Pricing your services as a freelancer can be hard. I know because I've done it both right and wrong.
- What should you charge?
- Should you give discounts?
- What if they pay late… what then!?
- Should I work for free?
- Can I still make money if I give away my services for free or accept little payment?
- Should I charge them what they want?
- Is there a way that I can avoid saying no?
There are all sorts of questions running through your head – especially on those long nights when the bed is too small, and you're having trouble getting to sleep.
After all, a man's gotta do what he's gotta do, right?
I understand that one of the hardest things about being a freelancer is setting an appropriate rate that gets you paid what you are worth without putting yourself at risk for taking on too much work or dealing with clients who won't pay.
I've been there. I've done it both ways – charging too much and charging too little.
But today, I'm going to cut out all the fluff and give you actionable advice that will help you land better clients, get work done faster and with less stress – AND ultimately earn more money without having to take on more clients than necessary.
4 Ways to Set Your Freelance Rates
1: Hourly rates
You bill your clients based on the hours worked. Thus, you need time tracking systems such as Time Doctor, Toggl etc.
While hourly rates are good when starting off or for a client to determine if you are a good fit and a reliable partner, they are bad for scaling and do not really allow you to charge based on the value you are bringing in.
2: Packaging with Retainers
This is a more sustainable model since you can project your earnings for a few months ahead instead of hours.
Clients pay you for the current period or also two or three periods ahead. Since billing is mostly monthly, you can expect that onboarding a new client will instantly give you a working capital of 4 months.
For monthly retainers, a client will pay you a fixed amount based on the reserved hours every month.
By doing so, your clients are reserving your working hours for their projects.
3: Task-based pricing
This is a subset of project-based pricing. You bill your client per task completed instead of monumental projects.
For instance, installing and setting up a WordPress plugin, writing a blog post, creating a landing page, fixing WordPress errors etc.
4: Project-based pricing
This is the most suitable model if you are offering your services in terms of packages, for instance:
- Blog management (writing, editing and publishing),
- Web designing, web development,
- Web speed optimization,
- WordPress Management etc.
Sample your industry data and competition to determine a range where reasonable rates should fall to avoid overcharging or undervaluing your work.
The right pricing should be designed to bring you the right clients while sidelining the ‘hoppers.
How to Price Your Services as a Freelancer
So without further ado… Here are 5 steps to charging what you're worth as a freelancer:
Step 1: Factor in Your Experience and Value
The main thing that you have to remember is that the value of your time depends on two factors: your experience and your skill.
The more experience you have as a designer, developer or writer, the higher your rates will be and vice versa – the less experience you have, the less valuable your time is compared to an experienced freelancer.
Clients like hiring experienced freelancers because they are assured of quality work and a level of professionalism that saves them time and unnecessary back and forth communication.
Step 2: Factor in the Work Involved
Besides experience and skills, a third factor plays into your pricing: your knowledge of how much work is involved in completing a project.
Maybe you've been working as a designer for 10 years; maybe you're new to the industry and have just started freelancing. Either way, if you know what it takes to complete a design project from start to finish – this affects your rate because now you can estimate how much time each of the steps will take.
Another example might be if you've completed a similar project before, but the new project is much larger – this would also affect your rate because now there's more work involved than last time.
So based on the project requirements and your experience, you can come up with an acceptable figure to start working with.
Step 3: Understand the Market Demand
To know how much you should charge, it's important that you understand the market demand for the services that you offer.
It matters what services you offer and how valuable those services are in the market. So it's possible that even if you offer a unique skill, but it's not something in high demand – your services may not be worth what you think.
And regardless of how much experience and expertise you have as a freelancer, if the market isn't willing to pay for those services (or more), then charging more might not be the best course to follow.
On the other hand, if you have special skills that aren't common in the industry, it may be harder to find an equivalent replacement, and therefore your services become more valuable.
This is also true if clients need quality work fast, and there's only one or a few of you providing similar services. If your services don't seem worth it to the client, they'll look for someone who will charge less.
Step 4: Look at what the market is charging.
Before you can decide what to charge for the value of your work, you need to look at your competition and see what they are offering.
To begin, try answering these questions:
- What are their rates?
- What kind of clientele do they work with?
- How long have they been in business?
- Is their pricing fair or wildly unreasonable?
- Can you bring anything new to the table that they aren't offering?
- Do you know their financial status or situation?
What to look out for: Are they charging too much? Are their rates just right? How long have they been around – do you think you can compete with someone who has more experience and credibility than you because they've been doing it longer (you might have a chance to charge more)?
