As a Freelance Instructional Designer, you’ll design and sell courses and sell professional design services in order to drive revenue. Before you enter the launch phase of a service, or a course, you’ll need to figure out a pricing strategy that will not only be profitable but will also target and motivate the right students to buy.
Creating a pricing strategy is more than just attaching a number to a course or service. Most times, prices of your services will change throughout the duration of providing a service. Having a pricing strategy will make sure you aren’t pricing your services too low where buyers may feel like your services not good in quality or, pricing your services too high where you lose potential buyers all together.
Here are 5 steps to pricing your services as a freelance instructional designer:
1.) Calculate your COS (cost of sales)
Your cost of sales or, COS, are the costs you incur every time you provide a service. Within instructional design, a good example of a COS is direct labor costs.
Most freelance instructional designers bring on a collaborator and this collaborator would be an expense directly tied to the service you are providing. A good rule of thumb is that if the expense can be traced directly back to the delivery of a service you provide, it’s a COS.
Once you understand all of your COS, add them all up. The number you get is the total of your cost of services. This means that your service must be at least that number to break even.
For example, if all of your costs added up equaled $400, then your service cost should at least be $400 to break even.
2.) Calculate your Overhead Expenses (Overhead percentage)
Now your overhead expenses are general business expenses that keep your freelance instructional design business operational, regardless of if you are bringing in clients are not.
If you don’t calculate your overhead expenses, your business will never be profitable. Examples of overhead costs for instructional design could be
- Software costs
- Stock Images Subscription
- Virtual Assistant
- Office Rent
- LMS licensing
To calculate your overhead expenses, you’ll need to find the overhead percentage. Overhead percentage is the percentage of money from your sales that goes towards paying your overhead expenses.
Here’s the formula:
Expenses / Gross Sales = X
X * 100 = Overhead Percentage
So, let’s say you bring in $60,000 a year with your freelance instructional design career and your expenses equal up to $10,000. That means your overhead percentage is around 17%. This means that 17% of your service goes toward covering the operating costs of your business.
If this is your first year in business as a freelance instructional designer and you don’t have an annual revenue yet, you can take what you earned in your last 3 months and find the average. Once you find the average, multiply it by 12 and that will give you an estimate of how much you will make this year in revenue.
3.) Determine how much you want to get paid (hourly rate)
Once you have your COS and overhead percentage, it’s time to calculate your hourly rate. Your hourly rate should reflect how much you feel you deserve for conducting your service.
It is important that you don’t make the mistake of pricing your service the same as your rate. When you do this, you aren’t considering your operating expenses and could low ball the amount you really make an hour.
This is why you set your rate independently from your price. Your rate is the value of your time. Think about how much YOU want to get paid to perform your service?
Here’s a few reminders to keep in mind when determining your hourly rate:
- Length of time in the instructional design industry
- Any Specialized skills
- Licenses, certifications, training or educational degrees
- Rates of your competitors
- The number of hours it will take you to perform your service
Let’s pretend that you would love to set your rate at $250/hr. This is the amount you feel you should be paid to do your service. Let’s do some calculations to see if this amount is the best for you.
Let’s assume your decided to price your service at $2000. Now, let’s assume it takes you 10 hours to design, customize and perform the service.
$2,000 / 20 = $100/hr
As you can see, you’ll be undercharging yourself by $150 for that service because instead of making your desired $250/hr, you are really only making $100.
4.) Calculate your final Service price
Now it’s finally time to determine the actual price of your service that will make your time valuable and service profitable. Last, you want to determine your flat, or fixed, rate. You can find a baseline fixed price simply by adding together your costs and rate.
Once you get your baseline fixed price from that calculation, you are going to multiply that number by your overhead percentage that you calculated in step 2. The multiplication of your baseline rate and your overhead percentage is going to give you your overhead contribution.
Once you have your overall contribution, you are going to add it to your baseline fixed price. The total of those two numbers will give you your final fixed price for your service!
5.) Adjust your price
You’re not quite done yet. Once you have your final fixed price, you want to make sure it’s realistic to your target customers, competitive within the freelance instructional design industry, or against your direct competitors, and profitable enough to see revenue and not just break even.
After you looked at those three things, adjust your price accordingly. Need help with the math part? There are many pricing calculators or spreadsheets you can find online to help you out.
New to the Instructional Design Industry or need guidance from a professional?
If you are a new freelance instructional designer, you would benefit from my LinkedIn Group. You can sign up for my LinkedIn group, the Freelance Instructional Designer group here!
How did you like this post when it comes to breaking down how much you should really be charging for your services? Have any more tips? Have a different strategy? Share it in the comments below!