The Great Freelancer Pricing War

It’s a war out there–or at least it can feel like one when it comes to the prices freelancers charge for their services.

If you’ve ever had a client balk at the price you are asking for your work, then you can probably relate to this post.

The purpose of this post is NOT to tell you how you should decide to charge your clients or how much you should charge. There are plenty of posts out there for that already. Instead, this post is intended to outline some of the pricing dilemmas that freelancers face and maybe provide a few tips to give you an advantage in the great freelancer pricing war.

At the end of the post, I’d also love to hear how (or if) you’ve addressed these dilemmas in your own freelancing business.


Hourly vs. Project

The first dilemma that freelancers face is deciding whether they should charge by the hour or by the project.

Freelancers, themselves, disagree on which method of billing a client is best. Those freelancers in favor of charging clients by the hour say that it protects them from scope changes, unexpected client meetings, and other time drains that could ultimately cause them to earn less. Those freelancers in favor of charging by the project say that they can earn more overall by working quickly and efficiently and that clients also like it because they know up front how much they will pay.

Guess what? Both sides are right.

In my opinion, there are times when it is appropriate to bill by the project and other times when it is actually best to charge an hourly rate. Charging by the project is the most profitable option if the project scope is clearly defined and you are very familiar with the work required. However, if the scope is vague or you have limited experience with a particular type of work you may actually be better off charging hourly.

The Trouble with Market Rate

Have you ever been told that you should charge market rate for your freelancing services? Me too.

The trouble with charging market rate is that there isn’t just one market rate. That’s because, as much as some people would like to tell you otherwise, freelancing really isn’t a commodity.

Think about it. When you go to the grocery store to buy a banana, they are pretty much all the same. You likely only have two choices to consider: organically grown or non-organically grown. Otherwise, bananas are basically all the same. There’s a clear market price for organically grown bananas and another clear market price for non-organically grown bananas. (Okay, possibly there’s a third market price for overripe bananas.) Your choice is easy.

It’s not that way when it comes to choosing a freelancer. All freelancers are not basically all the same. There are just too many variables to consider, which is why there isn’t a clear market rate for freelancing services.

Here are some of the variables that affect what a freelancer charges:

  • Innate ability
  • Specific training
  • Years of experience
  • Industry-specific knowledge
  • Whether the freelancer is specialized
  • The reputation of the freelancer
  • The freelancer’s availability
  • The freelancer’s reliability
  • The cost of living for the freelancer

As you glance at the list, you can probably see why choosing a freelancer is more complex than buying bananas. And, those are just a few of the variables that affect a freelancer’s rate. You can probably think of others.

Charging What You Need to Live

Many freelancers will start with what they need to live on and calculate their rate from there.

While it’s true that you definitely need to be able to live off of what you earn as a freelancer, starting with your living expenses is not necessarily the best way to calculate a rate for yourself.

First of all, your client doesn’t really care about what you need to live. Okay–well, some of them may care, but your cost of living isn’t what’s going to drive a client to purchase your services and to pay you fairly.

If your cost of living isn’t what you should base your rates on, what is?

In my opinion, the answer is value. Clients and potential clients are very interested in receiving value. If you can demonstrate that you provide value through your services, clients are likely to purchase AND to pay what you ask too–which means that you can earn enough to live on (and then some).

The Volume vs. Quality Paradox

Sadly, there are always a few freelancers who think that they can make up for charging a low price for their services by taking on a high volume of work. Some may even try to charge the lowest rate.

At first, this strategy for getting clients may seem to work. If you have extremely low rates, “clients” will probably flock to you, looking for a bargain. When you need just a bit more money to survive, what do you do? Well, you have to take on even more clients so that you can earn more.

The trouble with this strategy is that when a freelancer’s volume of work increases, the quality almost always eventually slips. Sure, some freelancers will be able to maintain a high volume of work for a while.

But in the end, you’re not a banana (see my earlier illustration). You also don’t have an endless supply of time. There’s more to consider when determining your rate than just the dollar amount.

Should You Be the Middleman?

Another rate dilemma that freelancers face is whether or not to outsource their freelancing work. This strategy allows a freelancer to take on more work than he or she would be able handle alone. A freelancer who does this can transition from being the provider to being the client.

