Why Your Rates Are Painfully Lower Than They Should Be

When you take on a new project, you take on a very specific per-hour rate – either an agreed upon rate ($40/hr, and I told the client it should take about 10 hours) or a per project rate ($400, but I think it will take 10 hours, so that’s $40/hr). But for far too many freelancers, that rate is never, ever achieved. In fact, most will face the reality that they make far less than their intended rate. Why so? Because a) they fail to estimate the scope of the project correctly, and b) they don’t get honest with how long things really take.

The Accidental Lies We Tell Ourselves

Take web design for an example.

  • You think back to the last site you made and think, “Hell, I did that in 10 hours. Easy peasy!”
  • You tell Mr. Client it’ll be $400.
  • You get to work.

Then reality sets in.

  • Mr. Client’s site was a little more complicated than yours was, so it takes longer to code.
  • Mr. Client isn’t living in your head like you are, so you have a lot of back and forth email / phone calls / web conferences to get clarity on stuff.
  • Your computer keeps crashing for no good reason. It didn’t do that last time.

Suddenly 10 hours comes and goes. So does 15. Soon, your rate-per-hour has taken a huge turn for the worse.

The Easy Way To Make Sure This Never Happens

You want an easy way? Get a magic wand. There is no easy way – delays, setbacks and unforeseen events are just a fact of life. But they don’t have to affect your profits if you learn to become a better estimator of how long things really take.

And the way to figure out how long things really take is to track how long things really take.

That means when you sit down to work on a project, keep a daily log and track how long you expect things to take and how long they really do take. Most people will never do this because it’s (gasp!) work. Then they moan and complain because they are working too hard to make a living. Don’t be one of these people.

Tracking Time Is Your Way To Stress-Free Profits

Keeping a daily log is a magically delicious way to make sure you don’t water down your rates on upcoming projects, because of the power of awareness:

  • You promise a project for $400, thinking it should take 10 hours (yay, $40/hr!)
  • Harsh reality comes a knockin’; the project takes 15 (and you track this)
  • You smack yourself, realizing you only made $27/hr after all.
  • Next project comes around – but this time your wiser, wants to make $40/hr self says “That’ll be $600,bub.”
  • The project takes 15 hours, though you tried to do it in 10. But you still win!

It’s not always this cut and dry, but the more you track how long things really take, the more you realize that a certain amount of wiggle room has to be factored into all projects. And by tracking your results, that estimate becomes more accurate over time.

Which means you know to adjust your project details/rates so you’re getting the pay you want, and you win. Huzzah.

Now start trackin’, boss. Your rates depend on it.

Dave

(For more rockin’ good tips, head over to Dave’s productivity blog and enjoy.)

Comments

  1. says

    You are right,we should estimate the real working time. In my opinion,if you think a project will take you 3 hours,it will take at least 6 hours in fact. So be honest and smart .

  2. says

    I’ll admit I’m not doing this on for all my projects, but truthfully I’m less worried about the smaller efforts – I seem to hit the mark for my estimating on those fairly well. But I’m a bit worried that for larger projects (those longer than a week) that my estimating skills may be less precise. Since I charge by the project, that could be dangerous!

    So, I’m tracking my time on this one. So far so good. It is painful to do, but I agree that the results will be well worth it. Good tip!

  3. says

    Great post, Dave! And couldn’t come at a better time. I’m doing this “keeping track of time” thing for a while now. I was wondering whether I’m the only time obsessed freelancer out there. It’s reassuring to know that keeping track of time is something other freelancers do as well. ;)

    At first, I did it only on hourly rate kind of projects, but now I do it all the time and it helps a lot!

    @JamieO: You might want to check this: http://rubiqube.com/paymo-free-web-based-time-tracking/. Like I said, I started using this app and it’s awesome. It has clients, projects, reports, etc.

  4. says

    I’ve definitely been guilty of underpricing myself in the past, but it’s usually because the market “seems” to demand it. Maybe it doesn’t, but I guess you have to try to find out.

