On May 31, 2022, I had the honor of presenting my views on value-based pricing and how to use it for yanking up your hourly rates as an Upwork LIVE Expert Talent Talk. The presentation titled ‘Charging 3-Digit Figures Per Hour And Increasing Your Value (Without Breaking a Sweat)’ is available on Upwork’s community pages in its entirety.
The questions I got after the presentation were brilliant and the discussion on this topic could have easily taken another hour… which is why I thought expanding the story a little in the form of this article would do justice to the importance of the topic.
As I finished the presentation with “Why work for peanuts if you can go straight for coconuts?” there have been many people asking for the recording which in turn has produced many other questions I’d love to have answered during the Upwork LIVE event.
In this article, I added relevant references and links to the original material and asked my freelancer friend and the founder of freelancers-journey.com, David Potter, to provide additional commentary to richen the story and expand the perspective. We’ve had so many fruitful discussions on expertise, value, and niche building on LinkedIn that it was about the time to get all the good tips on paper.
Here is what we are looking at:
- How to apply value-based pricing on Upwork?
- What kind of mindset is required for becoming a highly valuable freelancer?
- What does value mean in a freelancing context?
- How to pivot your freelance business?
- How to grow your freelance business?
- What is the sweet spot for freelancers?
- How can fresh graduates and people with no experience start freelancing?
- Should virtual assistants charge hourly or fixed-price?
- Is Upwork better than Fiverr? What other sales channels do you have?
- How do you know that you’re charging the right rates?
- How should one write the general profile vs. specialized profile on Upwork?
Value-based pricing on Upwork: The presentation outline with links
I first explained the summary of my background before going freelance and how I developed my CTO-as-a-Service offering that built on all the skills I had developed so far.
My background made the offering of my freelance business. So should yours.
The full description of my early steps and my so-called “gatoring” approach on Upwork is described here: How to Start Freelancing and Make It to the Global Top – My First Year on Upwork. Additionally, it is important to find an angle that can set you apart from most other freelancers in your category. The approach I employed from the start was based on these thoughts: Being a Freelance Software Developer – It’s Not About the Code.
As all of the above is already described in detail in those articles, let’s focus more closely on the theoretical part of increasing your value and yanking up your rates. I see the process of raising your rates consisting of four parts:
- Mindset
- Value & pricing
- Pivoting
- Growth
To reach 3-digit hourly rates and stay in that class for good, there is clear stepwise progress, in my opinion, that starts with the mindset and the desire to be able to do more for your clients.
But please note that there are no absolute truths (besides that of being powered by coconuts!), no silver bullets and that in the end, each freelancer needs to figure out a way to first set and then meet the goals of increasing one’s value. The below is a working hypothesis of sorts, only.
Being powered by coconuts is about as perfect a mindset as it gets. But I’m probably biased.
Let’s dig into these four topics!
Mindset
What many freelancers seem to aim at is a stable business. That is a great aim! But it may actually lead to suboptimal decisions about what kind of work to do, what kinds of clients to focus on, and so on when compared to the value-oriented thinking.
Let me explain.
As I laid out the fictional numbers of a starting freelancer in Let’s Science the Shit Out of Unstable Freelance Income! it got obvious that once the value of your work is high enough, the negative effects of instability are countered when you look at the annual income even though you might still have several months of $0 income in a year! The factor is around 3-5X your normal freelancing rates which are about 1.5X your formed day job. That would be 4.5-7.5X rates compared to your day job.
A comparison between the stability-oriented and value-oriented mindsets.
What I hear from many freelancers is that once you reach a nice factor of about 1.5X your day job income, things start to get easier, and even if you still had some unstable months, you could patch up your shortcomings by working more.
This means you’re most likely working longer hours than in your day job because on top of the billable time you also need to take care of branding, marketing, sales, accounting, etc. freelancing-related activities that are not billable to your clients.
With the stability of your own business being your most important personal goal, you’d be inevitably focused on thinking about things such as:
- How can I find more clients? (So you have a continuous flow of new business.)
- Can I get a stable income? (So that you always have some work to do to keep yourself occupied.)
- What do my competitors charge? (So that you don’t fall off the market by charging too much.)
- How can I beat my competition? (So that you always manage to stay as a play in your market.)