However, this strategy is not without its drawbacks. Here are few of those to consider:

  • As a middleman, you are ultimately responsible for the quality that the end client receives. This may mean stepping in to revise or redo the work of one of your subcontractors.
  • You have to make sure that you understand the end-client’s request and convey it to your outsourced workers accurately. A middleman can sometimes be the source of communication difficulties.
  • You need to charge enough money for your services to be able to pay the freelancers you have hired AND take a portion for yourself. This may put your rates near the top of the market for your services.

How Do You Deal with These Dilemmas?

How are you faring in the great freelancer pricing war? How do you overcome some of these issues?

Share your answers.

Image by tauress

Comments

  1. says

    I feel that if you carry yourself in a professional manner, know your stuff, and can articulate that you know your stuff, than you can charge a rate that makes you and the client happy. Once that is done, do a great job. The client will refer you to others they know, probably tell them what you charge, and you should get some calls.

  2. says

    I have had several clients choose other freelancers over me based on pricing, and they even tell me that my prices are very fair. It can be difficult to compete with freelancers charging rock-bottom prices, but it’s better to work with clients who appreciate the value you are offering. Thanks for this post, Laura.

  3. says

    Thinking on hourly vs per project, I personally am a huge advocate of per project. Mainly because of the question why should I be paid less for being more efficient? If I dedicate the time and effort into mastering my tools, including things like shortcuts and organizing files logically and developing resource libraries at my fingertips… all things to speed up the process… why should I be paid less for having done that? Hourly really doesn’t make sense if you value an optimized workflow.

    That said, there is one client I know who wants virtually infinite revisions at his fingertips… hourly is the only way to cope realistically with that, he’d balk at a per revision charge but doesn’t mind paying for the time spent in the form of an hourly charge.

  4. says

    Hi Brett! You make a great point, because time after time our readers have told us that referrals are the number one means of getting clients. That being said, I think freelancers still struggle with how to set their prices–especially new freelancers who may not have gotten that first client yet.

    Rachel–You’re absolutely right. Rejection is a part of freelancing and often it’s not the freelancer’s fault. When that happens, all you can do is move on.

    Andrew Osborne, I think that most clients prefer the per project method as well. At least that way they know how much they will pay. It can really benefit a freelancer who works quickly and is very familiar with the work–however, I’ve also seen it harm freelancers on very large projects or on projects with lots of scope creep. (Your client with lots of revisions seems to fall into the second category.) I’ve know of freelancers who bid using the project method and wound up working for less than minimum wage simply because they underestimated the amount of work involved. Some freelancing professions face this dilemma more than others.

  5. says

    strangely enough I’ve only ever had issues with other freelancers sub contracting me. I charge less for other freelancers so they can put in their mark up and yet they are the ones that complain about my rates. It seems they are willing to charge full price for their services but expect much less from others wich I personally find odd (not talking in general here, just from recent experience).
    I know I pay sub contractors their rate plus my markup. Not what I feel like quoting and bargain the sub contractor down to make profit.
    As a freelancer, my clients know they are getting quality without the agency prices. Even though I charge higher than some freelancers in my area, it still compares well against agency pricing.

  6. Dp says

    Andrew makes a lot of sense. When you get paid a project rate, you are getting paid for your experience and expertise not the hours you work.

    Learning to gauge projects accurately and having a contract with some fail-safes in place is much more profitable and ultimately more satisfying than an hourly wage.

    I would even go so far as to say that it is more professional to charge a project rate.

    So it goes…

    -dp

  7. says

    A THING TO ADD

    Hey Laura …

    The “charge what you need to live” is, I would say, one factor of many to be considered in your pricing and you’ve pointed out many others.

    One thing I’d like to add is that “VALUE” is something the client evaluates.

    Just because (say you’re a web designer) know 10 different coding languages, if the client is mostly concerned with a good looking site, your extra skills are not very valuable to the client – tho you may think you’re more valuable.

    However, if you explain to the client that in your quality assurance process, you get feedback from 100 other web designers to ensure a great design, then client will feel you’re adding a lot of value.

