How Do Freelancers Decide What To Charge For Their Services?
Pricing is a HUGE question for freelancers at any stage of their career. It’s something my clients and I talk about all the time (side note: I love talking about money and helping my clients earn more with more ease and consistency.) Determining your rates is a bit of magic mixed with a bit of science.
Landing on what to charge for your freelance services is an essential - but often challenging - task. Pricing depends on various factors, including your skills, experience, industry, location, and the specific project or service you're offering.
Here's a step-by-step guide on how freelancers can decide what rates to charge:
Market Research
Start by researching your specific market and industry. Act as a potential client and look at competitors’ websites. Look at what other freelancers or businesses are charging for similar services. While you’re likely going to find a wide range of rates (and a lot of unlisted rates), doing this will give you a baseline to work from (in addition to showing you what words your competitors are using to sell their services, how they’re marketing themselves, and who they’re trying to reach, etc.)
Know Your Costs
Calculate your expenses, including overhead, software/tools, office space (if applicable), taxes, and other business-related costs. If you don’t know what the costs are yet either because you’re new to freelancing or you’re trying to expand into new areas, consider this part of your market research. How much do other freelancers save for taxes? What does that special software that would make your job easier cost? You need to cover these costs and still make a profit and so knowing what they are is an essential step in the equation.
Determine Your Desired Income
Decide on the annual income you want to earn. Factor in your living expenses, savings goals, and any financial commitments. It can help to have a range here - your minimum-viable income, your “this is pretty good” income, and your “this is the dream” income.
Calculate Your Billable Hours
Estimate how many billable hours you can realistically work in a year. This takes into account factors like vacations, holidays, and non-billable administrative tasks. For freelancers who are leaving the corporate 8-5 world - you can’t just expect to be able to work 40 billable hours a week automatically. There is a lot of time spent as a freelancer that isn’t billable. Admin, accounting, and other need-to-do-but-not-client-related tasks are going to be a part of your workday. Take this into consideration in this step.
Profit Margin
Decide on a reasonable profit margin. Typically, freelancers aim for a profit margin between 20% and 50%. Your profit margin is going to help you achieve your personal and business financial goals.
Consider Your Experience
If you're highly experienced and have a strong portfolio, you can charge more. Specialized skills are also expected to cost more. Clients often expect to pay a premium for expertise & unique skills. Do NOT assume that you need to compete on pricing just because you are new to freelancing. If you compete on price, you’re always going to lose. Do not try to be the lowest-cost freelancer in your niche but do make decisions based on your relative experience, whether in this specific field or adjacent ones.
Value-Based Pricing
Instead of pricing solely based on your costs and hours worked, consider the value you're providing to the client. What results or benefits will they get from your services? Charge accordingly. If you’re creating evergreen content for them that they can use to sell new products, for example, they are getting huge value out of the work you’re putting in. A tiny logo? A big deal. A few photos or UGC videos? A big deal. Don’t discount it just because it’s a seemingly small deliverable.
Tiered Pricing
I recommend offering different pricing tiers with varying levels of service. This can attract a wider range of clients with different budgets and shows your potential clients that you: a) offer a range of services, b) can work around different budgets, and c) are aware of the different needs that businesses like theirs have. It shows professionalism and awareness of the field.
Negotiation and Flexibility
Be open to negotiation, especially for long-term or repeat clients. Your pricing can be flexible based on the scope of work, deadlines, and other factors. This is one of the reasons you should not compete on price alone - because if you’re offering rock-bottom prices up front, you’ll have no wiggle room later if that’s something you choose to do.
Project Scope and Complexity
Complex or time-consuming projects may warrant higher rates. Be sure to clearly define the scope of work in your contracts to avoid scope creep. It can also help to have a script ready if a client does want more work done after you’ve started the project but before they have paid the invoice. Depending on the situation, I’ll use something like this: “I can work X request into the project and it’ll change the final amount due by this much.”
Location
Consider your location and your client's location. Freelancers in areas with a higher cost of living generally charge more and clients in areas with a higher cost of living are generally prepared to pay more - especially for a premium service.
Review Your Pricing Regularly
Your rates should not be static. Reevaluate and adjust your pricing periodically to account for inflation, changing market conditions, and your growing expertise. In my Group Coaching Program, I led an Extracurricular Call recently all about Why & How to Raise Your Rates. As a rule of thumb, I think it’s a good idea to raise rates with every or every other new client you receive and then to raise them once or twice a year or with every few new projects.
Test the Market
If you're unsure about your pricing, consider offering your services at different price points to see how the market responds. Over time, you'll get a sense of what works best for you.
Remember that pricing is not set in stone. It's a dynamic aspect of your freelance business, and it can evolve as you gain experience and establish yourself in your industry. Don't undervalue your work, as this can lead to burnout and dissatisfaction. Instead, aim for a balance between competitive pricing and fair compensation for your skills and expertise.
If you’re a beginner freelancer looking to set up foundational systems for your career, check out my Freelancer Systems 101 Guide. The Intermediate 201 guide is coming soon!
I have also packaged the Core Curriculum of my Group Coaching Program into a Self-Guided Course, if that’s more up your alley.
