The most important aspect of your freelance business is also the most difficult. Yes, I’m talking about setting your freelance pricing.
Did you just groan a little bit? I did too.
Although many of us start freelancing because of the creative freedom and flexible schedule, none of it can be sustained if we’re not profitable. And being profitable starts with digging into the numbers.
Many of us come from a salary position before we jump into freelance work. The shift from earning predictable income to setting our own freelance rates can be difficult when there is no ceiling or floor to what you can earn.
So what price do you choose? You don’t want to offer your freelance services for next to nothing, but you also don’t want to price them too high and alleniate your ideal client.
If you price your freelance rates too low, you could:
- Hurt your authority and credibility as an expert in your field
- Undervalue the quality of your own work
- Undercut competitors and hurt the reputation of your industry
If you price your freelance rates too high, you could:
- Find it harder to attract your ideal clients if you’re not within their budget
- Secure one-time projects, but have a hard time retaining those clients
- Create a high barrier to entry service that makes clients uncomfortable
So how do you find a happy medium price that you and your clients can agree on?
Setting your freelance rates with ease and confidence takes time, but I want to help you skip a few steps today by outlining an easier way to price your services.
How to set freelance rates: Three things to consider
Don’t have a number in mind yet? Don’t worry, we’ll get to that.
Before you set your freelance rates, it’s important to fully understand what aspects of your freelance business will influence your pricing. There are three main factors I recommend starting with.
Factor in your freelance business expenses and any administrative time
When you work with a client, you have two kinds of investment: money and time. It’s important to estimate how much of each will go into each client project so you can confidently quote the project.
If you quote a month-long project at $5,000 but when you factor in your expenses (overhead costs, operating costs, services you outsource to subcontractors, etc.) you might find you’re really only making a net profit of $1,000. That’s probably not meeting your basic needs.
To get around this, cut any unnecessary expenses when you first start your freelance business. As a freelancer selling your services online, you have the unique opportunity to run a very lean business which helps in the pursuit of profitability.
And let’s not forget about the time investment it takes to onboard clients and work alongside them during a project. Every client will be different, but you need to roughly estimate the time you’ll spend on emails, phone calls, video calls, and in-person meetings before you send a quote and proposal. This is all a part of the job, too.
Your freelance rates will change as you gain experience
The freelance pricing you set now doesn’t determine what you’ll earn in the future. Your earning potential increases as you gain experience, build on your existing skills, add new skills to your expertise, and increase your authority and reputation in your field. Some freelancers recommend raising your prices in increments of 20-25%, but keep in mind that there are no absolute rules in pricing.
Know the average freelance rates of your industry
If you search Google for “average hourly rate for [your industry here]”, you’ll most likely find surveys that have already done the research for you. Nearly every industry has public information on how much a freelancer earns on average depending on their skill level and years of practice.
Another way to search for average rates is by looking into the freelance pricing of your competitors. Don’t blindly charge the same amount they do or slightly under. You don’t know how their business is built so without that context, your pricing structure will be off.
Instead, compare their freelance rates with the averages you found from your research. If their prices are higher, is it because they have more years of experience, have a stronger portfolio, or offer more services “under one roof”? You may discover additional elements affecting their pricing when you compare different competitors to one another.
Even without the full context behind their pricing, you can start to connect the dots as to why some freelance business owners charge more or less than others. You’ll at least come away with a price range you can feel confident in.
Hourly rates vs. project-based rates: Which is better for your freelance business?
In the battle between hourly and project-based freelance rates, there isn’t a clear, absolute winner. Some freelancers price their services only by hourly rates, project-based rates, or a mixture of both.
If there’s no right or wrong way to price your freelance services, how do you know which to choose? This list of pros and cons will help you determine which pricing structure is best for your freelance business.
Freelance Project-Based Rates
Freelance Hourly Rates
How to set your freelance rates the right way
We’re so close to putting an actual number down on paper and setting your freelance pricing. How does it feel?
