Project-based Pricing: Benefits, Examples and Best Practices
- Project-based pricing can be an effective pricing strategy for service businesses, as it allows them to tailor their pricing to the specific needs of each project and avoid the potential downsides of hourly or fixed pricing models.
- Project-based pricing offers several benefits to service businesses, including increased transparency, improved cash flow, and the ability to more accurately estimate project costs and profitability.
- To effectively use project-based pricing, service businesses should carefully evaluate each project, clearly define the scope of work, communicate expectations with the client, and implement effective project management strategies.
Whether you’ve been in business for years or you’re just starting, pricing is one area you need to get right. Charge too high, and you scare potential customers away. Charge too low, and your product or service is perceived as low-quality.
But with different types of pricing strategies to choose from, how do you find a balance to ensure you’re not only profitable but also attracting the right clients?
One pricing model that solves this conundrum is project-based pricing (PBP). At SPP, we work with various agencies using this pricing model to great effect.
In this article, you’ll learn more about project-based pricing, its benefits, and some real-life examples of this model in action. I’ll also share some factors to consider and best practices to adopt when choosing PBP for your agency.
What is project-based pricing?
PBP is a pricing model where you charge a fixed fee for completing a specific project or service. It’s a common pricing strategy among freelancers and small business owners in niches such as software development, web design, graphic design, content writing, and digital marketing.
In PBP, both the client and service provider agree on a flat rate for projects based on a clearly defined scope of work and deliverables. This makes it easier to manage timelines and budgets.
Benefits of project-based pricing
1. Flexibility to customize projects
Since prices are charged based on individual projects, a project-based pricing strategy gives room for more flexibility to customize projects based on clients’ needs. Some projects have unique requirements, which means a one-size-fits-all approach won’t work.
This type of pricing allows you to provide each client with a unique quote that takes into account their specific needs and factors like the complexity of the project, the time and effort it will take, etc.
It allows you to set clear expectations upfront, which leads to better working relationships with clients.
For example, client A wants to build a simple website with few pages and basic functionality whereas client B wants a website with complex functions like inventory management, payment gateway, etc.
What you charge client B will be more than what you charge client A due to the extra features involved in the project.
2. Helps you plan your finances ahead
When it comes to pricing, the retainer model is very popular with agencies—not so much with their clients. Still, as a business owner you want to plan ahead and allocate resources, which is why this pricing method is popular.
Agreeing on a flat rate with clients upfront means you know how much you’ll receive for your services. It helps you to plan your finances and manage your cash flow more effectively. Unlike charging hourly rates where you are not sure how much you’ll be paid after completing the project.
3. Reduces scope creep
In a project-based pricing model, you and the client agree on a specific scope of work, outlining what needs to be done, the completion date, and the cost.
It reduces the risk of scope creep, where the project expands beyond what was initially agreed upon, leading to additional costs and delays.
Having a clear understanding of the project requirements and timelines can help you manage your time and resources more efficiently. It also ensures you have the necessary resources in place to deliver the project on time and within budget.
4. Promotes transparency
Clients know exactly what they are paying for since the price is agreed upon before the start of the project. So regardless of how long you spend on it, there won’t be any hidden fees.
If for any reason the client needs to pay more, you’re expected to communicate this clearly and promptly before sending the invoice. It will help avoid any disputes that may arise when it’s time to make payment.
Project-based pricing examples
As we’ve already established, the pricing on a per-project basis is determined by several factors, including the scope of the project, timeline, and resources required. Let’s take a look at four PBP examples:
Social media marketer: if you offer social media marketing services, you may charge a flat fee for managing social media accounts. You could also charge additional fees for managing multiple social media accounts, creating a social media strategy including a content calendar, and creating monthly analytics reports.
Web developer: let’s say you charge $5,000 for building a website. Clients who require more complex functionalities will be charged extra fees. For instance, adding an e-commerce store to a website can attract additional charges because it requires extra resources like merchant accounts and payment gateways.
Content marketer: most freelance writers can price their services on a per-project basis or the word count. For instance, a writer can charge $0.5 per word or $500 for an article. Clients that require additional services like content strategy, content distribution, and SEO will pay extra.
