Pricing your services is one of the most difficult things to do as a new freelancer, and one of the questions I get asked most as a freelancing coach. There are several factors at play in how much you should charge, and the process is much different than negotiating your salary as an employee.
Though freelance rates may vary depending on service type, project length, expertise, and work involved, the process to determine your rate is the same across the board. Here’s the structure I use to determine my own freelance rates.
1. Set an hourly rate
Before you can do any sort of freelance work, you need to set an hourly rate for your services. If you’re coming from the world of traditional employment, you may be tempted to charge your previous salary and call it a day (been there, done that). But there’s a lot more that goes into a freelance rate than an employee’s salary.
Calculate your expenses
First, add up all of your monthly living expenses. This includes the heavy hitters like rent, utilities, car payments, and credit card bills, as well as smaller amounts like groceries, clothing, and entertainment.
Next, add up all of your business expenses. Think carefully about any subscription-based tools you use, faster internet, and banking fees. If you work from a home office, you may need to allow for a higher utility bill than you’re used to.
If you’re not eligible for a spouse’s or parent’s insurance plan, you’ll factor in the cost of your own.
And remember that you’ll need to pay more in taxes than you’re used to since you have no employer making up the difference.
Now add the two together. This is the minimum you’ll need to make each month to live at the level you’re used to … and that’s not considering savings or profit margins. (More on how to prep your finances for freelancing coming soon).
Calculate your working hours
Lastly, decide how many hours you’ll work each week. Keep in mind that running your own freelance business comes with a significant amount of non billable work like administrative tasks and marketing yourself.
A 40-hour week doesn’t necessarily mean a 40-hour paycheck, so your freelance rate will need to cover the cost of that time.
Let’s say, for the sake of easy math, that you need to earn $100/day, based on your expenses. If you plan to work 5 hours every day, you can afford to charge $20/hour. But if you plan to work only 1 hour each day, you’ll need to charge $100/hour to still break even.
10 Things You Don’t Charge Freelance Clients For But Definitely Should
How to not give clients work for free
I’ve found that I typically spend anywhere from 25%-50% of my working hours on non billable work. Your percentages may differ depending on how much time you invest in marketing your freelance business.
Calculate your hourly rate
Now that you know your total monthly expenses, as well as how many hours you’ll bill each week, you can easily calculate your rate using the following formula:
Note: If you plan to take vacation time or sick days, you’ll need to divide by 48–50 weeks instead of 52.
For some business models you can stop right here. But for others, signing clients at an hourly rate may not be the best decision. Remember, time is your most limited resource, so when you charge by the hour, you limit yourself on how much you can earn.
Ultimately, this cripples your ability to scale and grow your business.
So instead of stopping at an hourly rate, let’s continue on to a method that I’ve used successfully in my freelance career …
2. Set item price
The next step in this process is to set an item price for your deliverables.
First, estimate how long one deliverable takes to produce from start to finish. Be sure to include time for research, chasing clients for approval, making revisions, creating visuals, posting online, and any other stage of your process not mentioned here.
I recommend using a free time tracker to get a more accurate picture of how much time you spend on each project. I use Toggl to track all of my work and have found it extremely helpful in creating these estimates.
Now multiply the time spent by your hourly rate to find your product price. For instance, if you know that it takes about 3 hours to complete a blog post and your hourly rate is $50, the product price for a single blog post is $150.
Repeat this process for every deliverable that you offer. Lather, rinse, repeat.
3. Set package price
With your product prices in hand, it’s time for the final step in your pricing process: packaging your services in varying quantities and at different price points.
For instance, I offer my prospective blogging clients the choice of single, bi-weekly, or weekly blog posts.
5 Reasons Every Freelance Writer Should Have a Blog
There's more to it than Pinterest lets on
Packaging your services this way allows you to appeal to more potential clients than you would be able to otherwise.
Every business is different, and not everyone is ready to make the same level of investment into outsourcing to a freelancer.
This tactic gives a few different price points for them to choose from, which gives them more of a chance to work with you.
It’s also much simpler than creating a custom quote from scratch each time someone is interested in working with you. This process is cut-and-paste, which goes a long way toward improving your productivity and scaling your business. But it’s still more customized than a one-size-fits-all approach that they might find at an agency.
Start charging what you’re worth
Are you ready to stop working for pennies and start charging what you’re REALLY worth as a freelancer? I can help you. Find out if a freelancer coaching session is right for you.