I recently had the roof of my house redone. It took a day and a half and cost thousands of dollars. But did I flinch when writing that check? No! I was thrilled because my problem – a bad roof – was fixed by someone in whom I had full confidence. The same is true for pricing your freelance services. You don’t bill for your time, you bill for the problems you solve!
Before I left my corporate 9-5, I had the security of a steady paycheck, benefits and a retirement, all things we have to figure out for ourselves as freelancers. It was a bumpy road at the beginning, getting to where I could provide for the family, save, and take vacations. Which is why I’d like to help shorten that road for you by sharing some of what I’ve learned about how to set your rates and when to raise them.
Pricing as a freelancer can be psychologically tricky because we’re essentially putting a price tag on ourselves! That’s an intimidating task, isn’t it? Read on to learn how to price your freelance services, or watch the video below for my Facebook Live training on the subject.
Pricing Your Freelance Services Step-by-Step
1. Get Crystal Clear on Expenses
That means every single thing you get a bill for (house and car payment, utilities), as well as those things you don’t (retirement, food).
2. Figure Out Your Extras:
When pricing your freelance services you need to make sure you pay yourself, not just the bills you owe. For example, do you want some to put in savings for retirement? Are you hoping to send the kids to summer camp? Do you need to buy your own health insurance?
3. Adjust for Taxes
Take the total number of your wants and needs per month and divide by .70 BECAUSE you will have to pay approx 30% of your gross income to taxes. Let’s say you want to make $10,000/month to cover your wants and needs. You’ll actually need to make $14,285 in order to make 10,000 after taxes. ($10,000 ➗ .70 =14,285) Since 30% of $14,285 is $4,285, once we pay our taxes we are then left with $10,000. Make sense?
4. Set Your Hours
Now that you have the number you want to make, you need to figure out how many hours you want to work per week or per month. If you know you only have 5 solid hours a day to work and want to work 5 days per week, you’ll be working 100 hours per month. Divide your total monthly income by the number of hours and you’ve got your hourly rate. ($14,285 ➗ 100 = $142.85)
A word of caution: when setting your hours, be sure to build time into your schedule to take care of administrative tasks, and grow your business. If you don’t leave any time in your business to actually grow, you’re not going to have a business for very long!
If your starting rate seems too high for the work you do, you’ll have to whittle down your expenses until you get earning requirements that better match your skill set. That is simply a starting point. Ideally, you’ll get to the point where you will bill for your work (by project) and not your time. This is exercise is a place to start and allow you to calculate your monthly obligations while getting started.
Build a Reputation
My roofer didn’t show me his ladder-climbing skills or how he hammers a nail. I had confidence in his ability to solve my problem because he had a good track record, one that came from experience and people vouching for him, allowing him to charge a premium to solve the problem of a damaged roof.
When starting out as a freelancer, you should work to build a track record. This may mean charging minimum billable rates at first. The more clients you get, the more problems you can solve, the better track record you are building. Your reputation is going to speak for itself. Ultimately this will allow you to bill much more. People will pay higher rates because they have confidence that you can solve their problems.
When to Raise Your Prices
As you start to fill up your freelance pipeline and are solving more problems for more clients faster, your productivity will rise. You’ll have consistent clients and steadily be gaining new customers, causing a demand for your services. This is when your worth compounds! As your schedule starts to fill with projects one to three weeks out, you should start to raise your rates slowly and incrementally.
When people try to book your services and you’re busy for a couple of weeks, that tells them that you’re in demand, and you must be worth the cost.
This is a terrific place to be! It creates an incredible value proposition for you. Case in point: over the last 12 months, I have raised my rate four times. My schedule continues to fill as I find and onboard new clients. They know I can solve their problems for them so they are willing to pay my rates.
If you want more great tips for freelancers like pricing your freelance services, visit my Facebook page www.facebook.com/freelanceonfire. There I keep up-to-date information on my FREE freelance coffee chats, weekly freelance trainings and more!