Of all the factors in the Profit Formula, your hourly rate is the hardest to improve, yet the most important in terms of impact. It’s easy to increase the number of hours you work, but means you have to put in extra effort to earn more money. It’s simple to reduce costs, yet this means cutting out certain assets.

If you can increase your hourly rate, on the other hand, you can earn more money without increasing your workload or reducing your asset base. The extra income is essentially free money – the best sort there is!

So how do you obtain the kind of rates that you really want to earn? One way is to apply the Attorneys Profit Formula:

Select the amount of money you want to earn in a week

Divide by the number of hours you want to work each week

So if you want to earn $10,000 a week, and only work for ten hours, your rate should be set at $1000 an hour. Wouldn’t that be great?

If you’re a corporate lawyer, you might find the above approach entirely practical. For the rest of us, however, sanity dictates that we find a more realistic approach.

There are three established approaches to pricing that we can use:

Cost plus

Market sensitive

Value based

Let’s see which is the best for us.

With Cost Plus pricing, your rate is linked to the cost of delivering your service. It’s the approach traditionally used in manufacturing. You work out how much it costs to produce, say, one million tins of beans, add the profit you wish to make on this production run, and divide by one million to get the cost per can.

As a freelancer, you would work out how much you need to cover your business expenses and pay yourself a basic weekly salary. Then add the amount of additional profit you wish to make per week, and divide by the number of hours you work.

This approach is useful for determining the minimum rate you will accept, but it doesn’t really help you achieve the maximum rate possible. Although you will be sure of making a clearly-defined market, your fees could end up being well under typical market rates – which brings us to the second method.

Market Sensitive pricing simply compares your rate with others in your field.

If the typical going rate for your professional skill is $50-$70 per hour, then you will pitch your rate somewhere in that range. At $50 an hour, you would be highly competitive, and would probably pick up straightforward jobs easily. If you pitched yourself at $70, you would be less competitive, yet you would make more profit on the jobs that you did win.

This is the way most freelancers work, and if you want to earn a typical income, that’s fine.

But if you want to earn serious money, it just doesn’t cut the ice. Market-sensitive pricing condemns you to fairly average rates for fairly average jobs.

If you want to reach into the higher echelons of fee levels, you have to base your fees on Value Based pricing.

Why is a corporate lawyer worth $300 an hour (or more), while a freelance journalist might struggle to earn $30 an hour? Is it about availability?

Well, that’s certainly part of the answer. Journalists and ‘wannabe’ journalists are, quite frankly, two a penny. If one won’t accept the rate on offer, another one certainly will. By contrast, corporate lawyers are harder to come by. This means the boot is on the foot – if one client won’t pay the high fees expected, another one probably will.

Yet one-legged spoon jugglers are also hard to come by, but nobody pays them $300 an hour. Why? Because there is no demand.

As we saw earlier, it’s critical to choose a field where demand for your services will exceed the supply of qualified freelancers. This explains why attorneys in general can charge healthy fees – yet it doesn’t explain why corporate lawyers, in particular, can charge more than, say, divorce lawyers.

So what’s the answer? In short, it’s all about value.

Let’s imagine our high-earning corporate lawyer is helping a major corporation to push through a difficult merger.

The process might require 1000 hours of work – that’s a massive $300,000 payday for our friend in the suit. Yet a successful merger might increase his clients’ profits by $30 million a year. So in just twelve months, the lawyer would repay his fee 100 times over. That’s not a bad return on investment, by anybody’s standard.

In this case, the client will be more than happy because the lawyer has delivered real value. Whether or not this fee relates to costs, or is market sensitive, is irrelevant. What counts is that the right result was achieved, and measurable return on investment delivered.

To apply this principle to your own business, you need to understand the value of your services to potential clients. Start thinking about how the work you do can deliver results in dollar terms for your clients. If you shift your marketing pitch from ‘delivering work’ to ‘delivering return on investment’, clients will start to sit up and take notice.

Think carefully about how you can reposition your services to increase the value you add. This could mean making a radical shift in the way you view your business, and the nature of the services you offer. Yet if you get the balance right, you could see a huge payback in terms of growing revenues.

Are you a consultant, or a worker for hire?

The distinction may not seem that great, yet it can make a big difference to your income.

As a worker for hire, you simply complete an assigned task according to given instructions. The value that you offer is limited to the skill you can apply to the task in hand.

Consultants, on the other hand, have a much larger role to play. They are charged with analyzing problems and requirements, proposing solutions, then seeing them through to completion. This involves taking on additional responsibilities, and making a real contribution to overall business issues.

It’s hardly surprising, then, that consultants earn far more than workers-for-hire.

So if you are looking to maximize your fees, making the step up to consultant status could make a big difference.

Again, this may mean rethinking the kind of service that you offer. Becoming a consultant involves more than printing new business cards. You will need to be able to get involved with the strategic planning and execution of the projects that you do for clients, including being accountable for how they are going to impact and help the long term growth of the business.

