If you get this decision wrong, you could be paying for it for a long time. The wrong rate could ultimately even cause your freelancing business to fail.
There are many different opinions about what a freelancer should charge. No one rate fits every situation or every freelancing specialty. There are, however, certain general principles that every freelancer can use to determine what they should charge.
In general, setting your freelance rate should be based on three factors:
- What you need
- What your competition charges
- What the market will bear
What You Need
Your freelancing rates need to be adequate to meet your needs.
Not only do your needs include your personal living expenses (what would be called a “wage” at a traditional job), your needs should also include your overhead and any project-related business expenses that you incur.
If you are in business for the long haul, then your rates need to be adequate to cover overhead costs. (Many freelancers forget about overhead when they are starting out.) Overhead costs include:
- Marketing your services
- Accounting and collections
- Office equipment
- Software expense
- Record keeping
- Professional education
- Health insurance costs
- Down time and sick time
What Your Competition Charges
The price that your competition is charging to provide a similar product or service is another key factor in determining your freelancing rate.
There are number of resources that you can use to discover what your competition charges, including:
- Freelancing income surveys. Many professional societies conduct periodic income surveys. Such surveys often include freelancers. Try to find the most recent survey that pertains to your specialty.
- A comparison with what in-house professionals earn. Personnel and recruitment offices frequently update in-house salaries. You may be able to get this information from a human resources professional or from a publication targeted to human resource professionals.
- Competitor websites. Many freelancers publish their rates on their website. If you use this method to find out what your competitors charge, then be sure to check on more than one competitor’s website.
A good rule of thumb when setting your rate according to the competition is to stay towards the middle. You probably do not want to charge the highest price for your services, but you should not charge the very lowest price either.
What The Market Will Bear
Freelancing is particularly sensitive to the market principle of supply and demand. If many freelancers are offering the same service and there is not much demand for it, then rates tend to drop. Conversely, if there is a lot of demand for a particular service and very few freelancers who offer that service, then rates tend to rise.
As a freelancer, you may find that you have to periodically re-evaluate and re-adjust your rates to meet the current market situation. Over time, you may even notice certain trends in your field. You may wish to adjust your business model to take advantage of those trends.
If you do find yourself freelancing in a specialty where the freelancer supply outpaces the demand for services, then you may want to consider adjusting the specific services that you offer. Ask yourself if there is there a slightly different, but related, service that you could offer that most other freelancers do not currently offer.
Share Your Pricing Strategies
Have you been freelancing for a while? If you have, share some of your experience with choosing your freelance rates.
What method did you use to determine your prices?
What rate-related pressures have you felt?
How often do you adjust your rates?