Do Lower Rates Mean More Clients?

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Do Lower Rates Mean More Clients?

Posted June 14, 2010 in How-To, Managing Clients

Here at Freelance Folder we publish an awful lot of posts on freelance rates. Some of our past posts on rates include:

We discuss rates often because rates are such a crucial topic to freelancers. How much you charge for your services ultimately dictates how much money you can earn as a freelancer.

Lately, I’ve been hearing a lot of discussion about how freelancers need to lower rates in order to get more business. Usually, the economy is cited as the reason why rates should be lowered.

You know what? I don’t buy it. I don’t think that lowering rates is a good move for a freelancer. In this post, I’ll explain why.

The Wrong Question

I open this post by asking whether lower rates mean more clients. I gave that title to this post for a reason. That’s often the phrase that I hear when people talk about lowering rates.

However, I think it’s the wrong question for a freelancer to ask. The real question should be: will lowering my rates help my freelancing business to thrive?

The answer to the first question, about whether lower rates will net you more clients might possibly be “yes.” But, it’s a flawed question because, as a freelancer, you only have a limited amount of time. Unless you are an agency with a huge team that is willing to work for peanuts (i.e., low wages), there is probably a limit to how much work you can actually accept.

One of the aspects that makes most freelancers unique is that they can spend more time and give better personal attention to projects–time and attention that a larger entity is unlikely to provide. However, they can only offer this benefit to their clients if they are charging an adequate rate for their services.

A Look at the Right Question

If you examine the question of whether lowering your rates will help your freelancing business to thrive, the answer is usually “no.”

Sure, you may be able to scrape by on lower rates for a time–but, eventually lowering rates will catch up with you. You will have no money to invest back into your business. Here are some of the ramifications of that:

If your equipment wears out or become obsolete, there are no funds to replace it
Your skills may fall behind because you have no budget to invest in training materials
You’ll work harder to earn the same money and as a result probably cut back on your marketing efforts
If a personal emergency arises you won’t have the finances to deal with it

But, Work Isn’t Coming In

A work slowdown can be really scary to a freelancer. Even a work slowdown of a few days can cause bring a little fear into the mind of an experienced freelancer. For a new freelancer a slowdown can be almost paralyzing–Unless…

Unless you planned for it. That’s right, you need to plan for work slowdowns. To plan for a slowdown, I recommend the following:

Set aside a portion of your income. When a famine period hits your business this savings fund will help to see you through.
Don’t discontinue marketing efforts. The biggest mistake a freelancer can make is to stop marketing themselves.
Have a personal project. Filling your time with a personal project during slow times can keep you from dwelling on the situation.

Remember, if your business has been successful so far your work slowdown is most likely a temporary setback.

When You May Want to Discount Your Work

While I’m generally opposed to lowering rates simply to bring in more business, I do think that there are a few legitimate instances when a freelancer might choose to offer a discount to a client:

You are offering a limited time sale
The client offers a byline (for writers)
The client has referred additional clients to you
The client provides you with a testimonial
The client is offering you a long-term contract
The client agrees to reduce the amount of work required

What About You?

Do you believe that lower rates mean more business? Why, or why not?

Have you lowered your rates due to the economy (or any other reason)? If so, what was the result?

Share your thoughts and experiences in the comments.

Image by Brian Lane Winfield Moore

About the author: Laura Spencer is a freelance writer from North Central Texas with over 20 years of professional business writing experience. If you liked this post, then you may also enjoy Laura’s blog about her freelance writing experiences, WritingThoughts. Laura is also on Google+.

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65 Comments

Avonelle Lovhaug
June 14th, 2010 at 9:06 am

Laura – this is dead right.

Plus which, lowering the rates won’t necessarily bring in more clients – and it certainly won’t attract the right kinds of clients. The best clients are those who are financially stable and want to work in partnership with you, not ones who are picking a vendor on price alone.

