It’s challenging to figure out how to price your services as a freelancer, especially when you’re just starting.
And while it’s tempting to ask other freelancers what their rates are, you don’t want to base your price solely on the competition.
You want a price that is reasonable and a fair reflection of the value you bring to the table.
Doing so will ensure you feel confident and comfortable with your rate, which increases the likelihood of keeping a steady income level throughout the year.
Before you can price your services as a freelancer, you need to know your market value. And often you’re worth is determined by the following 2 things:
1. Your industry’s average salary
2. Your skillset, experience, and reputation
You’ll get an idea of how much your skills are worth by analyzing your competitor’s prices.
As for experience and reputation, those are attributes you’ll build over time. You’ll be able to raise your rate as you gain more of each.
Once you know what you can charge, you can set your pricing, and there are 5 ways you can do it.
1. By the hour
2. By the day
3. A retainer package
4. By commission
5. Value-based pricing
A good tip is to check out your competitors and industry to see the most common ways they charge and pay freelancers.
For example, clients pay freelance writers by word, retainer, or project. At first, follow the norm, but that doesn’t mean you can’t use other pricing strategies as you become more established.
Think about setting your annual financial goal before you decide how you’ll set your price as it’ll give you a figure to work towards.
Your annual salary goal helps you choose how to price your service at an hourly rate, which is an excellent place to start when finding out how to price your service as a freelancer.
Let’s say you’re a content writer and would like to earn $60,000 before taxes to cover your expenses and earn a decent profit.
Here’s how to work it out:
Now you’ve got your hourly rate, but it isn’t your final one because, as a freelancer, not all your working hours are billable.
I’ll explain why next:
Most freelancers have to work unpaid hours to run and build their businesses, like finding new clients, replying to emails, running marketing campaigns, and invoicing.
Now you work out your billable hours by using the 60%-40% rule.
On average, freelancers work 40% non-billable hours and 60% billable. If that also applies to you, it affects the hourly rate you’ll need to charge.
Now you’ve 2 options to reach your annual target: You can either work more hours or increase your rates. The latter is the preferable option, so let’s go with that.
Let’s take the 1,840 working hour example and apply the 60%–40% rule:
Great, you’ve got the hourly rate you must charge to hit your annual salary goal, but what if it’s more or less than the industry average?
If your hourly rate is below, you can raise your rates.
If it’s above, you could up-skill and take some courses that will increase your value or use a different pricing strategy (we’ll look at those a little later in this post).
Here’s another simple way you can come up with your hourly rate.
Take the average annual rate you’ve found on PayScale or Glassdoor for your industry and drop 3 zeros.
For example, using PayScale, I’ve found that the average annual income for a content writer is $49,274. If I drop 3 zeros, that’s an hour rate of $49.
You can find your day rate using the 60%-40% billable rule and apply it to what you need to earn.
For now, let’s continue with the content writer example and a $60,000 per year annual salary.
While that might look like a reasonable day rate, it could potentially undermine your value as you grow your business for a few reasons.
3 problems with the hourly and day rate approaches are:
1. Your day rate figure could be higher than your industry average.
2. You’re only paid for every hour you work and there’s no room for profit.
3. Your service and time could be worth more.
Now you need an alternative way to price your service as a freelancer to bypass all 3 of those potential problems.
Fortunately, there are 3 you can choose from:
A retainer agreement sets out the duties of the freelancer and the client, so both have a clear understanding and expectation about what work will be provided, how it will be completed, and at what cost.
Usually, a retainer package runs on a month–by–month basis for a specific amount of work. In the case of the content writer, that would be a number of words or blog posts per month.
Company owners like using retainers to save them from paying a full-time employee and avoiding employment taxes and health care benefits.
But it’s also beneficial to a freelancer, as you have a fixed income every month which you can increase by taking on other one-off clients and charging by the project, commission, or a value rate (we’ll look at those in just a moment).
The retainer package works in 2 ways:
The rolling retainer suits the client more than the freelancer because they only get paid for completed work.
For example: You and your client agree upon a fixed number of hours, words, or projects each month, but you only get paid for what you complete. Here, you could end up losing out.
Let’s say you agree on 40 hours per month and set them aside, but your client only needs you for 10.
You’d lose 30 hours that you could have found other paying clients and your income is 30 hours less than you need.
The use-it-or-lose-it retainer is a better option for freelancers as you and your client agree upon a fixed monthly price, and they pay you regardless of how much work they give you.
It’s a good gig! However, you must agree upon a maximum number of hours, words, or projects upfront; otherwise, you could end up working more and losing out.
The downside is you’re still getting paid by the hour and trading your time for money.
We’ll look at how you change that next:
Clients are often more willing to pay a higher rate when you charge by a commission, as it’s based on results.
The result is if they earn, you earn, and everyone wins.
The strategy also gives you an incentive to do the job quickly and to the best of your ability, and those are 2 skills worth learning.
