I took the most recent salary from my former full time job and translated that into an hourly rate. I’ll probably increase it 3% every year.
How To Set Your Freelance Rates (An Overview)
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?
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March 5th, 2009 at 1:00 pm
Very well said, Laura.
Though I do take into consideration what others charge, my niche — the auto industry — gives me some leeway. I tell my potential clients that I not only know the industry, but I have connections with many of the movers and shakers, people I’ve met, interviewed and keep up with. This gives me an edge, I believe, over many others, something I’m not shy about sharing with them.
I will also give a bulk, ongoing rate to clients who promise to use me to produce “X” number of articles over a “Y” timeframe. Those who meet that criteria get my prevailing bulk rate, which is a secret. ;-) Finally, I may incentivize things such as provide a free link on my automotive blogs as a bonus. That link stays put as long as they use my services — when they leave, the link goes too.
March 5th, 2009 at 1:44 pm
I’ve adjusted my rate a few times in the last 6 months, partially because demand was up for my services, and partially because my clients were getting bigger. Something that surprised me was that I actually started to get more and larger clients as I raised my rates…there is a psychological connection between price and implied quality, so I think a lot of clients will actually feel better hiring someone who costs more (depending on that industry, that is).
That being said, you DO have to deliver some very solid work very quickly in order to raise your prices; it’s not enough to simply want to charge more, especially in this economy.
March 5th, 2009 at 1:45 pm
Thanks Laura for the Excellent Post!
I want to ask that if any one is new to freelancing then how should he/she charge for the service he/she is providing.
As he/she want to make some position in the market & already there are lots of competitor.
March 5th, 2009 at 2:06 pm
Hi Matt and Colin!
Thanks for sharing your experiences.
Colin – it’s really interesting that your clients got bigger as you raised your rate, but I don’t think that you’re the exception. Bigger companies know what the market rate is for services and that’s what they expect to pay.
Nikhil – you raise an interesting question and I’m sure that you are not alone. First of all, you should ask yourself what qualifies you to do this work. Is it a degree? Is it corporate experience? Is it something else? Be sure to keep that in mind when setting rates.
Next, if I were you I would look for surveys about rates in your field. Typically, the results are expressed in a range. Often the ranges are correlated with years of experience. The survey results should give you an idea of what your rates should be.
March 5th, 2009 at 4:50 pm
Thanks for this! Very helpful as I am just starting out in freelance.
March 5th, 2009 at 5:08 pm
I would be interested information on obtaining freelancing income surveys.
As for the comment on competitors putting pricing information on their websites. In my experience (key phrase!) I had a hard time trying to find this information online. When I was doing a project for my marketing class, I was trying to come up with an idea on the going rates for a website. I found that in most cases web design firms didn’t publish pricing information online.
March 5th, 2009 at 7:03 pm
As you point out, it can be difficult to find a competitor’s information. Some publish it on their site. Some don’t. Is there a society or organization for web designers? Check to see if they have a survey.
Also, Freelance Switch has one available that you can buy.
March 5th, 2009 at 10:12 pm
For me, since I’m the sole wage earner and I have a mortgage, there isn’t a lot of choice in the matter. I have to make a certain amount in order to cover all my expenses not to mention quarterly estimated, retirement savings and non-billable hours. If the bare minimum to cover those is more than the market can bear, then back to brick and mortar for me.
March 5th, 2009 at 10:48 pm
I think this area is especially tricky for new freelancers. I dove straight into freelancing after college, so there isn’t a whole lot of experience to fall back on. I’m making a reasonable hourly rate (reasonable in terms of what I would probably make at an in-house job) now, but there aren’t very many of those hours in a week.;-)
The clients I have are satisfied, but it’s been an uphill battle to convince potential clients to trust someone with little experience. I guess it just takes time . . . it’s always an encouragement to know that there really are professionals out there making a real income freelancing.
LexiMarch 5th, 2009 at 11:05 pm
I’ve had the same experience as Colin. I raised my rates and ended up getting more clients than ever. I do justify my rates by bundling services together and always going the extra mile. Specializing also allows freelancers to charge more than the generalists. I also invest a lot in my continuing education and my clients appreciate that.
March 5th, 2009 at 11:11 pm
I love the discussion on this topic!
Thanks everyone for pitching in with your own personal experiences.
Keep the comments coming!
March 6th, 2009 at 1:38 am
Some of the best advice I ever got in regards to pricing:
“Negotiate scope, not price.”
bogdan popMarch 6th, 2009 at 4:12 am
I always look my client’s company background before I pitch his project. I check out the number of employees, past financial results to see the actual profit of the company, business figure etc. Than I can pitch based on my quality of work, and based on how much his company can spend.
March 6th, 2009 at 11:49 am
Great Topic! I always start the pricing negotiation high and work back from NO. I then consider if there are extras and add ons I can plug in to get the work at my preferred price, rather than use price as the only factor in the negotiation.
I talks about negotiation for freelancers here: http://www.simonstapleton.com/wordpress/2009/03/04/freelancing-negotiation-start-with-no/
March 6th, 2009 at 12:14 pm
Great comment Simon!
It takes a lot of self-confidence to be willing to work from an initial “no.” I think most of us are afraid of the initial rejection.
