If you’re new to freelancing, or setting up a business for the first time, choosing your prices can be a minefield. Equally, if you’ve been in business a while but feel like it’s time to review your costs, this blog post is for you.
I don’t mind admitting that when I went freelance in 2015, I plucked my prices out of thin air. They lined up with the lower end of industry standards in my area, but other than that I didn’t put an awful lot of thought into them. Once I began gaining paid clients, it just seemed like I just had to get more of them if I wanted to earn more. I couldn’t have been more wrong.
Not long into my first year, I met a business coach who advised me that I should triple my hourly rate. I laughed in his face. Nobody would pay that, I said. The thing is, he was right, but so was I.
His argument was that I should consider client work to be a third of my workload. Marketing myself and business admin make up the other two, unpaid, thirds, so the first has to cover the costs of all hours. There’s sense in that, but you’ve got to know your audience.
Since then I’ve refined my rates to reflect the work I do, the expertise I have and my level of experience. Being a parent has made considering my paid hours much easier, as I’m much more restricted to how much time I can dedicate to client work each week. If I know I’m on a timer, I know my earning capacity in a much clearer way. Committed nursery days offer me structured hours in a way I didn’t have before, when I was free to let a 6-hour project turn into an all-evening spread of continued work. So, while before I might have quoted for a 6-hour project that lasted 15, now it means 6 hours of work. See, easier to quote for.
The biggest problem I find in setting your prices is not how much things should cost, but how long they take. Every single person I know is guilty of underestimating how long tasks take. Tiffany Philippou talks about timing yourself to discover what your day really looks like in her podcast, Is This Working?, where she discovers she needs 17 minutes to allocate getting ready for the gym. In her mind, she’d assumed she needed 3. You can see how freelancers undersell themselves with this working out.
Charging for business needs exactly the same analysis. The number of times I’ve charged for a one-day commission, and then spent 3 or 4 days fulfilling the work is, well, too many to keep track of. Make a list of all your common tasks – client-based and otherwise, and time yourself doing them. Keep this record as a reference for how long you need to allocate to similar tasks in the future.
Next, find out the average hourly rate for your service and level of experience. The experience part of this is essential. I might offer some of the same services that I did 5 years ago, but the knowledge I can offer has vastly changed, and a lot of the time, that’s what my clients come to me for.
Part of this is asking yourself if the time a task takes is due to the work involved, or if additional research is needed if you still have things to learn. Could you apply a lower rate while you’re building a skill, and increase it later?
The next aspect to consider is the fun one. Decide on the income you’d like to achieve. Do I need to state the obvious here? We’d all like an income that resembles a winning lottery ticket, but that’s not what I mean. What would you like to earn for the work you’ll be doing? How many hours/days do you plan to work? What amount would leave you feeling comfortable at the end of the month, and confident the bills are paid with some cushioning? Business coach, Cori Javid, calls this the ‘energetic minimum’ (and suggests raising it!).
Don’t just think about the essentials each month, but what your life should look like if it’s going well. How many holidays do you want each year? How much disposable income do you wish to spend on your kids’ activities? There are a ton of ‘bills’ which add extras on, plus there’s always savings and emergency funds to build too.
Your pricing isn’t just influenced by what you’ll be paid, but how often. What do you do, and what’s the payment frequency like in your sector? Whether you work on short term projects and are likely to be sending out invoices every couple of days, or one big one every few months may determine part of what you charge. Could you manage to get by if a payment slipped up (as they often do)? Do you need to factor in some insurance, whether literal or your own financial planning for continuity?
There’s a lot of other areas that could be considered when choosing your pricing – whether you’re providing the sole household income or a supplementary one, for instance, but what’s important is that you reach a price (or prices) for your business that support you, demonstrate your abilities, and allow you to feel confident asking for them. This last point isn’t one that always comes overnight, so take the time to work on it, and try pitching clients with different budgets to help you overcome fears that people won’t pay what you ask.
To summarise:
· Don’t only charge for your client-focussed hours. You need to ensure your income covers the time you’ll spend growing and running your business too.
· Know what time you have available. This will give you your maximum time you can sell.
· Know how long tasks take. Don’t undersell by spending longer than you quote for on a job (and don’t beat yourself up when you inevitably do this anyway).
· Consider your knowledge and experience. Should you price in line with someone building their portfolio, or someone offering expertise in their field?
· Decide on your ideal income. Work out your bills, savings and disposable income, to reflect the life you want to achieve.
· Work out how often you’ll get paid, and what this means for your personal finances