You’ll always be worried about what other freelancers like you might be offering and the costs that your clientele accepts as your rates. This kind of thinking is the complete opposite of value-oriented thinking which consists of questions such as:
- How much can my client make from my work? (So that you can quantify the benefits you bring to your client.)
- How can I increase my offering? (So that you can help your clients even more.)
- How can I become even more valuable? (So that you are challenging yourself and improving constantly.)
- Who can pay even more than the previous client? (So that you can level up in terms of your clientele and possibly drop some earlier client types completely.)
The key to value-oriented thinking is to focus on the needs of your clients, not your own. Once you’ve cracked the needs of your current clientele, the only way forward is to focus on new types of clients. The assumption is that once your value is high any randomness of the workload and business risk, in general, are things you embrace rather than fear.
Focusing on the stability of your business may be your biggest limitation in increasing your value.
To demonstrate the workload with all the randomness and instability, we can examine and compare the calendar of a stable freelancer and a highly valuable one.
Which one is your goal, to work 40 hours a week for $10/h or 4 hours a week for $100/h?
This weekly schedule demonstration tells you everything you should consider in building your one-person business. When you realize that if your work week consists of 40 billable hours and on top of that you still need to do all other things that aim at getting more business, the actual work hours could be double. Many freelancers spend half of their time finding new clients! See the results of my Freelancer Friday poll for proof: Is It Easy to Find Freelance Jobs? 57% of Freelancers Say It Is Not!
Now, you might start thinking about the value-oriented approach… even if your work week is not loaded with work and there might be an additional risk of not getting new clients fast and easy, you would have a big advantage with the 4-hour work week: You’d have most of the time to yourself which you could use for activities that increase your chances of getting fantastic high-paying clients in the future:
- Increase your online presence by blogging, setting up a YouTube channel, etc.
- Work on your brand
- Network with the right kinds of clients
- Explore new markets
- Learn new skills that help in getting eve-better clients
- Create a freelancer network that supplements your personal skills
- Join and be an active member of professional organizations relevant to your niche
- Write a book to educate people who are now where you once were
The possibilities are endless when you have most of the time to yourself. To me, this is what ‘free’ in ‘freelancer’ means!
David Potter: When I set out to become a freelancer, I was a consultant disguised as a freelancer. Here’s what I mean by that. The client has a particular objective or problem that needs to be solved. They are aiming to have it solved by a specialist freelancer or a generalist if the work isn’t too technical in nature.
My goal was to solve that problem but show my real value as their trusted advisor within my niche. I’m perfectly okay being viewed how my client initially wants to view me; as a skilled specialist. They are seeking – I want them to find me. That will give me all the opportunities I ever need.
The other personal thing about my mindset is that I can’t be bought. No dollar amount will change my perspective of working with a particular client. I’ve handled checks with lots of 0’s at the end. The head rush goes away much sooner than you might imagine. I choose who I work with. That’s very important to me, and clients can sense this even if I don’t tell them that I rejected 2 or 3 offers before accepting theirs.
I’m not so eager about money just for the sake of money. I’d rather eat ramen noodles or lentils than give an ounce of energy to a potential client that I can plainly see will not be a personality fit. What I’ve always said is that is someone else’s client. We don’t have to look at that in a negative light. Some other freelancers will work perfectly with a client we view as a likely problem.
My last point is that freedom is the best part of being a freelancer. Freedom to work on cool projects. Freedom to work with whomever we chose. Freedom to work on some other personal projects.
David’s perspective is pretty exhaustive regarding the freedom part. The only thing to add is that you are also free to pick your coconuts! 😛
Value & pricing
Value, value, value… I have to admit that when I first encountered this term in a business context I was a first-time CTO and a co-founder of a technology startup and I did not grasp the full meaning of it. That was probably because the business-building responsibility was on my co-founder, not on me. But things got clear once I started freelancing and quickly leveling up to a solopreneur.
Eventually, everything comes down to the numbers: Revenue – Expenses = Profit. If your client cannot make a profit out of your work, your work has no value. And, of course, when you manage to make a great contribution to your client’s business either by reducing the expenses or increasing the revenue, your value is high.
The definition of value in business terms.
