Life of a Freelancer : Pricing
You want to start freelancing, or maybe you already do, but you’re not 100% sure how to price your work? Below I lay out how to calculate your hourly rate, different pricing methods, and common questions that go along with the world of freelance and payment.
How much Should I Charge?
This is the most common question I get and it can be a tricky thing to figure out. First you need to determine your hourly rate. There are different pricing methods, but you’ll need an hourly rate to calculate them all. The different pricing methods include hourly rate, day rate, and project rate.
Hourly Rate
If you’re just starting out I recommend using an hourly rate. It’s easy to manage and it provides you with useful data. For example, after designing a few ditsy patterns you notice they take approximately 3 hours each. The next time a client asks for a ditsy pattern you’ll know how much time it will take you, how much money it will generate, and how it will affect your schedule.
So how do you calculate your hourly rate? Here are 3 ways…
Drop 3 Zeros
If you’ve worked full-time in the same skillset you offer as a freelancer simply take your salary and drop 3 zeros.
For example : If your salary was $60,000, your hourly rate is $60/hr. If it was $45,000, your hourly rate is $45/hr.
Keep in mind that as a freelancer you will have more costs that your employer would have covered before, such as healthcare, taxes, and retirement. You need to factor in these costs, to counter balance this add 10% to your hourly rate. So $60/hr becomes $66/hr.
Industry Standards
Search for the standard freelance rates in your area for your skillset. Look on Google and talk to friends in the industry. Do your research. Glassdoor is another great resource. Search for salary rates in your field, drop 3 zeros and there you have an hourly rate. Review the intel you’ve gathered and decide your hourly rate based on that.
Think Like an Accountant
Got excel? You’ll want it for this method. It’s the least fun, but the most accurate.
Start with your target annual salary. Say you want to make $67,000
Calculate your new expenses and overhead as a freelancer. Some things to consider : web hosting fees, design programs, office rent, internet, phone bill, invoicing and accounting software, project management tools, accountant fees, miscellaneous software, art supplies, marketing, healthcare costs, self-employment tax, etc. Surprisingly, this number can quickly jump to $20,000 and up.
Now add your target salary to your expenses. $67,000 + $20,000 = $87,000 is your new target salary
Determine your number of billable hours. There are 2,080 workable hours a year. Now factor in public holidays, annual sick days, and vacation time. If you are in the US, that amounts to 216 hours off a year. Calculate 2,080 - 216 = 1,864 workable hours. But not all those hours will be spent performing work for clients. Allow 25% of your time to be spent on admin, marketing, signing new clients, emailing, etc. Take 1,864 x 0.75 = 1,398 billable hours per year.
Lastly, divide your target salary by your billable hours. $87,000/1,398 = $62.23 per hour. Round up and you have your hourly rate of $63/hr.
Day Rate
To calculate your day rate multiply your hourly rate by 8 hrs. For example, $50/hr x 8 hrs = $400 is your day rate. This pricing method comes in handy for onsite work and simplifies invoicing; instead of tracking hours you are tracking days. But beware, sometimes onsite days can quickly go from 8 hours of work to 10 hours. Stay vigilant.
Project Rate
A project rate is a flat rate you give a client based on the hours you think the project will take. Say a client needs a branding package, you know it will take you 3 days so you calculate 3 days x 8 hrs = 24 hrs. Now multiply 24 hrs by your hourly rate, 24 hrs x $55/hr = $1,320. That is your project rate.
I suggest using a project rate once you’ve built more experience. You have to know exactly how long certain tasks will take.
Before calculating your project rate it is vital to ask as many questions as possible. You need to know the full scope of the project. For example, a chocolate company reaches out to you for custom packaging design and new labels across their range. They send inspiration images but no more information beyond that.You are thrilled and give them a reasonable project quote. They accept your quote and work begins. You send them your design and then learn they are expecting to see 3 different designs, not just one. And they have 10 different flavors requiring 10 different labels. That’s way more work than just 1 package design and 1 label design. So now you are stuck in the awkward position of re-negotiating your quote or doing the work pro bono. Always ask questions to know exactly what you are quoting. If you don’t know the full scope of the project or you under-calculate your hours, then you’ll end up doing work you’re not getting paid for. And that’s no fun.
Another thing to consider with project rates is how many edits you are willing to do. Clients might ask for little changes here and there which is a slippery slope. Soon those small changes turn into 5 hours of extra unpaid work. So outline how many edits you include in your project rate. Once the client has hit the allotted edits outlined in your quote the rest will be charged at an additional hourly rate charge.
Should I offer work for free if I’m just starting out?
This is a personal decision. It can be very tempting to offer work for free, especially if you don’t have a professional portfolio just yet. But I suggest against it. Offering work for free lowers self-confidence and can turn into a pattern of under-pricing your work. It doesn’t feel good. And the last thing you need launching into a new freelance career is under-valuing yourself and your time.
If you have little to no experience in the skillset you are offering simply set your rate at a beginner level. This rate might not support you financially so keep your day job, but it will set you off on the right foot. And as you gain experience you can start to bring your hourly rate up to match.
Should I take on a client that can’t afford my rate?
It depends. Is this a dream client of yours? Are you excited about the project? Would it boost your portfolio? If the answer to any of those is a yes then I would consider it. Ask them what their budget is and ask yourself if where the project lacks in pay it adds value somewhere else. Just keep in mind it may be hard to raise your rate with this client down the road.
When do they pay?
I highly suggest the good ‘ole 50/50 payment method, which is very simple with the project rate method. Require a 50% deposit before beginning the project and the remaining 50% upon completing the project. It’s fine to send jpgs and screenshots of your work along the way but don’t send production ready files until you have received full payment. If you charge hourly you can still require x amount of hours up front and the remaining once the project is finished.
It Takes Practice
Everyone will run into situations where they’re not sure what to charge and find themselves over or under pricing. It happens to all of us and it happens more than once. But you learn through those experiences and you know better next time around. As you gain more experience you gain more confidence in asking for the price you deserve. Don’t sell yourself short. Sometimes a client won’t be able to afford you and thats ok. There are clients out there who will pay you what you deserve and those are the ones you want to work with.
I hope this information is helpful and puts you on the right path to a successful freelance career. Please leave your thoughts and questions below and I’ll do my best to answer them! x Katinka
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