However, it can be a double-edged sword—lucrative when it goes right or profitless should it go wrong, nor does it work for every industry.
This strategy works best when you are in control. Industries like real estate run on commission because it’s a perfect fit.
For example, a client agrees to a 2% commission rate if you sell their $600k property within 2 months. You work your butt off and make the sale, earn $12,000, and they make a sale.
But it doesn’t work when someone or something else is in control. Taking on a commission gig when you can’t control the outcome is a big mistake.
For example: Providing SEO freelance work for clients who pay you based on how well their website ranks in the search results.
Here you could lose out as every SEO expert knows that many other factors come into play to increase a website’s search engine ranking.
And without complete control over your client’s website, you can’t guarantee the results.
The better you are at your job, the more you’re worth, but a client might undermine your value if you use the hour or day rate approach.
You lose out because the quicker you complete a project, the less you’re paid, but the results are the same. Here, it’s your client that benefits from your experience and expertise.
And that’s not how it should be.
A better approach is to charge based on results, not the time you work. That’s the beauty of project based-pricing!
Now you tie the project price to the value of the results you provide your client, and the results are all your clients care about.
Let’s look at how you do the 5th pricing option:
Most freelancers are in the business of providing a service. With this strategy, you don’t charge by the hour or day; instead, you charge for your value, which enables you to raise your rates.
While this is, without doubt, the best way to price your services, it requires several things:
The last one is about finding your client’s needs, and you do that by implementing a forward-thinking discovery session strategy.
When you first meet a client to discuss a project, always hold a discovery session.
As the name suggests, it’s how you discover their needs and create a package that resolves them.
Your goal is to discover several things:
Once you know your client’s problems and needs, you can sell them your solution and show them how you’ll help them become more successful.
We’ll continue with the example of a freelance content writer, and in this case, that’s you.
You’ve met with a client who needs copywriting for their e-commerce website. After your discovery session, you’ve established that your services could increase its revenue by $8,000 a month.
Here’s how it would work out:
That doesn’t look right; it’s just over 10% of the monthly value increase you’d bring to your client. At this rate, you’d be undercutting your value and selling yourself short.
Here, you use your discovery session to find the answers to the following questions so you can sell your value (the $8000 increase in monthly sales) and increase your price.
The more questions you ask, the better you can provide a valuable solution for your client. And for them, that often means increasing their revenue.
Here’s how to use the value approach to your advantage.
Take the answers from your discovery session and create a detailed outline of how your service value will increase their monthly revenue by $8,000 and how they’ll get it back in the first month.
Forward-thinking clients will see your value, and few business owners would ignore a possible $8,000 monthly revenue increase.
And the result is pretty good for you, too, as you could now charge 4 times more than your hourly rate for your service, which is an income of $3,477.76 for 16 hours of work.
Now you know how to price your service as a freelancer, let’s finish with a strategy you can use to increase your rates.
After working with a client for 4 to 6 months, you might think about asking for a raise. But before you do, here’s what you need to know.
You’re not entitled to it. You must earn a raise by bringing more value to your client. Sounds a little harsh, but I know from experience it’s true.
So, how do you do it?
You position yourself closer to your client’s required results, which, as we know, means more revenue.
It’s all about moving higher in the value chain, going above your client’s expectations, and ensuring your work improves their results.
How to move up the value chain differs for every freelance industry, but a common constant is the closer you get to the sale/result, the more your client will value you.
And when that happens, it improves your chances of a pay raise.
I’m a content writer. I work on retainer for one of my larger clients, as do several other writers, and we all get paid by the word.
So, how would I move up the value chain in this circumstance?
I’d do it by up-skilling my services.
In this example, the client uses keyword-driven content to improve their ranking position to sell their services. That’s my value opportunity—help them rank higher and I’ll move up the value chain.
Up-skilling your services works for every industry, but stick with me here as I use the content writer example.
Content writers on commission generally write what their client says they should. But when a writer up-skills their service and becomes a content strategist, the situation changes.
A content strategist plans, designs, creates, edits, and publishes content relative to the client’s objectives and business goals, ensuring it ranks higher and creates more leads.
Now the content strategist is closer to the money because they bring more value to the client.
Remember, the average annual income for a content writer is $49,274, which is $10,726 less than the $60,000 yearly goal example.
But a content strategist’s annual rate is $63,042, and if that were you, you’d have hit your annual revenue target.
I gave you a lot of information in this post, I know. But don’t worry, I also have this handy cheat sheet that you can use to help you price your freelance services.
Download this PDF template and have it available whenever you need.
Reliable workers—freelance or not—are hard to come by and business owners know this. That’s why when you make yourself indispensable and guarantee results, you’ll get the price you’re worth.
Use these pricing strategies to land your first clients and up-skill at every opportunity to increase your value. Then your job is to focus on providing extraordinary work that will grow your freelance business.
And when you achieve that, how and what you price will be up to you.
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