A challenging part of living the gig life may be choosing how much to charge for freelance work. You want to offer clients quality service at a reasonable price, but you also want your business to thrive. Here are a few tips for setting rates that meet your needs as well as your client’s.
1. Research Freelance Market Rates
The salary range across industries varies, so it makes sense that freelance rates do as well. Look around and see what other freelancers in your industry charge.
Your prices should be competitive. Be sure to highlight any skills and expertise in a niche market.
2. Know the Cost of Doing Business
Annual earnings and income are very different. What you earn is the amount you bring in from each project.
Income is the amount you earned minus costs associated with the work. Typical expenses include the following:
- Web hosting fees
- Advertising and marketing materials
- Project management tools
- Mileage drove for business
- Computer care and repair
- Software and service subscription fees
Task and project management tools such as apps and templates can help you keep track of related costs. Make sure the freelance hourly rate you decide on covers expenses.
3. Establish a Targeted Annual Income
As a new freelancer, you may have attracted new clients by setting low rates. The uncertainty of the next gig can make this practice risky. It can also associate you with other cheap contractors, which doesn’t get you quality clients.
The result is a cycle of being in survival mode. Working long hours for minimum rates is not why you became a freelancer.
Account for rent/mortgage, utilities, food and other standard overhead. Include self-employment taxes and health insurance as well. Add these amounts to the cost of doing business for your baseline salary. It may be a lot more than you thought.
4. Determine Your Time Investment
Most people choose to freelance so that they can spend time with friends and family. It allows them to travel and engage in non-work activities.
You may need to adjust your salary expectations accordingly. Take into account the following:
- How much do you want to work on a daily, weekly or annual basis?
- Think of the time you want to set aside time for vacations and family?
- The amount of money you need to save for emergencies?
- How much would you like to set aside for savings/retirement?
A good rule of thumb is to set aside approximately 20 percent of your time for non-billable tasks. These may include marketing, signing new clients, emailing and general administrative duties. Figuring out how your time is devoted to working and functions that support the business should give you a good idea of how much income you need to live the life you want.
5. Choose the Right Freelance Rate Strategies
There are two primary types of pricing: project-based and hourly. For project-based pricing, you provide a flat rate for the project, based on expenses and completion time. When you’re just starting out, hourly rates may make sense. You’re honing skills and learning as you go. If a project takes longer than expected, you bill for the difference. The pricing strategy should be appropriate for the type of job.
Clients typically prioritize quality of work over the timeline. Project-based fees can provide flexibility if the job takes longer than anticipated. Set your freelance rates based on the value of the project to the client. Do this by asking two questions.
- How does the project positively affect the client’s bottom line?
- What advantage does the client receive as a result of your work?
Project rates set the value of the service you provide. For small or clearly defined projects, this fee structure works well. It’s also the best way to go if the client doesn’t understand what you do.
Project-based pricing can increase earning potential. However, it doesn’t work in every situation. There are projects in which freelance hourly rates are a better strategy.
- Multiple long-term projects within a particular role for a single client. It doesn’t make sense to divide tasks and create a contract for each one.
- Unclear project goals and timelines. This lack of definition encourages scope creep. Projects typically grow beyond their original parameters. You may find you spent more time and effort than you planned.
Leave yourself some wiggle room in case unforeseen issues crop up. You don’t want to find that you are undercharging for every client.
6. Set Expectations
When you take on a project, you must know what tools you’ll need and how much time the work will take. To provide an accurate quote, consider other factors as well.
- How many revisions will you make at the stated rate?
- How many people are approved to make changes?
- How much communication is needed to keep the project on track?
Telephone calls, emails and on-site meetings can add up to several hours of work, impacting the bottom line. Productivity tools can help you get an accurate picture of how much you need to charge for your freelance hourly rates.
Set clear terms and conditions from the beginning. This definition of service includes the full scope of the project and what changes have an additional fee.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.