  5. says

    I see too many hourly rates set by “what I need to earn”. Tracking the time required to accomplish a project seems to be a better way of setting the rate. I need to be worth what I need to earn.

  6. Gary McMahon says

    As a consulting ecologist, my problem has always been trying to determine exactly how much time something will take, as most of my projects are completley different (surveys over different areas/terrain etc.
    I’ve been using Paymo free for the past 2 months and cant believe its free. I’ve scared myself on how little I have made on some projects, but now, at least I know.
    BTW, I asked paymo for some tech advice, not expecting a prompt answere being a freebe, but recieved a response within 12 hours (I live in Australia, hence way different time zones)- amazing.
    my business costings and plannigs are now incorporating my new information and existing clients are not balking at the increase in quoting as I can now back up with data.
    Cheers from sunny West Oz.

  7. says

    Here’s another drain on your time and which lowers your hourly or project rate: procrastination. The more you procrastinate on the next unpleasant task in a project, the longer it drags out. You’re preventing yourself from completing more projects in a year (to pick an arbitrary amount of time) which means you are earning less money.

    Not good!

  8. says

    Nice post Dave. I started to ensure that I keep track of all my work times now so that after a project is completed I can go back and look over it and make sure I charged the right amount.

    I use http://www.slimtimer.com, which is a simple pop-up screen that requires you to start and stop time. Very easy to use.

  9. says

    I personally use timelog to track my hours on a project, plus it syncs up with my ical and with a little magic my google calendar, so I have the information available to me just about anywhere. It’s really important to know just how long a project is going to take you (and tracking the project to find out the final hours required) so that you know how much to charge and compensate accordingly (on small jobs even an extra hour or two gets costly).

  10. says

    Great article. So true. We need to be honest with ourselves first if any profit is going to be made. If not, you might as well give your designs as gifts… + with a red ribbon.

  11. says

    Great post – also loved the look of the Klok app – have been needing something like this for a while (and a great opportunity to start investigating Adobe AIR too…)

    Thanks again!

  12. says

    I don’t understand how so many people have so much trouble billing clients. The best method to avoid this is to charge hourly and give them a estimate of hours and $. I then assure them that I will do my best to stick to that budget given how many hours that estimate will yield.If the project goes over in hours, they pay the extra as a separate invoice, and I usually give them a couple extra weeks time to pay the overages. This is more than fair to them. It is also fair to me because I end up compensated for every hour of work. And because the estimates are usually underestimated, I always bill for at least that amount. Another fair deal for the client is that by doing it hourly, if the project takes less time, due to a removal of a feature or any other reason, they do not pay a flat rate which would have left them paying extra. Its a win-win situation. Larger companies benefit from flat rates because there is more room for profit margin and they can usually take that risk of loosing money. As a freelancer, you cant afford to be loosing money on a project. You loose time, you loose money.

    To track time: use a freeshbooks widget(or iphone app) or the stopwatch on the iphone.

  13. Paul d'Aoust says

    I thought I’d add two other time tracker programs, both web-based:

    Toggl http://www.toggl.com/
    A hosted service, which I’m not too fond of, but their basic time tracker is free and you can get a desktop version of their web app. Pretty handy.

    OpenGoo http://www.opengoo.org/
    My current lifesaver — allows me to keep track of my time in minute detail, which is great for when I want to do estimates for future projects. It’s also got a calendar, address book, milestones/projects, etc, etc, etc. It’s open-source and installs on your web server, but they’ve also started to offer hosted services for a fee.

  14. says

    I agree with Matt.

    I give my clients an estimate (usually a range) and bill them for exactly how many hours it takes. Not only does it provide all of the positive aspects that Matt mentioned, like not under billing or over billing, but it also helps the clients respect your time. Since I stopped doing bid or flat rate projects I have been attracting better clients who take the time to be sure and clear on what they want and it scares off the clients that would have been more trouble than they where worth. I am no longer doing “free work” and they aren’t charged for things they don’t need or decide not to do. If I”m fast and efficient that’s even more of an advantage for them. I’m not sure it would be the way to go for someone totally new to the field, but if you have enough skill and experience it’s the way to go.