Software developer: software companies charge based on the complexity of the project, the number of features, and the resources needed. For example, a basic mobile app with minimal features like a contact form will be cheaper than an app with complex features such as integrations with external services, data management, and security.
Understanding the project’s scope, timeline, and resources required helps you determine a fair and profitable price for your services while delivering customized solutions that meet your client’s expectations.
Factors to consider for project-based pricing
Setting a price per project is influenced by many factors. That’s why it’s advisable to try other pricing types, like hourly pricing, to understand the amount of time and resources that go into each task before setting a fixed price.
But if you choose to jump straight into pricing per project, here are some relevant factors to consider before setting a price.
Scope of the project
The scope of the project includes milestones and deliverables of a particular project. It is the entirety of the work to be accomplished, including the contract, broken-down tasks, and every other information and resource needed to complete a project.
This means that every project has its scope, and it is left for you as the service provider to specify and understand it to give a fair price.
Timelines and deadlines
Although time is not a major factor when it comes to pricing on a per-project basis, it’s important to work with timelines and deadlines.
This will help determine the number of projects you can handle within a specified period and the amount it will cost to complete each one. More complex projects will take longer and should cost more.
Some projects require more resources than others, especially when your clients make special demands. As such, it’s essential to consider the resources required going into each project and their accessibility before giving a price.
Ideally, a project that requires more resources will attract a higher price than a project that demands fewer resources. For example, a website that requires a payment gateway will require more resources and therefore cost more than one that doesn’t.
Like other pricing models, surveying the industry to check how much your competitors charge per similar project will give you a clue on how you should charge. This factor is crucial so you don’t undervalue your services or charge too high to avoid scaring away potential clients.
Related: pricing strategy based on competition
Remember, your level of experience is also a factor you should consider when comparing prices to determine yours.
The project’s complexity
Generally, a complex project will require more resources and time. Other factors can include hiring more hands to complete specific tasks. All these contribute to the project’s complexity, thereby impacting the project’s price.
Demand and supply
Demand and supply have a profound impact on all pricing models. According to the basic rule of supply, the higher the demand for a particular service, the higher the price.
Grow your industry knowledge
Now that you know some factors to consider when setting prices, here are some best practices of PBP.
Best Practices for project-based pricing
Define project scope
One common mistake people adopting this pricing option make is failing to define the project’s scope. You have to break down the project into tasks and deliverables to understand the demands fully.
Since prices are fixed, it would be unprofessional to ask your client to pay more because you’ve underestimated the scope of the project.
To avoid this, discuss the details with the client to fully grasp the project’s scope. Also, ensure to include the possibility of additional charges in the project process in the contract.
Break pricing down into specific tasks and deliverables
One of the best ways to help your client understand their money’s worth is to split up the scope into measurable and specific deliverables. By doing this, you can provide a precise estimate for the project based on the broken-down variables.
This ensures all aspects of the project are accounted for and considered. By breaking down your pricing, it becomes fairer and it can help your client understand what they are paying for.
Review and adjust pricing when necessary
After breaking tasks into specifics, it’s best practice to factor in your overhead costs and profit margin and adjust the price accordingly. In other cases, you might need to review the pricing with the client to meet up with their budget.
This way, you can make adjustments where necessary while considering the resources required and, more importantly, your profit.
Is project-based pricing right for you?
Pricing your services can be a bit tricky. Before deciding on this type of pricing model, consider the nature of your business and your clients. PBP works well for businesses that have:
A clear idea of their client’s needs and can accurately estimate the time and resources required to complete a project.
Excellent communication skills to ensure that both parties understand the scope of work and agree on deliverables, timelines, and costs.
Great project management skills to meet deadlines and ensure the project is completed to the client’s satisfaction.
What if you’re starting as a freelancer or a small business owner? It may be difficult to accurately estimate how long it will take to complete a project. As such you may consider other pricing models like hour-based pricing.
But if you are well-experienced with enough case studies to back up your claims, you can use the value-based pricing strategy instead.
Summing it up
Project-based pricing is a great way to provide value to your clients while maintaining profitability. By considering the project’s scope, timeline, industry rates, and resources required, you can determine a fair pricing structure that’s best for you and your clients.