In the “new normal” we are in, freelancing and contracting seem to have taken off really well with companies looking for top class talent without all the overhead costs of a full time employee. In the past month, I have been asked more than once about how one should price their services. Usually it goes along the lines of “How much should I charge for…” content writing, graphic design, SEO, etc. By the end of this article, you will find a quick way to identify your hourly fees and a way to estimate your next project confidently.
Pricing is a reflection of value, but fair valuation requires a consistency and predictability in the performance of the product.Tweet
While pricing is simple to estimate in the case of say — changing a light bulb, estimating for services are complex. There isn’t much of a moat to freelancing, so the quality varies heavily and finding someone who is a culture fit can be a challenge. Therefore it is impossible to assign a fair value to a service, but in the process of moonlighting and helping friends, I have a process that I think would work for a new freelancer identify their base rate to move forward in their engagement with clients.
Before I share the process, I should also bring up a common question that comes up —
What if my quote is too high and I lose the client?
The answer is simple, move on 🙂
There are hundreds of reasons why a competitor can undercut your quote. From “friends and family discounts” to “marquee client discount” or even that high schooler in his parents basement trying to learn on the job.
If you need that client project no matter what, no process will help you get a fair value. The cost of your desperation drives the value to whatever the client is willing to pay.
So either start freelancing from a position of strength or build up the confidence with each project to reach your goal
Calculating hourly cost
If you are a designer, a copywriter or a marketer already paid market rates for your work, then your hourly cost would be easy to calculate
For example, if you earn $160/month as a full time employee, then your hourly cost is 160/160 hours a month which is $1/hour.
But if you are a freshly pink slip’d employee (hang in there buddy), then you should take your expected salary and do the same calculation.
Do not forget the devil that is taxes and add his share to the hourly cost so that you are not surprised at the end of the year! <Insert sad joke about taxes here> Keep this simple and add the percentage from your tax bracket.
Take your hourly cost and double it. Yes, x2 your hourly cost from the previous step to reach your final rate. Why?
As a freelancer, your time would be spent on non-billable tasks such as new client prospecting, book keeping, testing, project management, client communications, zoom calls and what not.
You would also have additional expenses such as tools to perform your services, internet costs, opportunity costs and the likes.
Your earnings (or learning) from freelancing has to be worth it – to be spending time on projects after those long office hours. Time that can potentially be spent collecting dopamine points by binging on Netflix, meeting friends or scrolling down that feed.
Hourly vs. Project based pricing
While both have their pros and cons, I hate hourly pricing because it is effort driven which usually always ends up being more expensive for the client. A project based pricing on the other hand is output driven and I recommend this for bigger projects.
Estimating for Projects
I usually pull up an excel sheet and list our all the steps to complete the project. Lets consider writing an article for a blog as an example
This tells an approximation of what you should be charging for this project. But you do need to add in the time that you would take to say perhaps interview an internal stakeholder about the article or read a 165 page whitepaper or watch hours of YouTube footage to understand the topic, etc.
If you are unsure about the client or if they are especially demanding about reports and meetings, you can add a % buffer as follows
Hope this framework helps new freelancers get past their inhibitions and calculate their own fees with confidence. If you know someone who will find this useful, please share!
If you are an battle scarred freelancer, do share your thoughts!