This raises exactly one question: How can you increase your value to your clients? As I showed in Is Upwork a Race to the Bottom? The 2 Types of Loser Mindsets and the Genius Mindset That Always Wins, there are loads of freelancers who manage to charge 3-digit figures on Upwork. Could you simply imitate what they do?
Probably not.
That is because each of the best freelancers I picked as examples do very specific high-value jobs starting from making pitch decks for startups in a way that increases their chance of raising funds to develop great-looking front-end solutions to e-commerce websites.
What is common to almost all of the top freelancers is their focus on the revenue side of the businesses of their clients. Those in the cost-saving business have fewer opportunities of raising their rates to the clouds. The best ones only serve a very specific clientele and skip all other opportunities because their value would not be as great if serving other types of clients.
The best ones also work on something complicated that most of the other freelancers cannot deliver. The problems they work on are multi-faceted, hard to predict, and perhaps quite vague. True expertise is required to solve complicated problems.
Lastly, the best freelancers work on problems the clients cannot solve on their own. It would take a rather large investment of some kind to deal with the problem by their in-house teams (e.g. recruitment and training of new full-time staff) or there is a transformation of some sort in the client’s business process. The transformation could be, for instance, creating a new type of product, entering a new market segment, scaling up the operation, etc.
Description of what top freelancers seem to have in common.
Now, what is left is to think about pricing. Without using any dollar signs or actual currencies, a generic, domain-independent way of thinking about freelancers’ rates is to compare them to the options the client would have, i.e., getting the work done by someone in the in-house team.
Comparison of the rates between a freelancer and the client’s in-house team.
As we learned from Freelancing – It’s an Expert’s Game, is that you can always imagine the situation of your client trying to sort out a business-related problem with their in-house team:
- A freelancer capable of making a small part of the product as part of the client’s team gets paid the same as the client’s team member making other small parts of the product.
- A freelancer capable of making a complex part of the product that the client’s organization cannot make gets paid more than an average member of the client’s team.
- A freelancer capable of making the entire product gets paid the same as the client’s entire team.
- A freelancer capable of making a better product than the client can even imagine can name his or her price as making any comparison to the client’s own team is no longer meaningful.
Level 1 is typically a job where the costs to the client are of importance. This is not the best place to attempt value-based pricing as the obvious value is cost-reduction. This is where the “race to the bottom” happens.
Level 2 is where expertise starts to pay off. The product development effort of the client might go in vain unless a highly specialized freelancer saves the day.
Levels 3 and 4 are where the business transformation is a requirement. Why some form of business transformation is a great opportunity for freelancers is because the client’s organization does not yet have the required competence. It is often that only upon a successful trial the in-house team is trained or new staff is recruited to build up the competence. Freelancers are one of the most efficient solutions to the staffing problem before having the in-house team up for the task.
Hiring a freelancer who can create the entire product according to the client’s wishes (Level 3) is where 3-5X rates are acceptable without a question. Level 4, creating a better product than the client can even imagine, is something where the only limit of the rates the client could accept only depend on the assumed future business after the transformation and the financial state of the client.
An example of the Level 4 kind of business is a project I did for a U.S.-based company that sells trampoline solutions for building new trampoline parks all over the country. Their vision was to build their own 3D sensor-based body-controlled game that people can play while jumping on a trampoline. The game would be an add-on to their normal trampoline packages. They don’t have any internal software development capability, so asking a reputed freelancer was a great choice.
Since there were some technical limitations because of the sensor’s capabilities which require quite a bit of experience to fully understand, the game had to be designed in a way that the gameplay wouldn’t suffer from those limitations. Additionally, the game had to be designed well to be enjoyable and tested with a certain set of trampolines.
As the company had no idea how to do it and what the ultimate result should look like, I had the opportunity to design, develop and test the game without much guidance. A freelancer friend of mine provided the graphical assets and we delivered a project that is in the legendary category in my books.
A Level 4 kind of project done for a trampoline solution company.
David Potter: The interesting thing about the leveling system here is that’s pretty much the path I walked in my space and niche. In fact, the general advice I would give to most new freelancers maps almost perfectly.
