Setting Your Rates
Copy By: Jeanette Smith
Rate setting can be a constant battle between what you want, what’s practical for your client, and what the industry says is standard. So how do we go about setting our rates?
If you’re a practical person, you may choose to set your rates based on what will actually afford you the life you desire. This usually starts with an in-depth look at your personal and business budgets. From printer paper to car insurance payments to vacations, add up anything and everything that you spend money on in a year. Don’t forget to tack on 10%-40% for self-employment taxes. This is the total amount of money you need to make in a year to survive. Divide by the number of weeks you want to work and the number of hours per week and you now have a basis for your hourly pricing.
Another pricing theory says to aim for a “happy price.” To determine this, ask yourself, “if someone offered me X dollars for this project, would that make me happy or sad?” If the answer is sad, raise the value of X and ask yourself again. Increase by small increments until you can definitively say you would be happy with charging that rate for that project. It’s important to keep a modicum of practicality when choosing this method to make sure you aren’t way off base with what you want to charge and what is reasonable for your experience level.
It would be great if every industry and every project had a standard rate we could just look up in a big database, but rate sharing in the freelancing world is sadly lacking and it may leave you at a loss for what to charge. If a google search doesn’t turn up what you’re looking for, then perhaps the best way to find the standards for your industry is to contact other industry professionals and ask them directly. Look for those who match your experience level and offer similar services. Many freelancers are happy to discuss rates with you if you are upfront about why you are asking.
Hourly vs Per Project
Pricing is further complicated by the choice between charging hourly or charging on a per project basis. Very few freelancers will complete identical projects or offer the same service to every client. After all, setting the scope of your project (link to article) is just as important as setting the price.
Hourly pricing can be beneficial for a variety of reasons. No matter how closely you estimate your future productivity, things will change, and what was supposed to take one week could easily turn into two or more. Charging hourly does not require renegotiation when the client asks to expand the scope of the project or needs to add on services such as additional edits. Also, some projects may be ongoing rather than finite, necessitating hourly pricing.
Flat rate or per project pricing is popular because there are only 24 hours in a day, and by charging hourly, you are creating your own maximum earning potential. On projects where you are more productive than expected, you may end up earning more than if you had charged hourly. Clients may also prefer fixed pricing because it gives them an up-front expectation of the final price and timeline for the project. If you charge hourly, your client may assume you will work slower to milk your earning opportunity.
There is not right answer to the hourly vs flat rate pricing debate. What you choose will depend entirely on your industry, the scope of the project, and your financial goals.
Other hotly debated topics when it comes to setting rates are discounting and special pricing. Many freelancers say discounting is the worst thing you can do. Not only does it take money out of your pocket, but it can also show a lack of confidence in your knowledge and skills. Other freelancers price themselves purposefully higher than what they will accept for the sole purpose of offering a discount. Clients want to feel like they are getting the best price possible and offering a discount can leave them more satisfied with pricing negotiations.
You should also to think of special occasions where pricing needs to be supplemented or modified. Offering tiered pricing for different scopes of the same project is an easy way to add both value for the client and money to your pocket. Clients may ask for rush or even overnight jobs, which definitely need a pricing increase.
Overall, setting your pricing is a very personal process and there’s no one right way to go about it. There are, however, some things to avoid like pricing arbitrarily, undercutting the competition, and expecting a rate that doesn’t match with your experience level. No matter how you choose to set your rates, just remember, you deserve to make money for your work!