Setting your rates is one of your more difficult tasks as a freelancer, primarily because you are often worried about scaring off potential clients by quoting a number that is too high. But the more information you have, the more confident you will be, and the less anxiety the topic will give you.
First Step in Setting Your Freelance Rates: Do the Math
Add up all your monthly necessary costs and expenses and figure out how much you need to earn in order to live. Then divide that number by 160 (4 weeks a month at 40 hours a week (yes, that doesn’t come out exactly right since there are 52 weeks in a year, but it’s close enough)) to determine an hourly rate. Then add 30% to that amount for your taxes (and yes, not everyone pays exactly 30% taxes, but it’s a solid estimate, and it’s the amount you should set aside for taxes anyway).
So, if you need $2000/month to survive, you need to make $16.25/hour.
Now add in the cost of doing business and being in business for yourself. You probably have to hire an accountant once a year, pay bank or PayPal fees, have a domain, pay for special business taxes or licenses, maintain professional certifications… being in business is expensive. Add up the annual cost, divide it out by months into hours, and then add that to your bottom line.
So, if you need $2000/month to survive, and $750 a year to be in business, then you need to earn $16.75/hour. That is your floor.
Then do the math a third time with what your preferred budget would be. For example, you may be able to survive on $2000/month, but you also want to invest in an IRA, have an emergency fund in case the car breaks down, be able to eat something besides ramen… determine what your preferred income would be and do the math again. Make that number your goal.
Once you’ve done the math, you’ll have a bottom number rate below which you shouldn’t work or you can’t survive, and a goal number that you would prefer to be earning.
Second Step in Setting Your Freelance Rates: Time Yourself
If you aren’t already, start timing yourself on all your work, even if it’s a spec project, even if you aren’t billing by the hour. You should be able to look at a work description and estimate accurately how long that will take you.
You will frequently encounter freelance jobs that are framed like this:
- “$100 to design my company logo”
- “$20 to write my press release”
- “Make my web video for $500”
You need to be educated/expert enough to know how long that would take, and therefore whether the client’s quoted rate is adequate.
Inversely, potential clients will ask you “how much would it cost to make me a website?” or “how much would you charge to draw a tattoo?” and, again, you need to be able to turn that task into time so you can turn it into money.
Third Step in Setting Your Freelance Rates: The Market
Now you need to go a-googling and see what people are actually offering and paying for the kinds of services you intend to offer. Chances are very good that you will be dismayed when you see how little clients are offering, and how little other freelancers are earning. Remember, there is always someone out there who is willing to work for less money than you are.
Don’t be disheartened if you discover that the going rate for your services is below your bottom number. You have options, and ways that you can take control of the situation; you aren’t just at the mercy of the lowest-paying client and the lowest-earning competitor.
- Assess your time. Can you work faster? If you can work faster, then you are effectively earning more money per hour, or earning the same money in less time. Look for ways to streamline your workflow and shave off time, which will always increase your profits.
- Look at the experts. Find the professional freelancers in your field who are earning the rates you want to be earning (they do exist, in every industry). Look at their experience, their education, and how they market themselves. They may even be willing to talk with you and give you some tips. Maybe you can’t earn those rates now, but you might be able to in time.
- Find your differentiators. Sure, other people will do the job for cheaper, but will they do it better? How do you stand out from the competition? What can you offer your clients that nobody else can? If you can show that your work is faster, better, higher quality, more accurate, more creative, or more effective, then you can show potential clients why they ought to pay you what you are worth.
It’s probable that, when you are just starting out, you won’t be earning what you want to earn, and you may even have to work below your bottom number in order to get experience and become more competitive. And it doesn’t do any good to scare clients off by quoting them a much higher rate than they are expecting: you need to stay within the ballpark of what your industry is doing. But by balancing your personal needs and expectations with the trends in the marketplace, you can find a rate that works for you and for your clients.
Fourth Step in Setting Your Freelance Rates: Margin of Error
Jobs are always harder than you think they will be. Always. The less experienced you are, and the less experienced your client is, the greater the margin of error should be. This margin of error needs to account for:
- You didn’t completely understand what the client wanted in the beginning
- The client asks for more revisions and changes than you thought they would
- The work is harder than you anticipated
You should always add in 20-30% to a quoted rate for this margin of error, which will cover a basic amount of scope changes.
So, going back to earlier examples, say that you already know:
- You need to earn $16.75 per hour
- It will take 3 hours to draw this particular tattoo
- Tattoo drawings typically go for $20 – $100 on the sites you follow
- You need a margin of error
When someone asks you “How much would it cost to draw my tattoo?” you can confidently answer “It will be $75.”
(Then we get into the fine art of negotiation, which we will need to address in a different post)