By the way, I’ve increased my rates twice in the last two years, and my business has been flourishing during the economic downturn!
Jordan Walker
June 14th, 2010 at 9:11 am

I do not necessarily think that lower rates will land you more clients, figure most business people know they get what they pay for.
Freelancer Dave
June 14th, 2010 at 10:05 am

Here is the thing, sometimes you can garner some quality clients by having a higher rate. Remember, most people recognize that you “get what you pay for”. If the client thinks that you will provide a better service, I’m sure they will consider paying a premium for that kind of product. As well, somebody who charges more, appears more confident of themselves and what they are selling. Of course, just going out and changing a high price won’t always work, you have to be able to back it up with a quality product as well.
jeff combs
June 14th, 2010 at 10:53 am

Nice post! Just putting it out there, if you are ever in need of a yacht quote or shipping company, look up Yacht Exports. They do a standup job.
funny pranks
June 14th, 2010 at 11:00 am

I never work for CHEAP

I mentain high prices

And ofer to long term clients better deals then the new ones but i can’t make huge discounts i run a biz not a volunteer thing …
Sponsi
June 14th, 2010 at 11:19 am

Thank you VERY much for this topic. I have to go through it carefully. I myself have a problem with setting rates because for the last 10 years I have moved from small towns to bigger and bigger cities (+from a position of a university student until a 30-year old ‘completely formed’ professional… and I feel that I am a bit too cheap. Thank you for making me think these issues over again.
Philly lawyer
June 14th, 2010 at 11:24 am

It seems that simple if you think of freelancing in supply and demand terms and how price changes would effect the curve. The perils of lowering your rates too much seem like it could be a pitfall rendering the price drop as an altogether negative.
Daniel
June 14th, 2010 at 11:36 am

Yeps, you’re right about starting off with the proper framing of the question. Might wanna try to increase your rates when necessary. Don’t be surprised if you still find yourself continue getting clients who are probably less demanding than the ones that seem to lurk in the “lower rates” zone.
Laura Spencer
June 14th, 2010 at 11:57 am

Great comments everyone!

Rates always lead to an interesting discussion here on Freelance Folder, and this post is no exception.

While many use the economy as an excuse for low rates, like Avonelle Lovhaug I’ve found that my business is actually doing well. I believe that more companies than ever are turning to freelancers.
Laura Dossena
June 14th, 2010 at 12:06 pm

I did lower my rates, for a single client and, by mutual agreement, for a limited period of time. When my rates came back to the “usual” level, I didn’t notice any particular slowdown. Generally speaking, I found two new clients in the last six months, who are willing to pay what I ask without further ado. I’ve noticed a slowdown in the last two weeks, but I doubt (fingers crossed!) the reason is to be found in my rates. FYI, I’m a translator > Italian.
Clint
June 14th, 2010 at 12:06 pm

Cheap prices = cheap clients. The amount of money a new client has for a project is directly inverse to the amount of revisions they’ll want.

http://eyesaydesign.posterous.com/i-charge-0-per-hour

http://eyesaydesign.posterous.com/why-do-you-ask-for-50-up-front
Freelance FactFile
June 14th, 2010 at 12:09 pm

I don’t discount my rates.You wouldn’t get a lawyer or a management consultant offering to work for less, so we freelancers shouldn’t either.

The only time I charge less is when I work for charities – that’s my choice – and sometimes I don’t charge them at all.
Sumeet Chawla
June 14th, 2010 at 1:47 pm

Pretty interesting post. Charging low rates might also scare away clients thinking that the quality of the end product ain’t that good. So basically, one should charge as per the product one makes. If you are really good at it. Charge accordingly.. :)
Tedi
June 14th, 2010 at 2:18 pm

I agree, when I first built my company I fell into the cheap prices trap. I’ve quickly learned that offering cheap prices, you get cheap clients, and you get cheap referrals.

We are educated professionals and we need to keep a high standard. I wouldn’t want to get a heart transplant for the lowest price possible, just like a legitimate business wouldn’t want a cheap design that doesn’t stand out.

I got very discouraged for a while when my client base flat lined when I raised my prices, but this forced me to look at new marketing strategies and aim for bigger fish. Good luck guys!

Tedi
TK Designs web design and development
MagPlazza.com
June 14th, 2010 at 2:21 pm

I recently read a book about a company in recession time. While others are lowering prices to attract customers, that company still keep the price and offer services that beyond the imagination of the customers. Customers are very happy and refer (by mouth) to other people. Result is while other companies are striving to survive, the annual income of the company which keeps the price increases. Lowering price is not always a solution :)
Eve
June 14th, 2010 at 3:46 pm

@Clint- so true- I have had a few ‘cheap’ clients and those were by far the most difficult people to work with! Many of my higher priced clients have been absolutely wonderful!

