Business consultant Gina Abudi lists 5 possible pricing models for businesses. Each are included below with a comment about them and their suitability for use in the translation business.
Cost-Plus Pricing. It entails adding up all of your costs associated with offering a product or delivering a service and adding on a percentage for profit.
Comment: Translation agencies and many businesses inherently rely on this pricing model since a certain profit level is necessary in order to continue operations. Pricing is also influenced by a need to remain competitive. Profit margins are also affected by controlling costs.
Value-Based Pricing. This model entails setting your price for your products and services based on the perceived value to the customer. The price to one customer may be different than the price offered to another customer.
Comment: The perception of value does factor into pricing in some cases. Rush pricing is one possible example since translation processing costs might not always be higher. Still the perceived value for the service is higher and clients may be willing to pay a higher price for faster service.
Hourly Pricing (time and expense). For businesses that offer services, you may choose to offer hourly pricing (time and expense) for your services.
Comment: Per word pricing models correlate more or less with hourly pricing, although the rate of translation varies with each translator. More challenging subject matter can also affect the processing rate. Still per word pricing is a standard pricing model in the industry.
Fixed Pricing. This model charges the client a set price for a service offered. For example, a project-based company may charge a client a price of $25,000 to complete a project regardless of how many hours are expended or how many resources are involved.
Comment: Some translators/agencies promote a per page pricing although word density on pages can vary significantly which make this method less optimal than a per word method.
Performance-Based Pricing. In performance-based pricing, you invoice your customer based on the performance of the product or service you deliver. Such a pricing model might only be used for certain clients and in specific situations as it requires significant agreement (in writing) between you and your client.
Comment: This pricing method may be the least suitable one for translation services. Performance standards are also subjective and clients are rarely in a position to make this evaluation.