This article was originally published on Huttle, a new spot for freelancers to find projects they’re passionate about at nonprofits.
What keeps America’s 55 million freelancers up at night? According to the 2016 study by Freelancers’ Union, it’s “being paid a fair rate” — coming in ahead of crucial questions like managing an unpredictable income and even access to health insurance.
As more and more workers choose to freelance (whether for additional income or as their principal source of income), setting and talking about your pricing is becoming a critical skill for everyone.
It’s easy to feel intimidated, but your goal with freelancing is to make money, so you can’t leave the question of how much you make to chance. This article will provide you with a step by step process and the tools you need to set a price without feeling icky or taken advantage of.
Why do I have to set my rate — shouldn’t I let the client do that?
While providing valuable services and being respectful of your client is important, letting them decide what you should get paid isn’t. Clients come to you because they have a problem that they don’t know how to solve, be it the creation of a website, the design of a logo, writing awesome copy or any of the other myriad services that the growing number of freelancers provide.
Translation: You have expertise that they don’t — which also means that it’s your responsibility to understand and set the value of what you do, not theirs.
If they could solve this problem with an off-the-shelf product, tool or solution, they wouldn’t be talking to you, they would simply buy that solution! Knowing the worth of the service you provide not only positions you as an expert, but it helps you clearly define and articulate your value proposition.
As you think about how much you want to charge, consider what you’ll offer your clients as a return on the investment they make with you. Perhaps it is an effortless, almost VIP experience with something that they hate doing, or you may be actually saving them money. Think of this return in terms their investment — will they get all of their investment back, or perhaps 2 or 3 times their investment? It’s up to you to set and uphold that standard!
Taking control of what you charge also helps you attract the right clients for you, and makes the rest of your project run more smoothly. Knowing that they can count on you to manage the project and deliver value is part of what clients pay you for…so be sure that you keep the results they want to achieve first and foremost in your mind when setting your rates.
How do I decide what to charge without feeling greedy or like I’m getting robbed?
The biggest challenge when setting your rates isn’t from competitors or from clients — it’s from you! The single most important factor in setting (and getting) your rates is your confidence in the value you provide. And all too often, we are more comfortable letting someone else determine our value and then reacting to that number instead of taking charge (and responsibility) of it ourselves.
Step 1: Know what you must charge to make freelancing work for you
While we’re all motivated by helping our clients, you also need (and deserve) to earn a living from your work. So the first element in setting your rates is knowing what your personal minimum is.
The good news is that this calculation is very simple:
● Write down how much you want to earn from your business (either on a yearly, monthly or weekly basis). Whether you want to supplement your income or you want to freelance full-time, it’s important to set yourself a monetary target.
● Then subtract the expenses you’ll have to run your business for that same period (yearly, monthly or weekly). This includes things like rent, phone, web services, advertising costs, and others. Also include an equivalent calculation of the expenses that may only be paid quarterly or annually, such as insurance.
● Lastly, divide the result by the number of hours you want to work for that same period (year, month or week). This will give you your minimum hourly rate.
If this feels too complicated to do on your own, here are a couple of online calculators to try:
● A quick and dirty version from Creative Live
● Or, this detailed and customizable tool from BeeWits
Step 2: Feel Your Client’s Pain
Now that you know what rate makes sense for you, you’ve got to look at your work from your client’s perspective, and make sure working with you is clearly their best option.
This means understanding exactly how the problem affects your clients, and what it’s costing them — in either money, time, energy or reputation. Get specific about the different ways that this problem affects your client and their business. Then think through all of the possible costs of this problem in three separate perspectives:
- What does doing nothing cost them? Or, what does “living with it” cost the business?
- How much would it cost them to solve this problem internally? Or, what other tasks would they have to stop doing to be able to solve this themselves?
- Does not solving this problem change how their clients, employees, vendors or investors see them? Meaning, are they ruining their credibility or reputation by not solving this problem?
Be sure to consider not only the money, but also the time, energy, confidence that the problem is costing your client. If you’re unclear about any of the pain points or their impact, that’s a great reason to reach out to some potential or past clients to get their ideas. Ask them if they’ll help you refine your offerings.
Pro Tip: all of your work to identify these pain points and costs can be very useful in your marketing!
After you’ve identified the pain points for each category, you’ll need to translate those into an hourly rate. The easiest way to do this is to look at how many hours you will spend on your average project, and divide the costs of the problem by that number. Voila, a comparable hourly “cost” of the problem!
Step 3: Know thy competition
This means identifying your competition and their offer, so that you can understand how similar (or different) you are from them.
It’s tempting to skip straight to this step and set your rates based on what others in your space are already doing. But to build a solid business, you can’t be seen as a commodity, competing on price alone. So do this work and you’ll not only be more confident setting your rates, you’ll also have identified your competitive advantages.
It’s easy to get overwhelmed by the competition, but there’s no need to look at hundreds of potential competitors. Identify the three or four principal competitors and gather data about them, including their offers, their pricing, client testimonials, and promised results. Also look at how they position themselves through their marketing. Are they offering themselves as a commodity, or do solve a specific problem for their clients?