Step 5: Get an Understanding of Your Minimum Acceptable Price (MAP)
Now that you know the market demand for your services and how much value your time as a freelancer has, it's time to come up with a base rate that you're comfortable with.
But before you can do that, you need to find out your Minimum Acceptable Price (MAP).
The term “Minimum Acceptable Price” is used in commercial real estate, the stock market and other volatile or risky industries where it's important for business owners to price their goods at a reasonable rate that doesn't put them at risk of losing money.
In most industries, it's common for business owners to come up with rates that allow them to stay afloat and earn a reasonable profit while still being competitive in the market – and this is no different when pricing your services as a freelancer.
Step 6: Factor in Your Expenses
As a freelancer, you're responsible for paying your own bills, so it's important to consider what expenses may affect the price you charge for your services.
Personal taxes – If you intend to treat freelancing as a full-time job, you will have to pay personal income tax on top of business expenses.
Business expenses – But your business expenses won't stop there. Here are some common business expenses freelancers need to pay for as well…
- Internet fees (to stay updated and to work at home)
- Office supplies (paper/pens, printer ink, etc.)
- Print services (to print out resumes or business cards)
- Business Insurance fees
- Business events (local networking groups, webinars, etc.)
- Continuing education (learning new software or improving your skills)
- Office space (rent, utilities, etc.)
- Internet Service Provider fees (different from the internet you use at home)
- Postage/Shipping bills (shipping materials to send out your work or supplies for client projects)
- Phone & broadband bills
- Website & advertising costs
- Software subscriptions
- Rent and utilities
- Legal, bookkeeping and accounting fees
Only factor in expenses that directly relate to your freelance business. If you are in the habit of charging personal expenses (like that $15/hour lunch) as part of your freelance rate, then you can't pass those costs onto a client.
Be realistic about your profit margins – if you're a graphic designer working out of your home, don't set your prices as high as someone who has an office in the heart of downtown. You'll be more appealing to clients if you're not charging as much, which means you'll have to work less for the same amount of profit.
Profit margins fluctuate based on industry and region as well. In places where living costs are lower, freelancers can set their prices higher since they don't have to pay for things like gas or rent – in places with high living costs, freelancers may need to charge less to compete.
How do you know if something is a legitimate business expense or not?
It all comes down to how much time and money you spend on them. If it's a one-off or something that happens once in a while, then it probably isn't worth factoring into your prices.
However, if you plan on using a service or tool (like your website) regularly and it's going to cost you money every month, then yes – take that into consideration when pricing your services. But don't factor in anything gratuitous or unnecessary that will increase the price of your work but won't add any real value to your client's work.
Step 7: Set Your Base Rate
Once you've taken all of this into consideration, you're almost ready to set a final price for your services.
The first thing I want you to do is set your base rate – in other words, what would be the absolute minimum you would accept as payment for your work? This number is important because it takes emotion and ego out of the equation. Your goal as a freelancer is to earn a profit – not just to make as much dough as possible.
Let's say you charge a base rate of $35 per hour and then work up from that number depending on the amount of research, writing or other work involved in completing your projects. This figure should also have expenses already factored in.
Most importantly, know when to stop negotiating. Getting wrapped up in pricing discussions can make you feel awkward and uncomfortable – it's okay to say, “I'm sorry, but I just don't think we're going to find common ground on the price.”
Step 8: Set Up Your Financial Goals
Okay, now it's time to set up some financial goals for yourself because if you don't know where you're going, you'll never get there.
You need to pick a target number you want to earn each month to achieve your financial goals. Then, figure out how much money you need to charge per hour to make that happen.
What's the difference? The target number will likely change as time goes on, but your optimal pricing rate should stay consistent as long as you are profitable.
When setting up your financial goals for a freelance business, remember that it's not all about the money – you want to be a profitable freelancer (someone who makes more than they spend) but also stay frugal.
As long as your income is growing and you're staying within budget (like not going overboard with equipment or office space), then I'd say you're doing a bang-up job.
Step 9: Set Up Your Pricing Structure
You've done all the hard work, and now you have everything you need to set up your pricing structure – remember that your creative juices don't run on autopilot.
Here's what I want you to remember when setting up your pricing structure – if it seems complicated or like too much work to explain, then it is.
It can be super difficult to create a pricing structure that makes you feel like you're being paid what you're worth without going overboard and charging too much.
It's easy to go back and forth on how much work should be included in your pricing or whether you need to charge more for certain tasks, but there are two important things I want you to keep in mind:
The first is that you want to make sure all of your pricing is fair and reasonable, but the second is that you also want to profit. You don't need to be super-duper crazy with profitability, but it's always nice when your business makes more than it spends.