I remember it so clearly. I was sitting at my tiny kitchen table, which was also dubbing as my home office at the time, staring blankly at my computer screen.
I had been going back and forth with a potential client for a few days before I was finally asked, “So, what are your rates?” Que the disc scratch sound effect.
Mind you, I had just quit my 9-5 agency job and had quite literally no idea what to charge. That’s right—I was one of those “take the jump and figure it out” freelance types and hadn’t even thought through how much I should (and could) charge clients. I figured it out eventually but made plenty of mistakes along the way, I can assure you.
I’m here to tell you that it’s not as complicated as you may think. Not quite wave-a-magic-wand-and-charge-whatever-you-want simple, but not rocket science.
We’ve talked about how to raise your rates here on the Unemployable blog. But as they say, you have to crawl before you can walk.
In this post, I’m breaking down the important things you need to know about setting rates—including the things I wish I knew when I was starting.
Here we go, folks.
Pricing structures: Which is right for me?
Chances are, if you’ve Googled, “how much should I charge as a freelancer?” before, you’ve seen a few different types of project rates pop up in articles. There are many opinions on which model is the “best.”
But before you can figure out which pricing model is right for you, let’s define them.
This one is pretty self-explanatory, but an hourly rate is how much you charge a client per hour of work you do. To accurately track how many hours worked, many freelancers use time tracking tools like Harvest, Toggl, and Freshbooks.
The thing with an hourly rate, though, is that as you start to gain experience, it’s likely that you won’t need nearly as much time to complete a project as you did in the beginning. Therefore, because you’re getting better at your craft, you end up shorting yourself financially. No one wants that.
In the freelance world, a retainer is the closest thing to a consistent paycheck. A retainer is a set, pre-billed fee for a specific period or amount of work.
Typically, the freelancers who use retainer pricing give clients the option to select a package based on time or value. For time-based retainers, a client can buy a package of 50 hours at $100 per hour for a total of $5,000 each month. Alternatively, clients can disclose the type of work they’re interested in each month and pay one fee no matter how long it takes for the freelancer to deliver.
Retainer pricing can be set on a rolling or use-it-or-lose-it basis. In a rolling structure, clients can move the extra hours they didn’t use to the next month, and in a use-it-or-lose-it structure, clients would lose each hour they didn’t use that month.
For my writers, you’ve probably heard this one before. In fact, you may be using this structure right now. This pricing structure is when you charge per word you write.
Not only does charging by word count makes it easy to scale your assignments, but it’s easy for clients to understand your pricing. Just be sure that if you go over your estimated word count that you loop your clients in before sending them an invoice for an extra 500 words.
Ah, the project fee. In my opinion, it’s the best way to structure your rates. It’s easy to keep track from an invoicing perspective, there’s no complicated counting, and best of all, there are no awkward conversations around hours or word count with clients since they’ve already agreed on the price.
Not to mention, when you’re ready to raise your rates, it’s pretty straightforward to do so. For example, let’s say you want to increase your rates 10% every six months. All you have to do is tack on that extra 10% to your fee. (Psst. I wrote all about raising your rates—and how to do it correctly—in another blog post, which you can check out here.)
Think about what might be best for your business. Maybe the retainer route is less stressful for you because it’s similar to a regular paycheck. Or perhaps the project fee model will be better for how your business is structured.
Now that you know the differences between pricing structures let’s figure out how to land on a number.
Determining your monetary worth as a freelancer
The first thing is first. To determine your rate, you need to figure out how much you should be making each month to cover your bills and expenses. That way, you can set a baseline of how much you need to make every month and go from there.
Start by making a list of your monthly expenses like rent or mortgage, insurance, internet, and subscriptions like Netflix. Don’t forget to include your business expenses, too.
Take stock of everything you need to pay for and multiply that total times 12. Those are your yearly expenses. Please don’t cry.
Now comes the fun part, once you know how much money you have to make, decide how much you want to make.
However, this can get a little tricky, depending on how much you want to make. If you want to make 1 million dollars, then I applaud you for your ambition and wholeheartedly believe that you can do it. But that doesn’t mean you should start charging a crazy amount to reach that number.
You have to consider a few things:
- Your experience level
- What the market can hold
- What value you bring to the table
Those three things will help you arrive on a dollar amount.
You may be thinking, “Kat, aren’t I supposed to charge what I’m worth?”
Well, yes and no.
Here’s the thing. “Charging what you’re worth” is not synonymous with “whatever price you want.” You have to factor in your experience, the value you’re providing, and what your market can sustain.
Now, let’s say you want to make $80,000 as your take-home pay, meaning after you take out taxes, you have $80,000 in your bank account. If you set 30% of your income aside for taxes, to take home $80,000, you’ll have to bill at least $115,000. You get the picture.
Figure out how much you need to make and how much you want to make first, then set your pricing based on that.
Other rate-finding best practices
There are many resources out there than can help you determine your rates. Below are a few that will help you get started.
1. Use rate calculators
These tools are great for figuring out a ballpark range.
2. Search the groups, channels, and forums you subscribe to for advice
There’s so much knowledge in these groups. You just have to know how to look for it! Scrolling through groups is overwhelming, so try searching for advice on rates instead. Searching for answers to your questions before posting about it will also make your moderators very happy.
3. See how much your peers are charging
Do some sleuthing! Make a list of freelancers who are in the same or similar industry as you and see what they’re charging clients or how they have their pricing set up. Keep in mind that what works for them might not work for you.
You’re in charge of how much you make
If you take one thing away from this article, it’s that setting your rates shouldn’t be done arbitrarily. Dive into the resources above, ask your peers and mentors for their advice, and do your research. Remember, this is a process. Your rates will change as you go, so take a little pressure off yourself.
You have to start somewhere, though. And one of the greatest parts of freelancing is being in charge of that.