First, look for quick 30-minute to 1-hour jobs and deliver exceptional work to build reviews. Then, go after larger problem sets. The craft a large deliverable. By the time, you’ve delivered on a few [Level 3] projects, you’ll be prepared to deliver a total experience. You will have done it several times along the way and raised your prices many times over.
The terms I use quite often with clients are “high impact,” “low-hanging fruit,” “huge ROI potentials,” and “demonstrated ROI” along with many that are specific to my niche. The clients I work with don’t have unlimited budgets as none do, but they are not looking for a cheaply made deliverable. Instead, they understand the value of spending more to make far more – they understand the business principles regarding leverage.
If I find that I’m talking to a potential client where this kind of language doesn’t resonate, I tell them “good luck.” They will seriously need it.
The other key component of value is perception, it doesn’t need to be only math equations or anything logical. In many cases, value is based almost entirely on perception rather than statistics or guarantees.
And this is where low rates will hurt a freelancer. What do you think a client will expect for a deliverable, based entirely on instinct and feelings, between a freelancer working for $5/hour vs. one charging $500/hour?
Pivoting
Once the mindset is focused on the value, it is clear what it is and how much it is worth to your clients, you can start pivoting your current business toward a more valuable one. A good business plan is an essential tool for doing this.
I’ve changed my business multiple times over on Upwork: 2 software development niches and 2 consulting niches have helped me to increase my hourly rate from the initial $30/h to 10X rates. That’s quite a feat knowing how competitive Upwork is! You can see the full track record on my Upwork profile.
The 4 niches I’ve done on Upwork… just a small part of all niches I’ve done elsewhere.
When pivoting, it is important not to sabotage or cannibalize your previous track record on Upwork. For instance, a freelancer I know wanted to change from writing to voice acting. My question was how being a good writer makes voice acting better, but there was no answer. The Work History list and portfolio items start to look strange when you jump from one domain to another. Your track record has to look consistent.
Why I had no problem changing from Augmented Reality (AR) application development to developing Virtual Reality (VR) training simulators is that they are still in the same vast field of IT, and even more specifically, they were in the still wide domain of AR/VR technologies. Those two being part of my track record, I could then change the work type from software development to consulting with ease.
Jumping between entire categories of fields is a recipe for failure. Each pivot you make should build on what you’ve already done and what is visible on your profile to potential clients of the next niche. Your pre-freelance career can be part of it too just like my scientific career has been part of mine.
Principles of successful pivoting.
In addition, a good pivot is slightly opportunistic. Wait for the best kind of client before you jump into a new niche to make sure your first project builds up your track record in the new niche properly. The project that enabled my first pivot on Upwork was a true dream project for a company that could utilize every skill I had ever gained. And the track record looked fantastic!
The first Upwork project of my new niche of developing VR training simulators.
Because of waiting for the perfect chance to launch my new niche offering, I got started with the best kind of project. Cherry-picking is the key… as well as patience.
David Potter: To get where I am now and where I’m going, I used a borrowed term called bracketing: purposely starting broad and then narrowing the planned focus. The niche that I wanted to carve out was still relatively new but bound to grow. In order to position myself as the right person for complex work within that niche, I had to do a lot of interrelated jobs while leveraging practical experiences that businesses appreciate.
Therefore, in my case, I was able to slowly editorialize my profile of diverse knowledge into highly specific knowledge. This was all done as the target market was continuing to grow.
It’s quite clear to me which work will keep my profile looking how I want to present myself to target clients and what will fit with my perfect goals. If I write a proposal, I know I have about a 75% chance of response. With that response, I know that I have a 90% chance of being the selected person, but I’ll ultimately determine if I want to take on the work based on the reply. Cherry-picking indeed!
Growth
Once you’ve mastered the art of pivoting your business and reaching ever-better clients, the last step is growth. Growth here simply means you rinse and repeat and expand what you do beyond what your own skills allow. Start hiring other freelancers.
You can slowly start increasing the project size as bigger portfolio items bring your ever-bigger opportunities. Upwork works great when you use it properly as a client. You can set up your client account as a freelancer, start organizing the work by bringing other freelancers under your wing and get the best available talents to work on every project in an extremely agile way.
The art of growth depends on your ability to team up and level up your offering.
Alternatively, you can also set up an agency account that would benefit greatly from your shiny and successful-looking freelancer account.