    Incidentally it doesn’t have to take you much time to add this value, but the client may see it as tremendously valuable.

    Good to read your articles.

    Kenn Schroder
    GetWebDesignClients.com


    Web Designers: 8 Mistakes that Stop You from Getting Clients

  8. says

    Timely post, Laura. I charge by the project most of the time, but do charge hourly rates for certain revision requests and for certain types of research, when the topic is one I’m not really familiar with (as you mentioned in the post). My biggest dilemma recently involves calculating how to quote a project that touches on new territory. I’m grappling with this now as I go back and forth internally about ways to come up with a quote that is fair to both my client and me — I’ve underbid this sort of thing once before and don’t ever want to experience that again! Since I’m familiar with the core topic, but not the details of exactly what the client expects to see in the final product (regarding detail), I think I’m going to quote the entire project and base the calculation on other projects I’ve successfully quoted and delivered of similar length and scope in the past.

  9. Hengist says

    Basically, I think one should charge ‘clients’ as much as possible. Considering the precarious nature of freelance work, the need to fund one’s own pension and so on, merely making ends meet is not good enough. Appeals to ‘market prices’ always seem to be made by those requesting translators’ services.

    Hardly a week goes by without an idiot pointing out that one can find someone living in a mangrove swamp on the outskirts of Bombay willing to tender a few rupees to translate any language pair under the sun—Wolof to Serbo-Croat, you name it. To my mind, this does not remotely constitute a ‘market’. One might just as well make random telephone calls around the world and discover what desperate fool is willing to work for even fewer peanuts.

    ‘Clients’, potential or otherwise who just go for the cheapest rates should be avoided like the plague. It is no coincidence that they are usually the least linguistically aware, set impossible deadlines, are slow or bad payers and often write appallingly in their own language. Extending the analogy in the article, translators are not bananas but many (though not all) customers act like monkeys.

  10. says

    I’m actually working on a blog piece about this right now – it’s been a topic of discussion for as long as I’ve been in the business – hourly or project – or even day rate. In today’s market, it’s become challenging to say the least.

    The biggest struggle right now for me is that many of the shops I worked with have closed their doors. I’ve seen a growing trend of businesses stepping away from traditional ad agencies and working with ‘Find Me Find Me Find Me’ SEO shops (which want bulk, not quality and often pay per word). I’ve also seen businesses trying to fend for themselves ie: posting jobs on freelance sites and Craigslist.

    My observation is that the clients either A) don’t know how much to charge so they set very low amounts and people have become so desperate that they pounce at once on the jobs and devalue the service or B) the client doesn’t know what to charge and people who are trying their hand at freelancing are offering cheap prices to win the business, thus devaluing the service. (These people I refer to as peddling in low gear – they wind up doing more work and not getting very far as far as someone who peddles in a slightly higher gear and paces themself.)

    I’m aware that the more work that gets outsourced, the lower the rates drop stateside to remain competitive. So I’ve been looking at these bid sites and over the past week I began submitting things that seem interesting to me. But I keep wondering how to compete in this new dynamic when the going rate has dropped to almost third world rates? It is the quality v quantity struggle but it’s seems more pervasive with an internet that keeps expanding like the universe.

    I could make more money folding sweaters at the Gap than writing copy on some of these jobs and other than being forced to listen to Top 40, it wouldn’t be as mentally exhausting. One job posting on a freelance bid site was for an educational website wanting 40 pages of copy with 400-500 words per page. The budget was $500-$1000. Now maybe it’s just me, but I nearly spit my coffee across my keyboard and thought for sure, there were zeros missing. But nope – and there were people a’bidding left and right.

    I received a work request a few months ago for an ad campaign – including billboards. They wanted to pay me 10 cents a word. I know this is common in journalism, but I’d never heard of being paid per word in traditional advertising. If I came up with “Just Do It” – I would’ve made thirty cents. “Think Different”- twenty cents. Forget about living wage, I can’t even buy a pack of gum with that.

    My rates aren’t obscene but they aren’t cheap. I’m often told I charge too much and a potential client will choose to work with a writer that’s cheaper. In those instances I wish them the best of luck and I tell them to think of it this way – “I’m drywall – you get what you pay for. Save yourself some money now, and before you know it, you’re replacing everything.”

