: As the project evolves, new requirements or challenges can be addressed without worrying about the fixed budget. This flexibility can lead to better outcomes.
• Transparency: Clients can see what they’re paying for, fostering trust and understanding of the process.
• Reduced Risk: Since you bill for the actual time worked, there’s less risk of underquoting.

However, T&M comes with its own challenges:

• Uncertain Costs: Clients may feel uneasy without a set price, leading to budgeting concerns or fear of overrun costs.
• Efficient Tracking Required: Without careful monitoring and communication, clients could be surprised by the final bill, leading to disputes.
• Client Perception: Some clients may feel that this approach incentivizes inefficiency, as more time spent could mean higher costs.

T&M works well for complex or long-term projects, but it may not suit clients with strict budgets or those seeking cost certainty.

Value-Based Pricing

Value-based pricing is often seen as the ideal strategy. Instead of charging based on time or a fixed estimate, this method ties the price to the value your work will generate for the client. While this sounds appealing, it’s not always practical:

• Tied to ROI: It’s most effective when you can clearly link your efforts to a measurable return on investment (ROI), like increased sales for an e-commerce site. However, many web projects have more intangible benefits that are hard to quantify.
• Challenges in Calculating ROI: Isolating the impact of web design or development on the overall success of a business can be complex.
• Client Reluctance: Clients may be hesitant to share the financial details necessary to implement this approach effectively.
• Unmet Expectations: If the projected value isn’t realized, it could lead to challenging conversations about whether it was due to your work or external factors.

While these three models provide the foundation for pricing strategies, the reality is often more nuanced. As I’ve written in my article How To Work Out What To Charge Clients: The Honest Version, pricing involves a blend of calculated guesswork, project interest, and market demands.

Start with a Conversation About “Appetite”

Rather than jumping straight into discussions about deliverables or hourly rates, I’ve found it more effective to begin by discussing what the client is willing to invest based on the potential return to their business—a concept called “appetite,” introduced by 37signals in Shaping Up. This shifts the focus from “How much will this cost?” to “What is this worth to you?”

• Focus on Budget, Not Deliverables: This allows flexibility in how the budget is spent as the project progresses.
• Tailored Proposals: You can adjust your approach to fit the client’s budget.
• Realistic Expectations: If the client’s budget doesn’t align with their goals, you can address that early on.
• Value Over Price: This method moves the conversation away from price competition and towards delivering value within the client’s budget.

To explain this approach to clients, I use the real estate analogy: just as a real estate agent needs to know your budget to show you suitable properties, we need to know the client’s investment range to propose the best solutions.

Breaking Projects Into Sub-Phases

A highly effective strategy I’ve adopted is breaking the project into phases, with each stage representing a separate sub-project. This method allows for more accurate estimates while maintaining flexibility. Here’s how it works:

1. Discovery Phase: Allocate 10% of the total budget for a detailed discovery phase, where you gather information and define project requirements.
2. Prototype Phase: Use the insights from discovery to create a prototype. You can then provide a fixed price for this sub-project.
3. Build Phase: Once the prototype is approved, you can quote the complete build more accurately, reducing unexpected costs and scope changes.

Benefits of This Approach

• Budget Control: Clients can decide whether to continue after each phase, offering clear exit points.
• Reduced Risk: Clients see this phased approach as less risky than committing to a large, fixed-price project.
• Accurate Pricing: Each phase is easier to price as more information becomes available.
• Avoid Scope Creep: Since new requirements can be handled in the next phase, you avoid endless adjustments mid-project.
• Client Collaboration: This approach encourages continuous client engagement and feedback.

Handling Client Objections

You may face objections to this method, especially from clients who are used to fixed-price proposals. Here’s how to address them:

• “We need a fixed price.”: Offer a rough estimate based on their initial scope and explain how your process leads to more accurate pricing and better outcomes.
• “This seems more complicated.”: Explain that while it may seem complex initially, it simplifies the project and reduces risk.
• “We don’t have time for this.”: Emphasize that this approach can lead to faster delivery by reducing rework.
• “How do we compare this to other proposals?”: Encourage them to focus on your method’s value and risk reduction rather than just the upfront price.
• “We’re not comfortable discussing our budget.”: Use the real estate analogy to show why budget discussions are crucial.

In summary, pricing isn’t just about numbers—it’s about setting the foundation for a successful project and positive client relationships. Being transparent about your process and focusing on delivering value can set you apart in a competitive market.