How to Perfect the Art of Freelance Pricing
Freelancing is growing, Forbes reported that in fact, one in five full-time independent workers are now freelance in the US. Many people starting out on a social impact journey, getting their bearings, or trying to manage to get a project off the ground and still earn may well consider freelancing as a viable alternative to the 9-5. What therefore is the perfect freelancing rate? No matter how many times a freelancer might go over their pricing, there’s no single answer to this question. Thankfully, we don’t need a standard-issued freelance pricing manual to know and earn what we’re worth.
The thing is, pricing is tricky. Go too high and you might price yourself out of the market. Go too low and you risk appearing amateur, and working way too hard for little reward. There are several ways to dissect and rebuild your freelance pricing model. In the end, it all comes down to you, what you intend to make out of your freelancing business, and the type of clients you choose to attract.
Before you agree to any rate with a potential client, you must first consider the input required, and the rewards (post-tax and expenses). To get a clearer picture, here’s what you should be considering:
Factors to Consider When deciding on your Freelance Pricing
There are different ways you can try to measure and prove your rates to clients, but both parties will always question if the agreed rate was just the right amount. You want to deliver the best value to your clients while growing your business and charging good rates. This is our 5-step process for accomplishing both.
1. Decide on your target income
You need to ask yourself “How much do I make?” and then “How much do I want to make?”
You clearly want to do better than what you brought home from your desk job. However, with your own business, you have to take into account both cost-of-living and cost-of-operation. Add to that your target yearly savings. Using these figures, you can calculate your ideal annual income.
2. Understand the cost of running a business
The amount you are paid and your actual income are two different figures. You invest certain resources to grow your business. Things as little as your website hosting and accounting service might seem small, but eventually add up and take a big bite of your income.
Some of the costs you might incur include computer and software fixes or replacements, workspace (if you don’t work from home), internet connection, task management software, advertising and marketing expenses, transaction fees, and setbacks such as unpaid invoices.
You will also be paying taxes as self-employed and will have to cover your health insurance. These seem like little things until you add them up and realize that you spend tens of thousands of dollars on business expenses. These expenses should also be included in your target annual income.
3. Include your time resource
The downside to working with low prices is that you only depend on time to make a good living. However, with this method, you can only last so long before you burn out. You need to calculate how much time you can realistically spend in front of your computer 5-6 days a week.
Remember that you will have to factor in vacations (because your mind needs them), possible sick days, and those days when you won’t be able to will yourself to work.
Once you’ve figured out a reasonable number of days you can work for, you need to also decide how many hours you can work for.
You will obviously incur some non-billable hours during research, marketing, invoicing, checking and replying to emails, etc. Create an estimate for the number of hours you will spend on these tasks, and subtract them from your initial number to get a better idea of your actual time investment.
4. Choose your value
There are several ways to decide on your pricing model, but as a freelancer, you shouldn’t restrict yourself to how much time you spend working. You also need to calculate how much value you are offering to your clients. The value is not in your final deliverables but in the benefits of your services to their business. 79% of freelancers have reported that they earn more working from home in just one year of leaving their office jobs.
How do they achieve this?
By understanding the value of their services, and selling that, instead of the actual service.
As a freelance writer, it’s not enough to say “I can write a great landing page copy for your business”. That’s great and all, but so can hundreds of other people. So why should a client choose you?
You need to sell and price your services using the value of the results of your work. What if you say “I can write landing page copy that will convince your website visitors to take the exact actions you want them to take, and bring in sales for your business”?
In this case, the client is no longer thinking of words on a page, they are thinking about how you can help them grow their business.
This is the basis many successful freelancers use to set their price, and it can be yours too.
Alternatively, you can choose to place your value on time. Use your calculated target annual income, added to your business expenses, and divide that by your billable hours. The result is how much you will have to charge for every working hour to meet your goal. That is the minimum amount, and you can only go higher from there.
Now that we’ve established everything you need to consider to perfect your freelancing price, here are several ways you can bill clients to reach your target income level.
How to Charge Clients
The price tag on any assignment can set your motivation and performance level to completing it. To keep your motivation peaked, you must choose a payment option that works for you.
I have explored the three most common options which are:
- Fixed rates
- Per-hour rates
- Retainers
Here’s a breakdown of each option:
1. Fixed rates
This is essentially what it sounds like. Both freelancer and client agree on a price before the work starts, and this price does not change, regardless of how much resources the freelancer spends to complete the task. The freelancer has to carefully consider all the client’s requirements before quoting a price. They usually do this by making needed research, and leveraging past experiences on similar projects. With this, they can estimate how long the assignment will take, and how much resources they will have to invest.