    It’s definitely a challenge. As a result, last week I wrote the obituary column for Copywriting. http://tiny.cc/i0nbn

    Interested in hearing more on this. With that, I will leave you with a conversation I had yesterday:

    Client: Can you translate this for me from Spanish to English?

    Me: Sorry, I don’t speak Spanish.

    Client: I don’t want it spoken, I want it written.

    Welcome to the new reality.

  11. says

    There are always clients who go the cheap stuff, just like people who go into stores. There are cheap people and people who recognize “you get what you pay for.” The only difference is that this mindset is transferred to the web.

    When a high end store makes high quality products, they don’t drop their prices at the complaint of one cheap person. They create their products in a certain way and they have their own market. Cheap people go to walmart/dollar stores and that’s what they see. They don’t see the value, they see “I have to squeeze every dime I got.”

    High quality clients understand value and that is the reason you should work with them. Low quality clients will always try to rush you, be unprepared, and burden you with their lack of awareness when it comes to the value you provide. People who are willing to pay for good products often have a plan in mind, and if they are willing to pay real money, they have something at stake too.

  12. says

    Great post Laura! It’s not strange to me that some freelancers would churn out what they call “articles” at unreasonable prices in order to beat the competition. But, why would I join them in a stressful work that would drain all my energy and wouldn’t even pay the bills at the end of the day?

  13. says

    Daquan, you said,

    “High quality clients understand value and that is the reason you should work with them. ”

    I think it’s our jobs to point out that value.

    Some ways to do it:

    1 – really show you get the client’s situation
    2 – show how you’ve helped others in similar situations (if you have)
    3 – have and keep your site fresh, spiffy, etc
    4 – clearly explain how you work and things that make you especially valuable to the client
    5 – a well written proposal with a solution that makes good fitting sense
    6 – lots of value pointed out in you proposal

    Kenn Schroder
    GetWebDesignClients.com


    Web Designers: 8 Mistakes that Stop You from Getting Clients

  14. says

    Awesome Article and I agree on all points.

    When it comes to the debate on Hourly vs. Project, I choose project. Why? Because it covers me and I can bring the best VALUE to my client.

    However, this doesn’t mean I don’t have a hourly rate. I have a estimated hourly rate depending on the service, be it web design or a logo design. I have taken a hourly rate times by 2 and offered that as my project rate. Clients don’t realize I am charging them by the hour. To protect myself, I make it very clear exactly what the client is getting for that price and that if anything is added then the price may very well go up.

    When I get a client that is price shopping. The first thing I do is gather all the information on the project I can. I want my quote to be as accurate as possible the first time around so if they decide to come back to me, I’m not upping or changing the rates. I’m not out to rob my clients pockets, I generally love what I do, and I charge what I need to charge to live comfortably.

    Once I gather all that info, and I go to present the quote to the client, I first state everything they are getting for the money. Most clients out there (at least most of mine) usually have no clue about design be it graphic or web. They have no idea the time and the stages you have to go through. So I break it down, and show them what they are truly getting for their money.

    In the beginning of my freelancing days, I was cheap. I charged extremely low for high quality designs. However I didn’t do that for long. I started cheap and gradually raised prices. This helped build my portfolio and a client list.

    It’s okay to start with Volume but I don’t recommend it for long term.

    I’ve done the middleman thing a few times and as stated in the article it can top out the pricing. I have 2 other freelancers whom I sometimes source out work and vice versus. Because of this, we lower our rates so it’s not as high or we exchange services for the future and I’ll charge what I normally would and I can still be competitive.

    I will say this, when it comes to pricing, the one thing I struggle with is I’m afraid to charge to high. While I know there are design studios getting paid $3000-$5000 for a website, I couldn’t swallow charging that. Maybe that’s wrong I dunno, but for me it’s extremely hard to put a price on what I love, because its not just a job to me.

    I do believe this will get easier as the quality of my clientele rises. Some clients just don’t blink when you state a price and others just balk at the price.

    It’s not easy to find a happy medium and so sometimes basing pricing off the industry of the client and type, is not a bad thing. Just have a price range in mind for that service.

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