I had a hard time with this in the beginning, I thought I needed to compete with those designers that charged ‘cheap’ rates, and I learned my lesson- since then I have been working my way up to a rate I feel good about, the hardest part for me is the fact that I have a family and it is hard for me to quote a rate I deserve when we may be having a difficult time financially- I argue with myself over it thinking that “We REALLY need money right now, and if I quote them ‘full price’ they may say no- but if I undercharge they will say yes and we will be able to buy groceries”

Thankfully, I have been very busy in design jobs, so it is finally at a point where I can feel better about quoting a large amount even if it means a no answer, because like I said above- those clients I have worked with for low rates have been a pain- and when I charge a good rate compared to my skill level and comfort I have not gotten a no yet- in fact, I am thinking I need to raise my rates again because my skill level and quality have improved with time.

Great article, as you can see this is something I struggle with frequently!
Laura Spencer
June 14th, 2010 at 4:20 pm

MagPlazza.com — That’s an interesting story. Thanks for sharing it. I think that we actually have much more control over the scope and terms of projects that we accept than we realize.

Eve, Thanks for stopping by. I can definitely relate to your situation. In fact, when I started freelancing I struggled with the same issues. I’m glad that your business has grown to the point where you feel more comfortable charging higher rates. Best wishes for your freelancing business. :-)
Scott Miller
June 14th, 2010 at 4:37 pm

When a freelancer bills hourly for their time, they paint themselves into a corner. Increasing hourly rates is tough. Expectations of value have already been set.

I know its uncomfortable for many, but freelancers should strive to quote projects on a fixed fee basis. Using fixed fee allows the service professional to adjust their pricing based upon demand and keep actual rates out of the discussion. The real benefit then becomes the ability of the freelancers to quote high if they are busy, or quote low if slow, without disclosing a rate.

A middle ground for those that can’t get comfortable with fixed price projects, is to quote hourly to outline the deliverables, then quote fixed fee for the project. More on this here http://blog.getthebee.com/2010/05/dont-sell-your-time/
Laura Spencer
June 14th, 2010 at 4:48 pm

Thanks Scott!

I nearly always bill based on the project, I think you are right on that count for most situations. However, even when you quote by the project it’s possible to quote a project rate (or fixed price) that is far too low for the amount of work that you must do. It’s tempting to quote that low fixed price to get the work into your business–but doing this all the time can be disasterous to your business…
Claudio Porcellana
June 14th, 2010 at 6:57 pm

Hello

tried to lower rates: gained only camp pains in the neck and no one job

tried (and going on) to raise rates, highlighting my medical background + my Slow Work life-style brand: new clents/jobs found

so, definitely, I agree on raise rates!
Nick - Senior Graphic and Web Designer
June 14th, 2010 at 7:40 pm

Funny, I charge charities the same rate as everyone else, but I consider my work a donation and claim it on tax as a charitable donation. They don’t end up paying anything and I get paid via a reduction in my taxes.

I normally review my fees yearly, and will put them up every second year without fail. I do turn away clients not willing to work within my charge range, but I have found the cheaper the client, the more work you end up doing for them. (or they are terrible at paying their invoices even remotely on time)

I have only reduced rates for family/friends when they need a big favour or there is the agreement of long term work.

I don’t consider reducing your rates as being sensible as you may be working more, but to make the same amount of money as before, you will have to work more hours, and that will limit just how much you can earn in a given timeframe.

Quoting by the project with the inclusion of hourly billing for authors after a certain round seems to be the best way to structure billing to account for a higher hourly rate and to give your client a clear indication of how much it will cost them to stuff you around by not being prepared in advance. (or constantly changing their mind)

I still add a few extras into projects I enjoy working on, so the client may end up with a couple of desktop backgrounds or iPhone wallpapers if I have an idea in my mind for something special that I want to add into the project just as a little ‘thankyou gift’ for their custom. It is always a case of under promise and over deliver.

But to stay in business you have to make money, and the only way you make money is by charging for your skills, you don’t see doctor’s cutting their fees to get more patients do you? Believe in yourself and your skills, and charge accordingly. You will have to work hard to get anywhere in business, but if you charge low and your clients expect it, when you get to the point where you have to raise the charge rates, you will lose those clients that are relying on your cheap charge rate. You are better off finding and working for clients that are willing to pay you for the skills you have.