By default, growth requires a network of freelancers who help you execute parts of the project you do not master. You can either start by:
- Networking with other freelancers by making friends and hiring some of them from your pool of associates
- Becoming an Upwork client and building your network of regular hires bottom-up
Additionally, these days Upwork also offers network-building features that help you grow a team around you. Also sending referrals to other freelancers is a good way to create a network.
My example of hiring ten freelancers for a larger project was drawn from Freelancer vs. Solopreneur: 10 Big Differentiators That Level-Up Your Freelance Business. I was in charge of making a full-scale educational game production for a new VR arcade which was quite a big undertaking for a company of one. And it was still a lot of work on my side, namely:
- Game design in collaboration with the client
- Script-writing for voice actors
- Software architecting
- Software development (down to every single code line)
- Testing iterations with the client at the client’s location
- Installation at the client’s location
- Project management
- (Sub)contracts management
- Logistics management (shipping of VR hardware and myself)
Without the help I got from other freelancers, this project would never have been finished.
David Potter: Starting from a sales point of view, it’s important to hire as early on as you can afford. Why? When you become the client, you gain the advantage of thinking like a client. Having that advantage will make you better at communicating with clients.
As you would no doubt experience, some freelancers that bid on your job will be able to communicate value much better than the vast majority. Learn from that. See how they solve your problem in written form and overcome your emotional objections.
When you establish a foothold with a client and gain their trust, they will appreciate your referrals and recommendations of other freelancers. Those can be freelancers doing subcontracted work or direct referrals. I do both depending on the situation.
Now just imagine you have a small group of real professionals all gaining a foothold and cross-promoting with one another! The reality is one or two people in the group will be the main sales bringers, but the diverse skillsets can help you get work you normally would want to back away from.
There are usually one or two work components that you like doing and getting in the zone with. Whatever that thing is you do best, should be your main thing. Outsource everything else if you want to scale.
I’ve worked with a lot of businesses that stalled growth at around $5MM/year. The reason was that there was only one President/CEO that wanted to hold onto everything, they hadn’t learned to let go and delegate. It’s a much harder lesson as revenue increases. Learn the lesson as early as you can! Delegate $500 now so you can, later on, delegate $500,000.
Summary
In a summary, as I don’t think I have any silver bullet to Upwork success, I only presented questions that I hope help others in figuring out their own way forward to 3-digit figure hourly rates.
The summary regarding mindset, value & pricing, pivoting, and growth.
Running a business of one is a tough job which is why the four factors are important to be kept in mind.
Value-based pricing on Upwork: Q&A
My presentation spurred lots of interesting questions that I thought should be highlighted as value-adding pieces of discussion. Here are the best question and comments from the Upwork LIVE event.
Q: The “gatoring” approach on Upwork… do you still send proposals?
A: No, I cannot remember when I sent proposals with serious intent. My original reason for joining Upwork was the aim of reaching higher efficiency. The keyword search and invitations work so well that I’m just a floating coconut in the sea waiting for someone to fish me up. I haven’t sent any proposals for a long time. I rely exclusively on invitations clients send to me.
Q: How can fresh graduates and people with no experience start freelancing?
A: What most people would say is that you can do mock projects and test projects just to make some kind of portfolio for yourself. But you should ask yourself, ‘what do you hope to gain from freelancing?’ Why not go for an internship or a conventional entry-level job and let someone else pay for your learning process?
It is super-difficult to build your professional competence and your business at the same time. But it can be done and when starting online there are some advantages if you just manage to breach the $0 total earnings somehow. See more: How to Start Freelancing With No Experience From Absolute 0 and Totally Crush It!
But without high competence, you cannot charge high rates. That’s impossible, it doesn’t happen.
Q: Should virtual assistants charge hourly or fixed-price? Many people feel they can prosper better as virtual assistants even if they had some other more specialized skills.
A: How can you be a good, better, and best virtual assistant that could charge very high rates? I’m not in that field so I don’t really know. But in general, it is better to specialize in something so you can stand out from your competition. It is the combination of skills that can make you unique.
One simple hack relating to finding the first couple of projects is to change the title of your profile to something slightly more specific even if you don’t have much expertise yet. Then, perhaps, you can at least make it to a couple of interviews because you look more specialized than generic virtual assistants. The space on Upwork for generic virtual assistants might already be saturated.