  15. says

    Honestly, after reading this post, the only thing I’m thinking is that do rates like 40$/hr even exist?

    I’m fairly new to freelancing, and get jobs mainly through odesk/elance, and the price common there for web design work is 10-15$ per hour.

    So, if the price here is shown correct, that would mean I could get much more profits when moving away from odesk? Anybody knows HOW do I get work? All the articles here do not go in the essence, how do you actually get more time, they just tell you what to do once you have em.

    Any help will be appreciated, sorry if it’s in the wrong place.

  16. says

    @Namanyay: It depends heavily on things like competition (there’s lots of competition on Elance, so you have to compete by lowering your rates), skill level, and what the market is willing to bear. It’s apparent from your website that your design skills are good, and you enjoy keeping up with modern technology (HTML5, CSS, web fonts, etc) and you can work with progressive enhancement (e.g., adding that animation to the word ‘Artistic’ on your home page. So that indicates that you can ask for a good rate.

    I find it much easier to ask for a better rate when I’m working with clients in my own town. This way I’m not competing with so many people, and I’m focusing more on building a good quality relationship with my clients (and good clients know that good relationships are worth the money! You don’t want a client who just wants the cheapest rate; they will drive you crazy and cost you.)

    I can’t speak to what the web design industry is like in Delhi; here in Canada I can ask for $70/hour and the market seems to be able to bear it. Most likely there are issues of geography here — cost of living (if I charged any less than $70/hour I wouldn’t be able to eat), the amount of competition (Delhi is a big city, and the computer science industry in India is huge, whereas I live in a town of only 30,000 people, far away from any major cities).

    If you can focus on connecting in-person with high-profile clients in your neighbourhood, this may help you a lot. I try to stay away from online job postings completely.

  17. says

    @Paul d’Aoust Thanks for your kind words!

    Here, people EXPECT a website to be built for 20$, while I need around 40$/hour to live comfortably.

    That said, I haven’t actually given a shot at the local market, but from the few designers I know, they design bad websites, thus they get low pay. I’ll try making websites in my locality, though I don’t have high hopes.

    One experience I had with a local client, that I met a client from India, asking me to design a wordpress theme, and that too for 40$, which discouraged me to try working in my country.

    Some of my good friends are living/studying abroad, I am asking them to get a few clients for me, which I can charge premium. No idea how that will work out.

    That said, I am trying to refrain from using online job posts, and work simply by word of mouth.

  18. says

    Wow, when you say $20, do you mean $20/hour or $20 for the whole website? I guess that can be kinda discouraging. And like I said, I’m completely ignorant of any local cultural/economic issues… I have no idea whether you can stand on quality alone (thereby creating a collection of clients for yourself who were dissatisfied with the low-cost websites that someone built from them). But to me, that would seem like a great market for you. If companies have had crappy websites built for them, they must be unhappy with the product, so they’re ready to find a better solution — namely, you!

    Best of luck, and I hope you’re able to make a go of it. You obviously enjoy your work, so it’d be nice if it could be your career.

  19. says

    20$ for the whole website.

    As for the quality, here’s the website of one of the best hotels of India. https://www.tajhotels.com/

    I’m surprised that it isn’t mentioned in the footer “Best viewed in on Internet Explorer or above”

    As you said, this could work to my advantage too. I could sell website at normal rates, by saying that their website will get them leads, and as they are professional, look better than their competition.

    Great thing is, I know a lot of people involved in hotel business, never bothered to ask them about this though.

  20. Lauren says

    I tried a lot of time tracking web apps, then I settled on Timeneye (http://www.timeneye.com), which I find very simple and extremely useful if you are a Basecamp user, because it lets you track time commenting on completed to-dos.

  21. says

    You nailed it. I’ve run into that same problem more than I care to admit. I started using Toggl and the heavens opened. It’s an awesome tool that helps you tell yourself the truth. Plus, there is a phone app. You can track the time it takes to do anything.

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