The question I get asked most by new freelancers and peers is “How do I set my rate?”. This is something that every freelancer struggles with, and no one can give you a single answer because there isn’t one. Every method that you will use to set your initial rate will feel uneasy. You’ll struggle with doubt “Am I worth that much?” or “Am I not charging enough?”, or both. These struggles are normal and everyone has them. Aside from why you do what you do, this should be the second most important question.
How I set my rate
When I first started out as a freelancer, I asked my peers their pricing. But I wasn’t critical of how they’d set their prices. My price point was too low because I was basing my price off of others who had done the same. I wasn’t selling myself, because I didn’t think I was worth the money, and I only got shit jobs for shit pay. I learned these lessons the hard way, and I am sharing what I’ve learned so you don’t have to.
After learning the hard way that setting my price according to my peers wasn’t the way to go, I took a step back and reassessed. I took a look at why I was so stressed and not making any money. A quick budget showed that with the billable hours I was working, and the hourly rate I charged, I was making just below minimum wage. I had to change my mindset, instead of charging what I thought I was worth, I looked at what I needed to charge. Turned out my price was 1/3rd of what I needed. I started charging a higher rate, and not only did I make more money per hour, I got more clients!
You need to charge more to be happy, and your clients need you to be happy.
People and companies expect a certain price point for quality, and they understand that if someone is working for scraps, the quality they deliver will be influenced by the financial stress that person is having. You need to be in a good mental place to deliver the quality you want to deliver. Financial stress is the quickest and easiest way to not be in a good mental place.
How to get started
To help you get started, I’ll explain 3 basic options:
- Comparing to peers
- Determining what you need
- Market research
Comparing to peers
The simplest answer that a lot of my peers chose to take was to ask their peers what they were charging. A possible pitfall with this is that your peers will most likely include other freelancers that have just started out, and are struggling with the exact same issue. Comparing yourself to your peers is a good strategy, but only if you ask them how they set their price. If they did it through market research or they’ve been doing it for years, and have a thriving clientele, great. If they, like you, are just starting out and just set a price for themselves, maybe take that into account when valuing that information.
Determining what you need
This one requires that you at least have SOME idea of how many billable hours you will have each month. You will have to budget all your expenses, business and personal, on a yearly basis. This includes incidental expenditures like vehicle maintenance and possible medical fees. Be a little liberal and make yourself able to save up in case of a professional dry spell. Then see how much you should be making per billable hour to make ends meet. This will be a higher number than you expect, and you might be worried about charging that much. The reality is that if you charge less, you won’t make it.
Another factor in earning what you need to earn, is you experience a lot less stress. The confidence that no matter what, you’ll at least make ends meet, is a powerful enabler of creativity and quality.
The very best way to determine your price is through market research. The pitfall is that market research takes time, and you won’t be making (enough) money while researching. This is a freedom most fresh freelancers don’t have, but there are ways around it. You can set a low price, and call it a “discount rate”. Start working for that low amount, and in return for the discount, ask clients for in-depth feedback. This will help you become a better freelancer, and help you set your price. Always ask a client about your service-pricing ratio. This seems like a tough or awkward question, but clients will appreciate it, and it shows you are trying to improve yourself on all levels.
Never stop learning
As a freelancer, it is imperative that you stay up to date on the latest developments in your field, but you should also always update your pricing accordingly. Always ask for feedback from your clients personally, not through a shitty questionnaire. Always update your price and services according to that feedback. If you want to know more about being a freelancer and entrepreneur, follow Chase Jarvis’ blog and interviews.
As a freelancer, every job you do is market research. Treat customers well, be polite, and deliver quality. If you do those three, you won’t be without work ever again.