Now that you’ve determined whether you are going to price your freelance services based on project-based or hourly rates, you can start plugging numbers into our freelance pricing formulas. But first, consider these freelance pricing factors…
1: Know how much you want to earn this year
It’s important to know what your income and business goals are so your pricing can reflect that. I like to set income goals at a few different levels.
- Floor freelance income goal: This income goal is the lowest amount you need in order to pay for your living expenses and all other basic needs. It’s massively important to know what this number is before you pursue your freelance business full-time.
- Desired freelance income goal: This income goal is determined by the lifestyle you’d like to live. It may not mean luxury, but it could allow you to take an extra vacation, meet friends for dinner every week, or invest in new equipment to add to your skillset.
- Reach freelance income goal: This income goal is the “dreamy” amount that you’d be over-the-moon happy with. It might allow you to accomplish significant things like putting a downpayment on a house or paying off all your student loans. While this goal is highly motivating, the other two levels ground us in reality so we know how to increase our profits over time.
These income goals will come in handy for the next exercises so keep them in mind as we continue on.
2: Determine how much you want to work
As a freelancer, you have the freedom to set your own hours and decide when you want to work. As long as you meet your client’s deadlines, you’re golden! That kind of flexibility can be freeing, but it also affects your pricing.
Some of us are willing to work over the normal 40-hour workweek in order to build a freelance business from the ground up. If this is true for you, your pricing might be different than a new parent who wants to generate side income for their growing family through their freelance business.
3: Price your freelance services based on income goal(s) and work hours
Now that you have a clear idea of what your income goals are and how many hours you’d like to work, look at your current service offerings.
First, determine approximately how many hours go into each offering. Then use the amount of work hours you decided on in Step 2 to help you figure out how many of each offering you’re able to fit into a month. (Example: If I want to work 160 hours/month and have an offering that takes about 40 hours, I’d want to secure four client projects/month)
Now let’s talk about price. First, set a price range for each offering based on the research and work you did at the beginning of this article.
Take the average price of each offering and multiply it by the number of client projects you want to take on each month. (Example: If my product is valued at an average of $1,500, I’ll be earning $6,000 with four client projects/month)
If the result is a price that doesn’t match your income goals, tweak the number of hours, pricing, and service offerings until you find a freelance rate that works for you.
What if my client wants to negotiate my rate?
Once you feel confident in your freelance rates, what happens if the potential client comes back with a rate lower than what you proposed?
The first thing to ask yourself is if you’re willing to negotiate. If your gut says no, follow your instincts and stand firm in your freelance pricing. Your business isn’t a flea market and you don’t have to haggle with every client who wants you to drop your freelance rates. Some client projects may be outside of your budget range so it’s okay to pass on them.
But if you are willing to hear a client’s counter offer, it’s important to decide in which situations you’d be willing to negotiate. Here are some important questions to ask yourself as you prepare:
- Is the company a brand you’ve always wanted to work with? Is it a brand that gives you a certain level of credibility in your field?
- Would you proudly add the project to your portfolio?
- Have you worked with the client in the past and had a positive working relationship?
I once had a client who came back with a project budget slightly below my quoted price. Because I believed in their mission and had them on my list of dream clients, I agreed on the fair rate they countered with and now work with them on an ongoing basis at my desired rate.
What about when negotiations don’t go as planned? Well, I’ve had some of those, too.
A few months ago, I quoted a project based on a number we both agreed on during a call but a week later, they came back saying another freelance writer quoted the same project at half the cost.
I was faced with a tough decision. I could either duke it out with the other freelance writer and drop my price to secure the client project, or I could politely walk away and stand firm in my freelance pricing. I chose the latter and I’d make the decision over again in a heartbeat.
Confidence in your freelance rates comes with time and practice.
When I first started my freelance copywriting business, the last thing I wanted to talk about was money. I would shyly explain my pricing structure and try to have all pricing conversations over email so no one could see me get flustered.
After a few years of learning and digging into what we’ve talked about in this article, I now confidently state my rates on my website, at networking events, and beyond. After going through these exercises, I hope you can say the same. Try it out. You’ll surprise yourself!
How will you make tweaks to your pricing today? Let’s talk about it in the comments.