How To Set Your Freelance Rates
We live in a society where money is often a taboo topic. As such, when you're launching a freelance business, deciding what to charge clients can be an agonizing dilemma.
On one hand, you don't want to set your prices too high because you want to attract clients. On the other hand, if you set your prices too low you won't be earning what you're worth, and you could end up struggling financially.
How, then, should you set your freelance rates?
While I can't tell you exactly what you should charge, I can give you some pointers to help you work out a fair rate for your services.
Before we get into the details of what to charge, there are a couple of things to bear in mind.
First, what counts as a fair rate depends on your skill-set, qualifications and experience. If you bring years of professional experience to your freelance projects, then you can charge a higher rate than a freelancer who is just starting out.
Second, when you're starting out, offering special deals can help attract new clients to your business. This boosts your confidence and builds your portfolio. Knowing what your services are worth can help you decide the deals you should offer. If you're aware your services are worth $400 a day, then you know that launching your business at a rate of $250 per day represents excellent value to your clients, even if it sounds like a lot to you.
Two Easy Ways to Calculate Your Freelance Rates
Let's take a look at two simple approaches to setting your freelance rates.
Note: Although I talk about charging an hourly rate in this section, for many freelancers it's more prudent to charge per project rather than per hour. You can find out how to convert an hourly rate into a project rate here.
The first way to set your rate is by looking at what you'd earn as an employee. If you were employed by a company offering the same services as your freelance business, how much would you be paid?
You can find this information from recruitment websites, where typically you'll see a yearly salary for the roles advertised. Then, you can convert this yearly salary into an hourly rate by dividing it by 2080 (i.e. [40 hours per week x 52 weeks per year]). Using this calculation, an annual salary of $50,000 is equivalent to an hourly rate of around $24.
When you've discovered this employee hourly rate, multiply it by three. That gives you the hourly rate you should charge as a freelancer. To continue the example above, $24 x 3 = $72. If as a freelancer you want to earn an annual income equivalent to an employee's salary of $50,000, then you should charge $72 per hour.
What gives you the right to charge three times the hourly rate you'd earn in full-time employment? There are several answers to this…
- You can't earn for 8 hours a day
Most freelancers can only fit 3-5 billable hours into a typical working day. You have to charge extra to pay for the hours you can't bill for, such as when you're writing project proposals, sending out invoices, or marketing your services.
- You've got to cover perks
In full-time employment, your job will come with a range of bonuses. These may include paid vacation time, health insurance, a company car, and pension contributions. As a freelancer, you must pay for all these yourself. That's a lot extra you've got to earn.
- You've taken a risk
Freelance work isn't always steady. Some months you'll be flooded with projects. Other times, you'll go through a work famine. The extra money you earn in the good times must cover the lean months. Additionally, you've taken the risk of starting your own business. With risk comes potential reward. If your freelance business makes a healthy profit, that's a fair reward for the risk you've taken.
The second approach to setting your freelance rates is to find out what your competitors charge. Often, you can discover this information by looking at their websites, or by networking with freelancers in your city. You'll likely find a wide range of freelance rates. Remember in the long term you want to aim for the top end, but you may have to start lower to attract your first clients.
Now you know how to set your freelance rates, let's take a look at how you can show clients you're worth what you're charging. You can also use this technique to raise your rates.
What Are Your Clients Really Paying For?
Knowing what your clients are really paying for - and offering them that - will make your freelance services more attractive. As a bonus, it will allow you to charge higher rates.
Making clients aware of what they're really paying for means showing the value you offer in the language of your clients.
For example, if you're a web designer, most businesses who approach you for a new website will do so not because they want their website to look prettier. Rather, they want more sales, leads or conversions. By explaining to prospects that you've studied how design impacts conversions and sales, and that you'll design their site to maximize conversions, you're demonstrating your value. As such, you can command higher fees than a web designer who simply follows the brief of his clients and offers no strategic input.
Share Your Thoughts
If you're an established freelancer, how do you set your rates?
What techniques do you use when deciding what to charge?
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