A Breakdown to Setting Your Rates as a Freelancer
One of the most significant benefits of working for yourself is setting your own rates. One of the biggest drawbacks of working for yourself is also… setting your own rates. Setting freelance rates is both an advantage (hello, higher income!) and a burden (what the heck do I charge?!).
Charge too much for an hourly rate or a project, and you risk losing a client or a job. Charge too little, and you risk losing time and money on a project that doesn’t pay you what you’re worth.
We’re not going to sugarcoat it: Setting freelance rates is a challenge, and it doesn’t necessarily become easier as you advance in your career, gain experience, or increase your income. Still, there are a number of strategies and principles to keep in mind when setting your rates, so that you can strike a balance and get the most out of every client or project.
Factor in Your Additional Expenses
Working for yourself is awesome. In theory, you get to work wherever you want, set your own schedule, and pursue projects and clients that excite you. But working for yourself also means that you pay all the bills, hustle for your own income, and miss out on the benefits of working for an employer.
One of the biggest mistakes newbie freelancers make is not factoring in their additional expenses when calculating their freelance rate. Click To Tweet $20-$22/hour might sound like a reasonable hourly income for a FT job, but that may not cut it for freelancing.
Hidden Costs of Freelancing
“Hidden” costs of freelancing can include:
- The cost of health insurance, otherwise paid for by an employer
- TAXES – A safe rule is to set aside 25–30% of your income for taxes
- Home office costs (WiFi, electronics, software, and applications you’ll need to freelance)
- Paying for your own time off (Think PTO, sick days, or vacation)
- Saving for retirement (without a 401k)
- The time you spend on administrative tasks and pursuing/pitching new clients
Time-tracking can be especially helpful with regards to this last item: The hours you spend every week on administrative tasks (that no one is paying you for) such as emails and invoicing, reaching out to prospective new clients, pitching, and writing proposals may add up far more quickly than you initially realize. Factor this time into both hourly rates and per-project rates. Otherwise, you’ll likely end up undercharging for your valuable time and effort.
If you’re new to freelancing, don’t be discouraged by this relatively extensive list of expenses. Instead, consider each item as a monthly cost, and add that to the total amount of income you’d like to be making. This will give you a clearer idea of how much you should be making, and in turn how much you need to be charging.
Time-tracking gives you an accurate, honest assessment of how you’re spending one of your most valuable assets: your time. And, of course, it helps you set reasonable freelance rates.
One of the biggest challenges of working for yourself is managing your own schedule and productivity. When you gain an accurate understanding of how much time you spend on any given task, you’re also given insight into the value of undertaking specific projects and working for specific clients.
For example, if you’re a freelance social media coordinator, time-tracking will help you to learn how much time you spend each week on curating and scheduling content. Let’s say you charge an esthetician’s office $200/month to manage their social media account. But time-tracking helps you learn that you are spending upwards of 20 hours a month on this particular account – meaning your hourly rate of return is so low that it amounts to a loss of time and money. This valuable new insight can help you set a more accurate rate for future clients, and perhaps even negotiate a higher rate with your existing clients.
Setting Freelance Rates: Hourly or Per-Project?
When setting freelance rates, one of the most significant challenges is deciding not only how much you should charge, but how you should frame the charges. Should you set one flat rate for a project, or should you charge by the hour?
Ultimately, charging per project is a more value-driven, beneficial tactic for making money as a freelancer. Your clients should be paying you for the value you provide, not just for your minutes and hours. That being said, you should still consider time when setting a per-project rate. A time-tracking app such as Timing can give you detailed insight into how long it takes you to perform research, outline, write, and format a blog post, for example. Knowing a general time-frame will help you determine a ballpark price range: Will you spend 5 hours (or 15 hours) on writing a post? Timing can help you determine that.
If you do charge a per-project rate for a particularly large project (such as a website overhaul or a book), consider including a contract to protect your time and value.
You may want to stick to charging an hourly rate for projects that are loose in scope, or for clients that have a variety of small tasks and projects for you to complete. Once you increase in speed or efficiency, you’ll be able to leverage time-tracking to increase your hourly rate (Timing even gives you the ability to export time-tracking reports to show clients).
Take an honest assessment of your own work history, skill set, and experience, as well as the value that you’re able to provide to clients. What is your level of expertise? How did you gain that expertise? How fast do you work? How unique is your skill set? All of these factors should play into your rate.
As you build your clientele, portfolio, and skill set, you’ll be able to raise your hourly and per-project rate to reflect your personal growth. But starting out, you may need to “pay your dues” in order to increase value. You may even do some work for free or for a very low price in order to establish some credibility.
Likewise, consider the value of the work you’re doing, and the client for whom you’re working. Developing a custom website may be of higher value than creating social media posts. Writing a sales letter for a high-end personal finance company may produce more financial return than writing a blog post for an alternative health product. Thinking this way may also help you to home in on higher-paying work that will provide you (and your clients) more value on return.
A Final Word: Communicating Your Rates
Talking to a prospective client about your rates may feel intimidating, tricky, or uncomfortable — especially if you feel that they may face “sticker shock” when they see your rates.
However, time-tracking can help eliminate some of that discomfort by giving you concrete leverage for presenting your per-project or hourly rate. Using Timing’s valuable reporting system, you can show clients how much time you spend on specific tasks and explain what is involved in a project: For example, the research required for a blog post; the coding work needed for a website; or the time spent creating a spreadsheet. In any case, you can use detailed reports to show, rather than tell, clients what is entailed in a given project — and use this valuable information to your advantage when communicating your rates.
At the end of the day, there is no hard-and-fast rule for setting freelance rates. Like most things, it takes practice, trial-and-error, and research to do well. However, a little forethought and a lot of time-tracking can help make the job easier, so that you can continue doing what you do best: creating high-value work for your clients.