March 6th, 2009 at 1:36 pm
I tend to do Freelance Work on a Project basis where a fixed price for completion is negotiated. The calculation is based on the Clients budget and the scope of the Project as well as an Hourly/Daily Fee. With a separate contract for Usage and Copyrights. In certain cases this can lead to a reduction in the “Hourly-Rate” especially if your Client-Management Skills are low. I find generally though that jobs should be based more on the Projects “Value to the Client” and its “Value to Me” and not on the “I get so much per hour” basis
March 6th, 2009 at 2:36 pm
I’ve fount that my clients barely care when I raise my rates. I always worry that there’s going to be some push-back and that I’ll lose some clients, but then everybody’s perfectly fine with it. If you manage your customer relationships well they’ll pay the extra to stick with you.
March 6th, 2009 at 4:49 pm
Thanks for the great advice on setting rates. I’m just getting started in freelancing after some conversations with a former co-worker. I’ve been doing web design and internet related projects over 10 years between call center jobs. I’m tired of the corporate environment and returned to school to study Internet Marketing online. I’ve been to several freelance sites like Elance, oDesk, iFreelance, RentACoder, Guru and GetAFreelancer.com. My question is do you have any advise on writing a good proposal? Do you know of any articles already written on the subject?
March 6th, 2009 at 10:51 pm
I work as a technical writer. Because I have a knack for it, I’ve been revising resumes for a few friends hurt by the economy. A close friend of several years was ordered to axe most of her department. She is upset enough about it that she asked me to look at her resume. Of course, I said I would. I have not been charging for the resumes I “do” thus far. My friend, however, knowing I’m trying to set up a home-based writing business, said she would pay me. I have no idea what to ask. She’s a good buddy of mine, and I would do it for free in a second, but that would make her feel worse about it. So, I need HELP on setting a decent honest rate that I will feel good about charging and that she can pay without killing her wallet. Hints, tips, and suggestions would be gratefully accepted.
JamesMarch 7th, 2009 at 12:30 am
i’m usually calculating my base rate with this tool: http://blog.hexagonstar.com/feat/ and then make adjustments on a per-project base. these adjustment mostly depend on how challenging the work is or how fast it needs to be done. there are also three rules i’m taking into account: 1. is the job fun/interesting? 2. does the job pay high? 3. do i get connections through the job that might be useful in the future? the job should at least reflect one of these rules for me to accept it.
March 7th, 2009 at 9:30 am
Lots of great questions and feedback on this thread!
Thanks for the tool James – I’m going to take a look at it.
Craig, you ask a good question. Since the resume is for a friend and you don’t intend to set up yourself as a resume writing service, I would just charge her for your time. So, if it took you an hour to do, figure out what you would normally get in an hour and charge her that.
DJ, some of those sites provide their own guidance on how to write a proposal for their bidding system. First, make certain that you have looked through the site’s help system and understand the information there. I also know that several freelancers are selling e-books on this topic. Good luck!
March 7th, 2009 at 10:37 am
@Laura – Thanks for the feedback. Makes sense to me, but how do I figure out how much I get in an hour? I don’t *get* anything per hour. I don’t have a rate.
March 7th, 2009 at 10:57 am
Generally speaking, if you are salaried take your annual salary and divide it by 2000 hours to come up with a rough hourly rate. (2000 hours is the same as 40 hours a week x 50 weeks).
Ordinary freelancers should charge a bit more than what this calculation comes to because the calculation above doesn’t include the overhead costs of your business. For your purposes, however, this will work.
If you’re not working, or if you’ve never worked, then you may have to use an average hourly figure for the type of work that you would do if you did work.
March 7th, 2009 at 11:29 am
@Laura – Thanks. am a newbie at this. I used to do resumes for free, but I have two people willing to pay me for them. I guess I’m in business now, after all. I need to look at the DBA/Sole Proprietorship thing.
March 8th, 2009 at 11:11 pm
Hi Laura! I also used my pay in my last full time job to compute my hourly rate and compared it to the current market rate. I just raise it or lower it depending on the demand. There’s a big market in my country for freelance writing at the moment so I have to compete with a lot of people for jobs… so the rates are not that high at the moment.
March 10th, 2009 at 4:26 pm
Great post! Very useful – if non-specific – information. Here’s a golden rule of thumb I work with, and advise my consultant clients to use: 1/3 = for the tax man, 1/3 = overhead and reserve for in-between-assignments, and the remaining 1/3 = your disposable income.
Your rate can come down a bit for projects that last longer, because the longer you don’t have to go out and market your services and cover the period of no income, the less you reserve of the middle 1/3 (overhead/marketing). If you are free-lancing through an agency, the middle 1/3 doesn’t really apply to you (that’s their mark-up …).
However, by just taking your old full-time monthly salary, as one commenter responded, and dividing it by 180 hours (=avg hrs/month) to get your hourly rate, you are doing yourself a great disservice … even if you add on 12% in lieu of benefits, you’re still not covering the costs of administration, taxes, insurance, worker’s comp premiums, private health insurance, etc. And you can be out of work from one day to the next – no employee protection whatsoever.
As for another commenter, who noticed that his clients were getting larger as he raised his rates: there is no such thing as too expensive (providing you fill a niche and provide value). But there is definitely such a thing as “too cheap”. People *gets* what they *pays* for, after all, and businesses understand that.
DanJune 7th, 2009 at 6:01 am
hi, can i know where can we view surveys result about rates in graphic design field.
February 2nd, 2010 at 11:07 pm
sorry for the double post, but i forgot, i wanted to tell dan that lancemonster.com has alot of graphic design type jobs avilable, i do php scripting and dont know much about graphics, but lancemonster.com is having a graphic design competition now. the winner get $500 and i think its free to enter your design. I know this don’t help with your question about serveys but since your a graphic artist, i thought you may be interested.
July 14th, 2010 at 12:26 am
WoW! These are some GREAT tips and I will be sure to use them right away, THANK YOU so very much!
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