A lot of work, maybe. Yet this could also provide you with an opportunity to triple your hourly fees.

As a freelance professional, you have a business which is founded on the strength of your skills. Clearly, then, one of the best ways to increase the value you offer is to enhance the quality of those skills.

Of course, your skills will naturally develop as your freelance career progresses. Every job you complete adds to your experience, and your understanding of your profession.

However, this counts for nothing unless you can demonstrate this expertise to existing and potential clients.

For this reason, it is important to constantly update your portfolio of work, so that you can show how your experience and level of skill is growing and maturing.

Although ‘going back to school’ may seem like a step backwards, improving your qualifications is one of the most effective ways of demonstrating your breadth of skills.

In today’s hi-tech world, especially, the skills demanded of professionals are advancing at a rapid rate. Qualifications that seemed perfectly adequate a few years ago may now seem stale and irrelevant.

What clients are looking for more than anything else is reassurance. They want to feel confident that you have what it takes to undertake the job in hand competently and professionally.

A couple of decades ago, before Bill Gates upset the apple cart, IT professionals would often say that ‘nobody ever got fired for buying IBM’. In other words, purchasing from IBM was a safe choice. Yet at the same time, the company had a reputation for being more expensive – sometimes a lot more expensive – than its competitors. So why did sensible business professionals continue to buy from IBM?

IBM continued to win business because the company had a proven background and reputation, so that IT departments could purchase with confidence. If you can instill the same sense of confidence in your potential clients you will be well on your way to increased fees.

A few paragraphs ago, we said that what clients are looking for more than anything else is reassurance. And there is no greater reassurance than working with someone who has already proved an ability to deliver results.

Hiring a new freelancer is always a risky decision for clients.

No matter how carefully they check references, portfolios, qualifications and experience, it’s impossible to know for a sure that a freelancer will deliver.

Well, not quite impossible. By choosing someone who has already worked for them, they can eliminate much of this risk. If you have already completed a project successfully for a client, price is likely to be much less significant as an issue. The fact that you are known to be a trustworthy supplier will make it well worth paying you a higher fee.

So your dedication to delivering quality work, on time and on budget, is of paramount importance. Don’t make the typical mistake of working extra hard on the first project for a new client, then becoming a little more relaxed with subsequent jobs. As ever, you are only as good as your last job. You must be committed to hitting every deadline overcoming every obstacle and delivering excellent results – each and every time.

Delivering results is the most important aspect of customer care, but it’s not the only one. Reassuring your clients is a process that requires constant attention.

If a problem arises, you naturally need to ensure that it is dealt with promptly and efficiently. But even if things are running smoothly, you need to maintain regular contact with customers.

Try to take a pro-active approach. Instead of assuming that everything is fine until you hear otherwise, make a point of asking customers how you could improve your service. You may be surprised at the answers you get. Often it is the little issues that make all the difference. Minor matters that seem unimportant to you may be a high priority for your clients. But if you don’t ask, you will probably never find out what these are, and what you can do about them. Your clients may simply move on to another supplier who offers a different approach.

But if you make the effort to understand your customers’ requirements, you will find that your client list grows steadily. With more work to choose from, you will then be under less pressure to compromise on costs. You can ‘cherry pick’ the best projects for higher fees, and your income will rise accordingly.

The theme of asking for a raise has fuelled episodes of sitcoms for generations. It is an enduring theme because it is one that we can all identify with – we all want to earn more money, yet asking for an increase requires you to risk everything that you already have. Freelancers do have a significant advantage here, in that you are not putting all your eggs in one basket.

If one client won’t pay your rate, you can always find another one who will. Even so, deciding to raise your rates is a scary business. How much should you increase your rate by? What if your clients decide you have gone too far? Will your cheaper competitors then steal all your business?

These are valid fears, yet you must have a strategy for increasing your rates if you wish to maximize your income. Remember that the cost of living tends to increase over time, so you must increase your rates from time to time just to stand still. If you don’t, your real income will actually decrease over a number of years.

But apart from this factor, you should be aiming to achieve an increase above the rate of inflation. As each year goes by, you are gaining additional skills and expertise. As these are the core of your business proposition, your value to the client is actually increasing year by year. It’s only fair, then, that your rate should rise to reflect this.

Although knowing this helps, making the increase can still be a scary step. The best way to overcome this fear is to take Nike’s advice, and

Just do it!

Write a polite but firm letter to your clients, explaining why the increase is necessary, and reminding them of the value that you offer to their businesses.

And don’t worry!

You’ll probably find that the increase is a much bigger issue for you than it is for your clients. It’s a natural part of the business process, and reflects your rise in stature in your professional sector.

If you really want to earn a million dollars or more as a freelance professional, then maximizing your rate is a critical step. Once you’ve got this step right, you’ll find that everything else starts to fall naturally into place.