Just my two cents.
Freelance forums
June 14th, 2010 at 7:58 pm

I have done both things:

Some years ago, when I wasn’t living of my work, I started working with some clients. My rates were close to those many charge, a price that would allow me to earn some decent money from my work. I had 1 client every 2-3 months. Which wasn’t bad, since I didn’t need so much money, I had my steady job.

As soon as my job was gone and I started freelancing full time, it wasn’t OK to work like this. Even if my price was good, I had too few clients to make it. So I dropped my rates. Let’s say I’d work for 1/5 of my initial rates. I had so many clients, that I’d tripled my previous wage in just 3 months of work. Now I am still working at a 1/3 of the prices I had before and I am currently choosing to work or not with my clients, the demand is this big.

So, lowering your rates do mean more clients. I’ve done tens of sites in the past 8 months and was able to also raise my rates little by little, to get to some better numbers. Since my experience grew tremendously, it’s clear I really had a good deal out of this, even if I am not getting so much money from a project, as I used to. Instead of working with 6 clients a year, I can work with way more people. More money in the end, a lot of experience, good ratings and other clients referred by my previous ones.

It’s not easy to do this, my pride took a real hit. But, financially wise, it’s been the best thing I’ve done in my life. Good talent and skills at a very affordable price. You can’t go wrong.
A. Nony Mouse
June 14th, 2010 at 10:51 pm

When I left grad school, I doubled my programming rates and was just as busy.
Ankit Sharma
June 15th, 2010 at 1:48 am

You get what you pay for :)
Niubi
June 15th, 2010 at 3:11 am

Hm, sometimes you have to lower the rates to secure a contract. I do have a personal limit to how low I’ll go, which is about 50% less than my usual rate. But even there, I wouldn’t say I’m particularly cheap. Besides, you can always shop online (ebay, dubli) to get cheap materials and save money. It’s all swings and roundabouts…
Issa
June 15th, 2010 at 3:56 am

You wrote some nice points in giving discounts. Yes, I do that for my long-term clients. Still, instead of playing it cheap, I’d rather defend my rate and tell my prospects why they will gain more if they hire me on my rate. I never sell my skills short. If you do, you can run a negative image on yourself and it will make future clients want the same work-for-peanuts deal too. I’d say freelancers need to step up, learn the art of negotiating their rates, and take pride in what they do. Power to the Freelance Nation!!!
Stephanie
June 15th, 2010 at 4:53 am

When I was still a newbie at freelancing, I thought lowering my rates in order to gain my first few clients was the trend that everyone was into. It took me months of work and a lot of visits to forums to realize that this isn’t what I should be doing at all. So I started observing the average rates that freelance writers were working for (I’m a writer) and started sticking to a set of rates both hourly and fixed that I am happy to work at. And every time I applied for a freelance gig or when a client wishes to offer a job at X dollars per hour or X dollars per project, I give him or her my rates and support them with experience, samples, and feedback from past clients.
Erik Walsh
June 15th, 2010 at 6:57 am

I couldn’t agree more and @Clint has made a good comment. In my opinion, if you are willing to lower your work’s rate a lot, to the point of being almost giving it away, you don’t really respect what you are doing. Sometimes you have no choice but to lower the rates due to the market status, but that does not depend on you. It important to respect what you do if you want your clinets to respect it and pay for what it is worth.
Lisa Raymond
June 15th, 2010 at 12:24 pm

I agree with the post and my colleagues’ responses: lowering your rates is not an effective way to gain more clients. It might work for a select few, but on the whole it doesn’t. I know from my end I feel pressured to lower my rates because of the postings for freelance work and jobs I see in my RSS. Some potential clients have even said “that’s too high” but I just thank them and move on. That’s been the hardest lesson to learn: it’s ok to not get the job. I did lower my rates to a couple of clients, but they need more hand-holding than my others, and they require the most revisions! I agree, the client will get what they pay for, so here’s a good analogy I learned last week: would you go to a discount lasik eye doctor? Or a discount CPA to do taxes for your C-corp?
Ashley Hill
June 15th, 2010 at 4:29 pm

I raised my rates about 6 months ago, when I found that with my lower rate I was attracting clients that were difficult to work with, or didn’t take the project serious enough to give me the time of day.

