If I need to use more expensive software for one service offering than another, is there a standard way to build this into my rates? [duplicate]

Question

I'm a freelance user experience (UX) designer, and I'm about to productize one of my service offerings. The service is a usability evaluation of clients' websites. It is designed with two kinds of clients in mind: those who want to redesign their website now (as a preliminary step) and those who want to just see how well their website is doing.

I'm not yet sure how many usability evaluations I could accommodate per year or what the demand is. For this discussion, let's suppose I'll do one per month, alongside my design services.

Since my prospects vary greatly in size and budget, I want to offer this service in different tiers. On the higher tiers, I want to use third-party tools to give clients a deeper evaluation of their website. The highest tier, or an alternative service (I haven't decided yet) would also involve my checking a client's website, as well as the website of one of their competitors. (Here is another vendor which does competitive evaluations on a much larger and deeper scale.)

One of the third-party software products I would be using has a freemium model. The lower-end usability evaluations would employ its free version. The higher-end usability evaluations (which would cost around $3500-4000 at present) would be using the paid version of the tool, which provides more features and analyzes sites more deeply. I have not bought this tool yet because no clients have asked me to use it yet.

The paid version of the tool costs about $500. Based on where my business is right now (recovering from having done a substantial amount of work for free), this isn't a trivial cost. But using this tool in my more in-depth evaluations would give me a nice advantage over my competitors, for clients willing to pay for more labor from me. (My competitors work in a related industry but a different field. There is some overlap between their fields and mine.)

How would you handle the cost of this tool?

1. Charge $500 to every client who wants me to use it, since no clients have asked for it yet?
2. Charge $500 to only the first client who wants me to use it, and then other clients who want it later don't have to pay for this?
3. Charge a percentage of $500 to all clients who want me to use it, to amortize its cost? (If so, what's a good amount to charge?)
4. Raise my hourly rate for all services? (This may be hard. Clients in my industry may resist paying the higher rates of UX designers already. They are used to web designers, who are on average less expensive.)
5. Another approach?

Answer 1

Software fees are the cost of doing business, thus overhead and not the responsibility of any client to pay for directly.

I don't charge each of my clients for Photoshop/Illustrator/InDesign although I use them.

I'd be angry if my plumber charged me for his wrench every time I called him for a job. Or my mechanic charged me for his timing gun when he had to use it.

Software tools are part of business overhead and in that sense should be worked into your hourly rate as overhead not as additional fees any client needs to pay for. You don't charge clients when you need new pencils or when you need a new office chair because yours broke. In the same manner, you shouldn't directly charge clients for other tools you use to complete your work.

All that being posted, if the client has a specific request for some specific web package or something which you would not use beyond that specific request. Then it would be reasonable to charge that client the fees associated with the tool they, and only they, need. For example (to use my field [design])... if a client requests a specific typeface from me and I do not already own it. Then that client is invoiced for the cost of that typeface, the license is therefor in the clients name and the typeface is not used for other clients. In this situation the purchase is the clients, not my businesses, so it is not overhead and the purchase is not an asset of my business given this scenario.

Answer 2

I'm going to go with e) another approach

Charge the rate you estimate will bring you the most profit.

I think the best answer in your case is to use a 'payoff matrix' to help you decide

Here's a very quick way about how it works and you an can use it to help set the most profitable prices.

Let's assume you have 20 clients - run some estimates of what you feel the outcome would be, and then select the price point you think would give you the highest profit.

For example:

1) $500 per clients - clients are interested but price is high so you estimate the probability that only 1/20 will purchase - your expected value is $500, but you profit is $0 ($500 sales - $500 costs).

2) $250 per client - more clients are interested at this price, so you estimate 6 (3/1) purchase - your expected values is $1500, but your profit $1000 ($1500 sales - $500 cost).

3 $100 per client - many client are interests at this price, so you estimate 20 (100%) purchase - your estimated value is $2000, but your profit $1500 ($2000 sales - $500 costs).

Because there are uncertainties, the approach is you to give your best estimate at guessing the number of clients who would purchase at each price point, and see which price point provides the most profit.

This is simplified version of the Payoff Matrix - a business planning tool which helps account for risk and uncertainty. You can read more about the Payoff Matrix here.

It is often said there is no such thing as 'certainty' in business - it's quite common in business (even large business) to use tools such as the Payoff Matrix to make business decisions - and in your case, it would only take a few minutes - and provided guidance on the best price points to make you the most money.