Most freelancers undercharge for their services/products.  Believe me I know from personal experience.  Years ago I had a group of Subaru dealers as clients and sat in a marketing meeting and discovered I was the lowest paid vendor on their list.  Not their fault, they didn’t nickel and dime me, they paid me exactly what I asked for.

The mistake I made and the mistake most freelancers/small business owners make is that they calculate their cost to provide a service or product and then add a percentage markup.  The problem with this method is that it’s not how people buy.  When’s the last time you purchased a magazine based on what it cost the producer to make it.  Have you ever complained that butter cost $5, but only pennies to make? We buy services and products based on the value they provide.

It’s really easy to see when we look at how we purchase books, or education.  Printed books cost about $2 to make but we pay upwards of $20 if we perceive that there’s something in the book that will help us solve a problem.  Many people are deciding that the value add of an MBA is just not worth it.

The key in pricing your services or products is to find out what value they deliver to your prospective client.  About a year ago I decided to only work with clients where the value add was at minimum $1,000,000 dollars yearly.  That means when I sit down with a potential client the problem that they want me to solve is worth at least $1,000,000 in revenue to them.  So when I propose a $40,000 solution I know and they know the value I bring to the situation is a bargain.

One of the biggest benefits of being a freelancer is that you get to choose the work you’ll do (might as well do something you can be proud of) and who you’ll do it for (might as well do if for someone you’re proud to call a client).  If you follow Mad Men it’s why Donald Draper tried to remain out of contract for so long.  He understood that as long as he was a freelancer he held all the cards.