At least 4 times for your standard rate card. More often for each project.
Standard Rate Card: once per year, with the business plan. Revisit every 3 months.
Projects: calculate 2 prices for each proposal > yearly re-evaluation if you get the contract.
Answering a question asked by the co-founder of a software services company from Poland:
How many times per year should I recalculate my prices?
Before jumping into the answers, two definitions.
Rate Card: most software services companies use some form of their price lists as a Rate Card. Some have only one version of it, others have different variants that they use depending on the context. This Rate Card is the basis for every project proposal made.
Project Price: this can take many forms. From the simplest (an hourly rate applied for all team members in the project), to the most complex (fixed monthly retainer + daily rates for extra specialized skills + Time & Materials for extra tools and activities, combined with a performance or outcome-based portion from the contract value).
Calculations: What and When
What: Calculate Standard Rate Card
When: Once per year, when you do your business plan
How: Since your business plan means objectives, forecasts, costs and simulations for different scenarios, now is the time to set your standard rates for the next 12 months.
It’s also the time when you probably gather in the same place the data most useful for pricing related decisions (Costs, Competition, Customers).
It might also be a very good moment to ask yourself if the pricing model and metrics you have applied until now is the optimum one for the future. If not, maybe you should make some changes.
You can read this piece for more on the questions you should be asking yourself when you calculate or recalculate your prices.
What: Re-evaluate the prices in your Standard Rate Card
When: Every 3 months, with your quarterly planning exercise
Why: Your prices depend on costs, competition and your customers. There is a rather high probability that something has changed in any of these 3 directions in the past 3 months. It makes sense to see if these changes should in any way be reflected in your prices.
How: revisit the rate card, do a quick analysis to see if any of the assumptions in the business plan have changed, re-calculate if necessary.
What: Project Proposal Pricing
When: Every time you make a project proposal for a new potential client (or new project for an existing client)
Why: Each project is different, on multiple axes:
- Value created for the potential customer
- Quality delivered
- Risks associated with the project
- Opportunity costs for you
- Effort (and associated costs)
- Competition information you have
- The differences in probabilities for the different scenarios that you can think about related to that project
If projects are different, prices should also be different.
Even small variations can have a big impact on your long-term profitability. Or on your chances of getting the project in the first place.
How: using a Dynamic Pricing Calculator to:
- Take your standard rates as the starting point
- Input the information and data specific to the project
- Produce the resulting price rate and total budget you will ask from the client
Ideally, you should have 2 budget options to present for each project.
What: Re-evaluate Rates for Existing Customers
When: At least once per year
Why: The value created for your customers and the objective quality delivered changes over time. This means you need to have a system in place to keep track of them. Once you register change in a project, it makes sense to reflect these changes in the prices you charge for it.
How: Re-evaluate your revenues and costs, to see if the project is still within an acceptable range of profitability or not.
If you can or need to reduce prices (because either your costs or your quality is down), reduce prices. If you need to raise them, plan to raise them. I’ve written here about the 8-steps plan to Raising Rates.
WHAT THIS MEANS FOR YOU
You might as well open your calendar right now to schedule the yearly and quarterly reviews of your standard rate card.