How to Stop Undercharging Clients & Charge What You’re Worth
Hi. My name is Sheena, and I’m a chronic undercharger. It started pretty small; not charging for a meeting here and there. Then, I started re-writing entire articles based on a client’s latest whim. How did I manage to put myself in this position? Well, I’m a freelancer who used to charge a flat rate per project. This means I was vulnerable to… scope creep.
If you too are an independent professional and/or small agency owner – i.e., someone who is already working with clients but often walks away thinking, “I definitely worked more than I charged for,” then all is not lost. Join me on this journey of necessary introspection to find out why you’re undercharging, why undercharging is bad (beyond the obvious), and how to start charging what you’re worth.
Common causes of undercharging
This issue stems from several things, be it a lack of awareness about market pricing melded with a fear of losing potential customers, or an underestimation of your experience. Then, there are the emotional barriers, such as a mental block about bringing up the important matter of getting paid (specifically how much and how often).
To guarantee adequate compensation and promote long-term success, you must recognize the reasons leading to undercharging, which include just some of the following:
Practical causes of undercharging…
- You misjudged the scope of the project
- You forgot to bill small tasks or emails
- You feel unsure how much time you actually spent on certain tasks
- There’s a general lack of awareness about market pricing on behalf of you/your client
- You haven’t devised a pricing model
Underlying emotional causes of undercharging…
- You’re reluctant to quote higher for fear of losing new/existing clients
- You feel “bad” about asking for what you’re worth and therefore avoid negotiating
- You give away time for free – be it for onboarding or strategy amendment requests
- Imposter syndrome – which is responsible for 95 percent of I’ve outlined above
- Your latent need for approval may be chipping away at your self-worth
It can be life-changing to acknowledge and surpass these obstacles, allowing you to set prices that accurately represent your expertise. To help you do that, we’re going to outline some undercharging examples and how to approach them.
Real-world undercharging examples
So, now that you know that you’re definitely falling foul to the common causes of undercharging, the following three examples will invariably feel very familiar to you.
1. Shaving estimates to make the proposal feel “safe”
Knowing that a logo design assignment would probably take closer to 16 hours, a freelance graphic designer predicted it would take 10. The end result is obvious: they worked more hours without receiving fair remuneration. Did the customer find the proposal more enticing when the estimate was lowered? Maybe at first, but it’s never worth it in the end.
2. Hosting unpaid strategy calls
In a bid to lure clients, a freelance consultant typically gives free 30-minute strategy consultations. However, they usually spend more than an hour on these conversations, offering insightful information without getting any paid work.
3. Delaying or skipping invoices for “just a few hours” of work
Assuming a modest amount wasn't worth billing right away, a freelance web developer delays billing a client for a few hours of minor modifications. That said, you know as well as I do that similar delays accumulate over time, ultimately resulting in unpaid hours and perhaps frustration starting to bubble on your behalf.
These instances demonstrate the negative effects of undercharging and the significance of properly and proactively appreciating one's abilities and time.
Long-term consequences of undercharging
Whether you’re an agency or an independent knowledge worker, you may experience the following long-term effects from undercharging – which moves way beyond the most obvious pitfall, that being point no. 1 below:
- Lagging income: Persistent undercharging has a direct negative influence on financial stability by leaving a lack of funds to reinvest in your business or pay for personal expenses.
- Undervaluation of your skills: Setting a low bar in terms of prices on the regular could give clients the impression that the services are not worth as much as they actually are.
- Issues scaling: The opportunity for growth will be tricky since a low income limits the resources available for expansion, such as recruiting more employees, investing in better equipment, or extending services.
- Possible reputational damage: Low prices may unintentionally indicate subpar work, which makes it more difficult to draw in high-end customers or projects.
- Fractious working relationships: Customers who become accustomed to reduced costs mightn’t be too thrilled at the prospect of paying more reasonable pricing going forward, which could cause conflict or drive away clients. Therefore, it’s much better to hit them with a higher fee initially or a strict trial period at a lower fee.
- Burnout: Mental and physical tiredness can result from continuously working longer hours on top of the stress of not having sufficient funds coming in for all the time you’re working. It’s not a sustainable business model.
By avoiding these traps and implementing fair pricing solutions, you’re better positioned for not just professional development but a long-term sustainable working model!