Highlight particular attention to any major differences between what you and your competitors offer. Remember, you don’t have to be like everyone else, but if you’re different, it’s important to recognize and articulate why for your clients.
Step 4: Pick your number
Now that you know what your minimum rate is, how much the problem costs your client and what your competitors charge, it’s time to choose what YOU will charge.
How? First, make sure that all the rates in steps 2 & 3 are higher than your rate from Step 1. If this is not the case, you should re-evaluate whether freelancing can provide the income that you desire. Review the number of hours you plan to work, and also consider whether your services would be more attractive to a different group of clients so that you could charge a higher rate.
Once you’re sure that you can make more than your minimum rate, compare the rates in Steps 2 & 3, and decide which feels the best to you. Don’t be surprised if you are drawn to either the lowest or the highest number initially, but spend a little time really thinking about what value you provide. It may be easier to select a range of rates at this point.
Practice saying it out loud, and imagine asking one of your clients to pay that for your work. If you can’t even say the number with a straight face, that may be an indication that you need to adjust. While saying the number may feel strange at first, with practice it should feel comfortable.
So how do I tell clients what I charge?
Something strange happens to most of us when we have to talk about and especially ask for money. Our mouths get dry, we stumble over our words, and we generally feel less than our best selves. Which certainly doesn’t inspire confidence in the clients we’re talking to…
According to a recent study by Ally Bank, 70% of Americans think that talking about money is rude. So it’s no surprise that discussing your rates with a potential client can be a thorny prospect.
That’s why it’s crucial to have a plan for talking about your work and what you charge — otherwise, it can be simpler to allow the client to name their price, leaving you with a project that may not even cover its costs! So what’s that plan look like?
First, remember that it’s not a sale. It’s a value exchange — you’re not selling something, you’re exchanging value. This is much easier if you’re already clear about your value proposition and you know that your clients are getting more (sometimes MUCH more) than what they are investing with you.
Second, get it out of your head and onto paper. To reinforce that new perspective on value, list out all the ways & reasons that you provide value to your clients. Yes, literally write it down, and keep it in plain view when you’re working on your offers AND when you’re preparing for a discussion with a client about your rates.
Third, what are your customers saying about your work? Satisfied clients can describe your value even better than you can yourself, so as your business grows and you get client feedback on what you’re doing, incorporate direct quotes from your clients into this “value list”.
Not only does incorporating client feedback help you keep your focus on the value you provide, but it gives you an early indication of other areas where you might be able to serve your clients, thereby leading to additional sales.
Last, practice, practice, practice. It would be nice if talking about money and rates just came naturally, but the reality is that you will only get comfortable as you practice. To start with, practice saying your hourly rate out loud. Find the phrasing that works best for you, whether it’s “My hourly rate [insert your rate here]” or “And I am happy to offer that to you for [insert your rate here]”.
Important note: If you’re feeling resentful or greedy saying whatever number you’ve picked, you may not have found the right number for you. Consider revisiting the rate-setting process.
Once you feel comfortable saying “the” number, it’s time to test it out on your clients. When you make your offers, listen to your potential clients’ reactions, questions and concerns so that you can address them.
But what if they say “no” — should I change my rates?
Working for yourself can be great, but as already mentioned, it can also open you up to some anxiety — mostly because clients can say “no”. Too many freelancers are too quick to change their offer, particularly their rate, just to get someone to say “yes” — and that undoes all the hard work you’ve done in setting your rates in the first place.
When a client declines your offer, quickly review your “value list” to remind yourself of the value you provide. Instead of immediately jumping into a negotiation or (worse) offering a discount so they’ll agree, ask your prospect your own form of this magic question: “What would solving this problem be worth to you?”
Most clients won’t say “nothing”, and if they do, that’s a great indication that you shouldn’t invest any more time trying to work with them.
By asking them what they believe they should pay, you’ll identify right away where they see the value of your solution, and what they haven’t understood. Since it’s your job to communicate your value, knowing what isn’t clear is very useful information for you, so be sure to take notes!
The goal of your questions isn’t to prove them wrong or convince them, but to give you a better idea of what you could improve. In this way, even if you don’t get this particular job, you will still gain lots of insight into how your customer thinks.
When you approach a “no” in this way, you also open up the possibility of finding a different way to work with this particular client…which could be another value-add for all of your clients. As long as you are still receiving the value for the solution you provide, it’s perfectly fine to get creative with how. Some of the options include bartering (swapping services) or modifying your payment terms (be sure to include an additional interest charge if you will be taking significantly delayed payments).
Am I really ready?
It’s easy to let our own discomfort with money and risking rejection keep us from pricing our services at their true value. But knowing your worth and building your confidence through a methodical approach to setting and communicating your rates will give you much more than just a dollar amount.
Other perspectives on setting rates:
If you know a freelancer that’s having trouble setting or talking about their rates, please share this with them. Friends don’t let friends ignore the money!