Now with the higher rate, I find clients are more invested in their ideas, and work hard themselves to be organized and collaborate on ideas. I’m also attracting some bigger name clients, which will lead to bigger jobs and better reviews.

As far as giving price breaks for some, when I quote a project I not only keep in mind my rate, but the potential for more jobs/more referrals and the budget of the client. I might lower my rates if the future with that client looks bright, and I definitely lower my rates for non-profits, as some are getting hit harder than us in the economy.
Mike
June 15th, 2010 at 6:38 pm

I’m totally against fixed rates, both on companies and freelancers. Here are some reasons:
-some projects are not coming with loads of $$ but can bring you fame. You need these when you start up.
-some clients can’t be addressed with small prices as you might look foolish or desperate
-if your client has a budget that is triple then your estimate, you will not refuse him but throw some extra features so that the project becomes better
-creative work sometimes can’t have a certain rate as you bill both your clients brand and of course…your brand
Gary McMahon
June 18th, 2010 at 12:29 am

Id rather be doing nothing than working for nothing.
Much prefer to be surfing rather than do a job just to get work.
Focus on value that your outputs will give the client rather than the inputs (rate per hour mean nothing really). check out Alan Wiess’s stuff.
I offer my clients three choices (fixed prices) at variying levels of VALUE to them. Option 3 is designed to scare them (and me sometimes) but if you are genuine in your value proposition it’s not too hard for them to chose the top option. The hard bit is working out your value (i.e. the outputs of the project rather than what’s involved in the input side). first time i did this took around 20 hours to do, now around 3-4 hours per quote, but definatly worth it as most (65%) clients pick option 3.
Sometimes, if times are quiet and teh client asks for a reduced price, I’ll ask them what they want me not to include and i’ll happlly oblige.
Aida
June 19th, 2010 at 7:00 am

I agree, first as a freelancer and then as a teacher of translation.
This is a topic that was already complex before the economic crisis, but now it is a real debate and my students are always asking about this and I do not have an easy answer.
I agree specially with your remark about time issues for a freelancer. When you work on your own, time is very important, either you dedicate all your time to your craft or you start thinking about raising rates in order to get a life. In Spain the situation is very hard as agencies and clients are asking, well, demanding us to cut rates, which means not only not raising them but reducing the ones that we had already agreed a year ago.
I have kept my old rates but I know should raise them, but I am really not in favour of cutting rates or accepting projects for half the money.
Verónica García García
June 19th, 2010 at 12:49 pm

I agree with you to an extent. I graduated a year ago and I’ve been struggling to find a job and to get projects to do, I started offering the normal rates and people rejected me because they thought they were too high. I do have a limit, I won’t work for a misery because it doesn’t give value to my work, I’d rather work for free for some kind of organization instead. I have had cases in which I’ve been told they couldn’t pay more than X which was my low limit and I accepted, because I need to get experience and contacts, and also I’ve tried the waters offering higher rates but a bit lower than it should be and I’ve had positive and negative responses. I think it depends a lot on the situation, and today’s economy situation DOES play an important role, there’s much more competence and there are many factors to be considered when picking up a professional. While I lack the experience, I may lower the rates just a little bit.
Kirti Vashee
June 21st, 2010 at 7:41 pm

Some of the reasons for lower prices are structural and beyond the control of any individual freelancer

See: http://kv-emptypages.blogspot.com/2010/04/falling-translation-prices-and.html
Claudio Porcellana
October 27th, 2011 at 5:42 am

Hello

I received a message from a poster named Heating that commented: I sympathise with you.

I cannot see such a guy here, anyway a lot of water has passed under the bridge since 2010 and in 2011 my revenue is simply halved!

I maintain my rates that are on average between EN>IT ones, but observing the international situation, and above all the disastrous Italian one that is very close to Grecian situation, and knowing some Grecian peer sthat are facing enormous problems (due to lack of jobs and low rates), I’m not sure that I will be able to maintain my rates in the future

we all have to be realist: we have a power if our leverage is strong enough, but is something breaks it, we can do nothing but waiting the coming of better times
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April 26th, 2012 at 8:47 am

Fantasic post – Thanks a lot.
Freelance Strategy
April 27th, 2012 at 6:12 pm

Great post and fukll of great advice. My experience is that you can lower your rates but need a solid track record to demonstrate the client is not taking any risks with you.
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