How to stop undercharging by tracking billable hours
Listen, we know it’s all too easy to miss an hour or two here and there. But if you’re pitching to work for free, providing no-cost consultations, onboarding a client’s team for free, or sitting on Zoom for extended periods repeatedly, you are losing A LOT of billable time.
If you’re under the impression that you don’t need to change because “Hey, it’s worked so far, right?” then I’d say “Then why are you reading this article?” You’re reading because you know something needs to change. Amending or introducing entirely new processes can seem overwhelming in the abstract, so let us lay it out for you.
For instance, time tracking software like Memtime helps you to log billable hours in a non-disruptive way. When you have Memtime automatically track everything for you (without timers or any effort on your behalf, I might add), you can:
Once you see it visually unfold before you in an easily digestible format, only then will you fully realize how much you’re losing in terms of billable hours. For instance, I had a face-to-face, offline meeting that ran over by 30 minutes (captured as “offline time” to the left of the image below) because one of the attendees was late.)
Had I not had this information visually represented, I might have just let that 30 minutes unintentionally slide. It all adds up… Thanks to Memtime, I could log my day as it actually happened—including that unexpected waiting time—making my time entries more realistic and accurate.
If you need a kickstart or further motivation in terms of implementing a pricing model that works for you, perhaps look into our 30 Percent Method.
This free online mini-course is a system for service businesses to help you achieve a 30 percent net profit margin by optimizing key areas. It includes:
Consider it the actionable next step for those of you reading who have already experienced the ice-cold chill of the undercharging wake-up call.
Approaching existing clients with your new pricing model
Now that you’ve ascertained that, yes, you’ve been burying your head in the sand about your billing process, now you need to broach this matter with your existing clients.
While I’ve touched off this topic before in terms of setting time boundaries with clients, here are some tips for clearly presenting your new pricing strategy.
- Evaluate your value: Start by describing the value you offer and how your services have changed or improved. Justifying the shift is aided by proving an increase in deliverables, abilities, or knowledge.
- Pick the right time: Like I always say to my kids when they barrel up to me while I'm trying to relax; "It's not what you ask, it's when you ask it." With that in mind, approach clients when they can clearly see the benefit of your work, such as after a successful project.
- Give notice in advance: Give enough notification prior to the new pricing going into effect. This demonstrates consideration for their budgeting and planning procedures.
- Be open and honest: Clearly state the rationale behind the new pricing structure, including if it reflects the genuine value of your services, market changes, or higher expenses. Stress how the modifications are advantageous to both sides.
- Outline your revised pricing: Present the updated pricing schedule in a polished manner. Emphasize any modifications or extra advantages that the new model offers.
- Request feedback: Be receptive to an ongoing conversation regarding pricing, and invite questions or expressions of concern. This guarantees the client feels heard and shows teamwork.
- Emphasize the value long term: Stress again how your services help them succeed and why the new prices are in line with the level of excellence they have been accustomed to.
- Provide transition options: To make the shift easier for loyal customers, think about offering transitional measures like special rates or phased pricing adjustments.
By putting the above into action, you can start to nurture and maintain sustainable working relationships while matching your pricing to the value of your offerings not just with professionalism but with confidence. You can do this!
Wrapping up
You can increase productivity AND ensure you're compensated for every minute of your working day by improving your time tracking.
Memtime is here to make that process as easy and stress-free as possible so you can concentrate on what really counts: providing your clients with exceptional service in whatever industry you happen to work in.
Grab a free Memtime trial now to see how simple and effortless time monitoring can be, especially during peak hours when precious mounting minutes can easily slip through the cracks.
If you’d prefer to deal directly with one of our lovely humans, you can schedule a call and ask for a team trial. We'll show you around the app so you can see how well Memtime can function for you.
Sheena McGinley
Sheena McGinley is a columnist and features writer for the Irish press since 2008. She’s also a business owner that is conscious of how time tracking can foster progress. She wrote for SaaS companies and businesses that specialize in revenue optimization by implementing processes. She has the unique ability to digest complex topics and make them easy to understand. She shares this precious skill with Memtime readers. When she's not making words work for people, Sheena can be found taking (very) brisk dips in the Irish Sea.
