Having taken the leap into freelancing, you’ll soon come up against one of the biggest questions you’ll face: 'what hourly rate should I charge?'
Few people enjoy having conversations about money, but it’s imperative that you are prepared to talk hard cash. One simple conversation can make the difference between a productive, profitable project, and one on which you could even lose money.
So how do you set your freelance hourly rate – and is an hourly rate really the best way to go?
It’s all too common for new freelancers to underprice themselves, particularly if they are concerned about building up a client base. However, at every stage you should remember that you will be judged on the quality of your work. Crucially too, you should remember that your pricing helps to build a sense of your business: if your rates are too low, potential clients will begin to wonder why.
When setting your freelance hourly rate, start with a target ‘salary' in mind. Then, work out your costs of business: capital expenditure, rent, utilities, travel, and so on. Add that to your target salary.
Then, think about the amount of time that you will be working. Clearly, holidays aside, you would hope to be in work constantly, but in fact this may well not be the case. To be on the safe side, you could assume that you will be carrying out billable work for, say, 75 per cent of your time.
Next, divide the total of your target salary and your costs of business by the number of billable hours you think you will be working. This is a simple and effective way to set your freelance hourly rate.
However, an hourly rate may not be the best way to price yourself.
For example, imagine you’re a web designer. A client approaches you and asks for a simple website build. You estimate that it is no more than three days’ work, and you price accordingly. The client gets their site and they’re very pleased: they would happily have paid three times as much. Here, because there is a disjoint between the time it takes and the final outcome, you’re underpricing yourself.
So, depending on your industry, you may consider billing by the project. Here, you need to conduct some market research. What are your competitors charging, and how does their work compare with yours? Try to look for competitive advantages that you have in order to boost your pricing. What added value can you bring that might justify you charging more? Make sure that you make this clear when setting out your pricing structure to clients.
You should remember, though, that if you are billing by the project, you’ll need to take responsibility for over-runs or unexpected delays from the client side.
It’s common for people to move from full-time employment into self-employment in a consulting role. Here, you are at an advantage, because you may well already have some knowledge of comparable rates in your field. However, it’s important that you still do your research.
If possible, speak to some HR professionals to find out the sorts of rates they might expect. You should also expect to work to clients’ budgets; while you shouldn’t underprice yourself just to secure work, you should try wherever possible to get a handle on budget first and, to a degree, price accordingly.
Beyond this, the same rules apply: get comfortable talking about rates, and make sure that you price not just competitively but also fairly.
Finally, it’s vital that you review your rates regularly. If you stick rigidly to the same rates for years on end, it will not be long before you start to lose out.
There is a range of circumstances in which you might consider raising your rate. First, you should do so if it’s a ‘rush job’; that is, if the client is on a tight deadline. You should also raise your rates if you are at capacity and cannot take on any more work, as your time is now at a premium. However, crucially, you should also conduct annual rate reviews with all of your clients. The experience that you’ve gained in that past year should be reflected in higher pricing and, with some canny negotiating skills, you will be able to persuade your clients of this easily.
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