Pricing can be one of the most challenging things a freelance designer needs to do. Price too high and you’ll drive away clients. Price too low and you’ll also drive away clients (and have a very hard time making ends meet).
Especially when starting out, trying to figure out how to price your services can be confusing. Should you charge by the hour? By the project? Should you have set package prices or come up with custom quotes for every project? And how much should your rates be to not chase away clients while also earning enough money to make freelancing worth it?
How Much Do You Need to Earn?
The first thing you need to figure out is how much you need to earn in a month (or year) to make freelancing profitable. This requires some budgeting and math.
First, add up all of your personal expenses. If you don’t already have a budget, you’ll want to look at your bank statements to see how much you spend and on what. Make sure you include any money you regularly put into savings in this figure.
Don’t forget to add in expenses for things that your employer has paid for (health insurance if you’re in the US can be a big portion of this), paid time off, any subscriptions you’ll want to keep, etc.
Next, add up your business expenses. You may have to guess on a lot of these if you’re brand new at freelancing, but make sure you take into account things like web hosting fees, professional memberships or subscriptions, new equipment (laptop, printer, etc.) on a regular replacement schedule, and things like coworking or office space rentals.
From there, you’ll have an idea of the minimum amount of money you need to earn to make ends meet. You should add in a buffer in case of unexpected expenses (I recommend at least 10%, but 15–20% is even better).
Don’t forget to factor in the amount of income and other taxes you’ll need to pay, which aren’t necessarily the same as the amount that was withheld from your paycheck. Check with an accountant if you’re not sure how much you should be setting aside each month to be able to pay your taxes on time.
Once you know the minimum amount of money you need to earn, you’ll have a basis for setting your rates.
Figuring Out Your Minimum Hourly Rate
Regardless of how you decide to charge clients for work, you’ll want to know what your minimum hourly rate is. This is based on the number of billable hours you have in a week and the amount of money you need to earn.
Getting a handle on billable hours versus working hours can be tricky for new freelancers. But there are things you’ll need to do that you can’t bill for: invoicing, bookkeeping, updates to your own website, marketing activities, learning new skills, responding to email, and similar nonbillable tasks. Those still take up time in your schedule, and if you plan on billing 40 hours per week it means you’ll actually be working closer to 60 hours per week.
The equation to figure out your hourly rate is pretty simple. Let’s say you can bill out 20 hours per week, and you need to earn at least $75,000 per year. And let’s factor in two weeks of paid time off per year. That gives us 1,000 billable hours per year. $75,000 divided by 1,000 hours is $75 per hour.
Even if you’re not billing by the hour, knowing how much you need to earn per hour is key to setting your rates regardless of how they’re presented to clients.
Hourly vs. Project Pricing
Charging by the hour can seem like the most straightforward way to quote a project. But it can be the trickiest, especially if you’re a new freelancer. Estimating your time is challenging, and it’s not always fair to you or the client.
What happens if you get a creative block and a project you thought would take 10 hours ends up taking 20? Or say the reverse is true: you quote a client 10 hours for a project and then inspiration strikes and everything goes smoothly and the project is done in five hours? Do you bill them for the original quote or the reduced amount?
Charging by the hour also means you need to track your time effectively. It adds an extra layer of administration to your work, one that is not always welcome. And what about all the time you’re not “on the clock” but are thinking about a design problem? How do you track that?
Charging by the project is much easier than charging by the hour once you have a good handle on how long things take you to complete. You’ll need to factor in the design time, as well as the amount of time you spend working with the client. Extra rounds of feedback and revisions can quickly add up to a lot of extra hours, so you’ll want to factor that into your project quotes.
Here’s an example: let’s say you’re creating a new logo for a local company. You know that you need to earn $75 per hour. You estimate that it will take you 10 hours to do the actual design work (including research, design, and one or two rounds of revisions). So that adds up to $750.
That $750 is just the base quote, though. You’ll want to factor in any unexpected time you spend, such as an extra round of revisions or more research than you anticipated. So you add two extra hours to your quote, just in case, bringing it up to $900. It’s better to provide a more all-inclusive quote than to give a limited quote and then charge more if your client wants more revisions, etc. Clients generally don’t like unexpected expenses, and would rather pay a little more to know upfront exactly what they’re paying.
In some cases, you may find that your project quote doesn’t adequately cover the amount of time you invest in a project, while other times you’ll spend less time. If you’re good at estimating what goes into a project, though, you’ll find that it balances out.
While project pricing is better than hourly pricing, value-based pricing beats them both. Let’s take that $900 logo project from the previous section. If you’re working with a tiny local store or online shop, that $900 is a very fair price for both you and the client.
What happens if a big chain store making tens of millions of dollars every year approaches you for a new logo design? They’ll use that logo for years to come, indirectly earning millions of dollars from that one aspect of their branding. Is it fair to charge them the same $900?
Your initial reaction might be yes, but think about it a bit further. First of all, if you quote a company like that $900, you’re unlikely to be taken seriously. Second, if you’re providing a company with millions of dollars of value, shouldn’t you be compensated in relation to that? Third, in all likelihood, you’ll put more time and effort into a project for a multi-million dollar company than you will for a small business (if for no other reason than you’ll be dealing with more stakeholders during the process).
Charging based on the value you provide is a fair way for you to be compensated based on what you’re doing for the company. That said, you should still have minimum rates for a project to make sure you earn enough to make ends meet. Companies that don’t see the value in your minimum rates aren’t the right fit for you.
Changing Your Rates
You should regularly review your rates and earnings, and adjust them accordingly. Raising your rates regularly (such as every year) is a solid business strategy, as your expenses likely increase.
Your skills and expertise should also be improving continuously, which gives you a solid basis for raising your rates. For any clients that you do ongoing work for, just give them a heads up a couple of months in advance of your rate increase.
If you’re finding that you don’t get enough clients at your regular rates, it can be tempting to lower them. But instead, consider raising your rates to attract a different kind of clientele. When people see the value in the work you do, they’re willing to pay more. Higher rates can also increase the perception of your expertise. When you raise your rates, you also need fewer clients to earn the same amount and can provide a higher level of service ■
About the Author — Cameron Chapman: Editor. Blogger. Author. Designer. Copywriter. Marketer. Entrepreneur. Speaker. Consultant. Coach. I wear a lot of hats. What most of them have in common, though, is storytelling.
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