The most common problem with fixed prices is that no one can really tell how much work is needed until they’re actually doing the work. Sometimes, it might take less time, which means nice pay for easy work. Other times, it might take the freelancer more time and effort than they estimated, with no added compensation. This often pushes freelancers to rush through the task to avoid being at a loss. In this case, the project can quickly become low-quality, as the freelancer is more concerned about finishing than giving great results.
Also, by deciding everything before the assignment even starts, you’ve reduced room for flexibility and changes. You might not be able to accommodate the client’s requests for changes, but how about your own? You may not initially know the best route to take, but you can discover that on the way. However, when you consider how much time and energy has been spent, knowing that you won’t be getting anything extra, you might decide to keep using that not-so-smooth route.
2. Hourly Rates
Although it has its own limitations, this is the commonly used payment method, especially for new freelancers. It is more flexible and gives the client enough space to achieve their desired final result, as long as they are paying for it. They can request as many changes as they want, and you don’t have to send back a very polite “Not in the scope of work”, every time your client has a new, “exciting” addition to make.
Both freelancer and client can eventually get good value; money earned for time, and results for money spent.
To prove to your client that every hour is billed as a work hour, you can install time tracking tools such as Toggl and Klok. They work by taking periodic snapshots of your computer screen and saving them to be reviewed by the client.
Although hourly rates seem dependable, they are not always fair. For an experienced freelancer who has done several similar projects in the past, it might be easier to complete even complex projects in a small amount of time. A less experienced freelancer will use up a lot more time, and eventually, earn more than the expert. This means that the more efficient you become, the less you earn, which is not a fair deal. Also, working doesn’t always happen in a linear way. A project can take two hours spent in front of a desk, one very long work, and six napkin scribbles (made while eating) to complete. How exactly do you bill a client for this time?
It will prove a very difficult task you convince a client to pay you for time spent eating out.
Per-hour rates are much more suitable for new freelancers, but it will be best for the growth of their business if they quickly adopt a new method.
3. Retainers
Retainers are referred to as “the freelancer’s steady paycheck”. They’re the closest you can get to your traditional work contract, while still working under your own business.
They are best suited for clients who need the services of a freelancer on a consistent basis. Many times, companies offer a retainer-based agreement upfront. Other times, a freelancer works with a company until one party suggests that a retainer would work better for their needs.
Many clients prefer retainers because of the added benefits that come with working with someone who is familiar with their business, preferences, goals, and positioning. They’re also great if a client has a series of assignments but has to brief their freelancer at the beginning of each project. In this case, they can’t keep the freelancer in the loop as they are not a part of the company.
Working on a retainer makes it easier for your client to give you access to needed information, especially if their demands from you are consistently increasing.
The major downside to retainers is that you (the freelancer) lose if the agreed fee is not up to your target income. With a retainer, you are at the client’s beck and call, and cannot accept large or demanding projects from other clients. This means that a majority of your income will come from them.
They can also terminate the agreement at any time, which might leave you scrambling to find new clients to cover your newly created pay gap.
If you agree to a retainer, don’t stop your marketing efforts as you might need to rebuild your client list at any time. Also, include a mandatory payment for the last month worked in your agreement. Clients should also be requested to provide a 30-60 day termination notice, to give you enough time to prepare for the end of the contract.
How to Keep Raising your Rates
No freelancer has ever complained about making more than their target annual income. You can always get more value for your services.
Here’s how to steadily grow your income with both new and existing clients:
1. Specialize
The smaller your niche, the better your expertise. Well-paying clients want to work with someone who fully understands their industry, and can help them achieve their exact goals.
2. Always pitch a higher rate
Stop pitching your current rate to potential clients. If they love your work, they’ll be open to paying your quote or negotiating. Each new client should be paying slightly more than the last, not less.
3. Don’t work with problematic clients
If you can already tell that a client will eat into your time and energy, politely refuse their offer. Apart from the added stress, they will bring you, problematic clients will hardly ever agree to pay you more when you decide to increase your rates.
As your value and rates increase, the number of hours you need to spend working reduces. The best freelance price is one that allows you to build a healthy work schedule that benefits both you and your clients. With the experiences you gain from building your business, you can begin to outline your own freelance pricing manual.
