So, you decided to start your freelance business and have your first lead. Awesome! Now let’s talk money, because it’s going to come up sooner than later. And as a new freelancer, pricing your services can be a daunting task. Hell, it’s even a daunting task nearly four years later. Should you charge hourly? Per project? Retainer? These overwhelming questions are the first step to identifying how much you are going to charge clients without capping out your earning potential.
Freelance rates can depend on a number of factors such as project length, service type, and expertise. But believe it or not, calculating your charge as a freelancer is more of a personal preference than an industry one. And it all comes down to the business model you design for yourself in the beginning.
I’ve seen freelancers charge in just about every way possible, but I’m going to review the most popular pricing methods freelancers use regularly. But first, it’s important to do some personal calculations and realize what you need to earn to sustain your lifestyle and pay the bills.
Start with calculating your monthly expenses.
Prior to determining your freelance rate, it’s important to sum up all of your personal living expenses. That includes things such as rent, car payments, bills, student loans, utilities, and groceries. Be sure to include little bills as well, such as pet food, gas, and entertainment. This is the first step to determining the foundation of what you need to make in order to merely “survive” each month. If you’re a part-time freelancer or side-hustler this won’t matter as much, but for those working full-time in their freelance business it’s essential to know what you’re baseline income needs to be. And for those working part-time in their freelance business, it’s still important to know what it would cost you to go full-time in your business.
Once you’ve concluded the total of your monthly expenses, it’s now time to do the same for your business expenses. Add up your internet costs, monthly subscriptions, software services, co-working fees, email domains, and other tools you use in order to conduct an efficient – and successful business.
Now that both your personal and business monthly expenses have been calculated, add the sums together. The outcome will represent what you will need to bring home each month in order to live the lifestyle you’re currently used to. Of course, this will all depend on if you work full-time in your freelance business or not.
Consider your lifestyle and expenses before calculating your rates.
One of the best things about working as a freelancer is setting your own schedule. Want to work from 7am-2pm? Go for it! Perhaps you’re more productive at night. There is no demand to work a typical 9-5 day if that is not what you choose for your business model. It’s important to design a business model based on your specific productivity levels and personal lifestyle desires. After all, that’s why you became a freelancer in the first place.
For example: If you want to earn $200/day and plan to work 8 hours every day, you can afford to charge an hourly rate of $25. However, this also would reflect you being fully booked which isn’t always the case. It takes awhile to become a fully booked freelancer, so keep that in mind.
But nonetheless, every freelancer designs their own specific business model. Throughout the years, my work schedule has fluctuated between four and twelve hours of work per day. Obviously, a heavier workload will demand a larger time commitment. I prefer working early in the morning, late in the afternoon and at night. I take frequent breaks throughout the day to hit the gym, cook, and run errands.
Moral of the story: I do what’s best for me based on my business model.
As a freelancer, it’s also important to note that some of your working hours will be spent on non-billable work such as networking and prospecting. Therefore, your percentages might be different depending on the amount of time you choose to spend investing back into your freelance business. I personally spent at least two hours a day prospecting during my first full-time freelance year, so I always made sure to block that out in my calendar. To learn more about billable vs. non-billable hours, check out our blog here.
After you design your ideal business model, create your starting rates.
There are three models that most freelancers typically use when working with clients.
- Per project
- Ongoing retainer
We briefly touched on hourly rates above. Setting your hourly rate has a lot to do with your initial expenses, current earnings and availability. If you were working a full-time job or still are, there’s a simple way to calculate a starting hourly rate for yourself.
$50,000/salary = $4,166/month
40 hour work week, 160 hour work month
$4,166 divided by 160 hours = ~ Approx. $26/hour
Calculate your hourly rate and then consider adding a few dollars to it because self-employment taxes are higher. Of course, you can increase your rates substantially over time but it’s also good to gain experience and start with a fair-market-value rate.
In many cases, you’ll find clients asking you “How much do you charge for a website? What about a blog post? A logo?” Chances are they aren’t interested in hiring you as an hourly independent contractor and are more interested in paying a per project rate. In those situations, it’s important to set some ballpark rates based on deliverables. However, everything can and should come back to your hourly rate. How long will those projects take you? From there, you can reverse engineer a per project rate.
To do this, calculate an estimate for these projects. This factor is essential to determining estimates for deliverable services. Once you have determined the approximate time it will take to complete a project, multiple it by your hourly rate to get an estimate of how you’d want to be compensated. From there you will be able to conclude prices for set items that you can offer clients.
A client wants you to write a blog post on a topic you don’t know much about. You know that you’re going to have to spend at least one hour researching the topic and then another two hours writing and editing it. Overall, you estimate that this project will take you around three hours. You normally charge $20/hour, so perhaps you’ll bill this client a flat fee of $80 for the blog post. This covers the three hours of time you predict it will take you and gives you an extra hour just in case things take longer than expected. I always suggest adding an extra hour into project estimates.
A lot of time in the freelance world you’ll come across a client who’s looking for someone to work on a contract basis for them regularly. As a freelancer, this is ideal because it provides a level of consistency that many freelancers otherwise struggle to achieve. Ongoing retainers are typically contracts that include X amount of deliverables per month for an agreed upon rate. They’re usually custom to each client you work with.
Eventually, as you gain more experience, you’ll want to seek out more ongoing retainer work. You can set contracts with clients or work month-to-month. My workload now is entirely retainer work, with almost all retainers being over $2,000 per month.
A client wants you to manage three social media platforms, create X amount of content, and run paid ads for their business. In addition, you’ll also have weekly check-in calls with them. You’ll do some research on the scope of work and estimate the amount of time per month it will take you to execute the deliverables. From there, you’ll propose a monthly retainer rate and send them a formal proposal. For a lot of clients in the beginning, I would do a trial month to make sure it was mutually a good fit for both parties. Of course, this trial month is paid, but the difference is that it’s not a long-term binding contract. It’s a great place to start when you’re working with a new client on a retainer.
Why I don’t buy into the “charge what you’re worth” nonsense…
While I’d never actually tell someone to undercharge or devalue their abilities, I also believe that there’s a lot of nonsense out there that comes with the “charge what you’re worth” mantra. Of course you deserve to be compensated fairly. But one of the biggest mistakes I see new freelancers make is actually overcharging without the experience to back it up.
In brief, what actually makes you worth $50/hour? Do you have a portfolio and results to prove you’re “worth” the rate you’re charging? Is the client receiving a positive ROI? If these answers are no, then you need to reevaluate your starting hourly rate.
To be fairly blunt, if you believe you’re worth $50/hour, you need to have a portfolio and references to back it up. It’s as simple as that. When I started out, I was billing $15/hour. Little by little, as I built up my portfolio, my rates increased. Now I work on monthly retainers of $2,000+ per month. With that being said, be careful not to overcharge and underdeliver in the beginning. Clients will want to see a portfolio and proof before hiring you. If you want to pitch a client at $50/hour but have little to no portfolio, you’re probably going to run into a roadblock.
Stay focused on getting your first few paying clients to grow your portfolio rather than landing high-paying gigs right away. Once your portfolio grows, you’ll be able to charge higher rates because you’ll have quality work and references that prove your success. Freelancing is a journey and each step along the way is important. Don’t sacrifice your long-term goals for a little greed in the beginning.