I don’t think there is much difference in virtual assistants charging fixed-price or hourly rates compared to other domains.
Q: Have you tried other freelance sites? Is Upwork better than Fiverr? What other sales channels do you have?
A: None of the other channels are freelance sites. Just go where your clients go. Do some networking, participate in events, give presentations, set up a blog or a YouTube channel, join professional groups and associations, and do multiple things to become visible to your ideal clientele.
Here are more examples of what you can try to use as a sales channel: Freelancer’s Sales Channels – 5 Proven Examples Other Than Freelance Sites.
Q: Is a 5X factor realistic for increasing the value of one’s freelance work?
A: You get paid according to what you can do for your clients. If you’re in the cost-saving business, 5X rates might be hard to reach. You should aim to become the top guy in a narrow niche area so you can start cherry-picking the best and most highly-paid projects.
You can see some of the benefits of strategic cherry-picking here: What Happened When I Raised My Hourly Rate on Upwork to $199.
So, there is no Step 1, Step 2, Step 3 other than the theoretical bits I just showed… first change your mindset to increase your value instead of aiming for stable business, dig into the value & pricing, pivot your skills & offering, and grow from there. All I can give you is a set of questions that might help you to figure it out for yourself.
You could try to accelerate your progress by getting a mentor who has already done all this in your field. That way you get much more practical advice.
Q: Did you have your own coach when you started?
A: No, I used my brain! 😉 But I should have had someone.
My motivation for joining Upwork came from the need for higher efficiency. Having a good coach or mentor allows you to think better and clearer about your own goal-setting and how to meet your goals. When you do all the thinking yourself only, you may later realize that your goals were not the correct goals at all, and meeting them doesn’t help your clients and in turn, doesn’t help you to grow your business.
Q: How do you know that you’re charging the right rates?
A: As long as I help startups that don’t currently have any business, only hopes of creating one, high rates are not the limitation. For those companies, their biggest problem is the create the best possible team made of the most competent individuals. Good startups have the ability to raise funds early on, so the money is there in this game.
That’s one of the strict requirements – your clients have to be wealthy. If you meet a client who only has $100 and you ask for $200, they cannot give you even if they would like to, simply, because they don’t have the money.
If my consulting clients have millions of funding, they don’t mind paying a few tens of thousands as long as they get the right advice. That advice could help them make revenue months earlier than without it which could make a difference worth hundreds of thousands of dollars.
You need to be part of the right value chain and aim for wealthy clients who have money. Then you can get your slice of the cake (or coconut).
Here’s a little horror story to demonstrate how the value chains work and don’t work. A starting freelancer I was chatting with on LinkedIn was complaining that his client was being “completely unprofessional.” The freelancer was clearly frustrated and losing his mind about a conflict, so I asked for details.
It turned out that he is a math tutor and his client was a high school kid! The discussion ended with the freelancer not being able to describe how he could reach good money doing what he does. This was a classic case of choosing to work for peanuts in a value chain where there is no money. So, no coconut slices for anyone.
Q: How should one write the general profile vs. specialized profile on Upwork?
A: Try not to cannibalize your profiles by writing them in a way that appears to others as completely different services. The general profile should combine the specialized profiles and should not be too far apart.
My specialized profiles are about consulting for AR/VR technology startups and developing VR training simulators, both being still within the same technology subcategory of AR/VR technologies. Specialized profiles in completely different categories would make your service look less focused and generally worse, not better.
You have to build your profile by understanding that all projects you finish will appear in the Work History section. That is the track record that you leave behind for everyone to see. If that record looks like a bunch of random jobs or it looks like consistent work of a highly specialized professional, it makes all the difference in the long run.
Think about what your potential clients will see when they look at your profile at any point in time.
Value-based pricing on Upwork: It can be done!
Regardless of your situation, skill set, the field of expertise, or just about anything, it is important to have that never-ending thirst for a higher value of your work. Lock in your value-oriented mindset. Go Aim for a bigger impact. Get better and better clients. Pivot. Grow. Then grow some more.
To learn more about every other aspect of freelancing on Upwork, take a look at the Upwork Course page.
