Setting your price as a freelancer requires that you understand the value of your services. You also need to know your target customers and competitors. After all, you don't want to set your rates too low and undersell yourself or too high you lose potential projects to competitors.
Adjusting your pricing is an ongoing process as you continue to refine and add to your services. In other words, your prices aren't carved in stone.
The truth is that as you gain more experience, you'll be able to identify the right price for your service. In the meantime, here are some general tips that you should consider.
There are two standard pricing models: hourly pricing and fixed pricing.
Hourly pricing is simple. Decide on an hourly rate and multiply that by the number of hours it takes to do the work.
Technical support, personal assistants, and freelance customer support are examples of services you can offer with a set hourly rate.
On the other hand, fixed pricing is a project-based formula. Instead of asking for an hourly wage, the price is set for the completed project.
Projects with clearly defined deliverables, such as web and mobile app design, and content creation usually use fixed pricing. In another instance, a writer might charge by how many words they write.
Hourly or fixed pricing makes it easier to know how much money you'll bring in on any given project.
Ask yourself a few questions before you set your prices:
How much money do I need to make?
How much money do I want to make?
What are other freelancers charging for the same kinds of services?
How much money would I make doing the same thing as a full-time employee?
How will the higher taxes for independent contractors affect
What are my freelance business expenses?
Are my services in demand?
Also, consider how much money you have in savings to support your lifestyle while you build your new business. You might need to do freelance work on the side for a bit before jumping in full-time.
Once you know your target salary, you can calculate how many hours you'll need to work to earn it.
For example, if you want to make $50,000 a year, just do the math.
$50,000 a year, before taxes. 8 hours a day x 5 days a week = 40 hours per week.
Maybe you want to give yourself vacation time, sick days, and other personal time. You figure that will add up to maybe 6 weeks.
There are 52 weeks in a year. Subtract your 6 weeks, and that equals a total of 46 working weeks in a year: 46 (working weeks) x 40 (hours per week) = 1,840 hours of work per year.
Now divide your annual salary by the working hours.
So, $50,000 per year ÷ 1,840 = $27 - per working hour.
Notice that we said WORKING HOURS.
When it comes to freelance work, you must also count the things that you don't get paid for, including invoicing, replying to emails, prospecting and finding new clients, and marketing.
A general rule of thumb is to calculate your hourly breakdown like this: 60% of your time is billable hours - the time you actually work directly on your service. 40% is non-billable hours - all the other tasks required to offer your service. Of course, you can adjust this ratio however you want but the 60/40 baseline is an excellent place to start.
Now, let’s recalculate your hourly rate using billable hours like this: 1,920 hours x .60 percent = 1,104 annual billable hours. So, your working hourly wage now becomes this: $50,000 per year ÷ 1,104 hours = $45.28 per hour.
As you can see, considering your non-paid work changes things. It means you will need to make more per hour to reach your yearly goal.
Now, you’ll also want to make a list and total your expenses, including: business licenses, equipment, rent, marketing and advertising, and tools you’ll need to conduct your work.
Let’s say your business expenses add up to $10,000 per year. That means your annual goal of $50,000 needs to increase to $60,000 to reflect those business expenses.
This will also need to be factored into your hourly rate so you can reach your target yearly income.
Your freelancing rates will most likely be more than the hourly rate you would make as an employee doing the same job. And that's okay because your clients aren't paying for all those other costs. You are.
The truth is that most customers expect to pay a little more for professional freelance services.
You’ll also want to consider your experience, skills, and the quality of your portfolio. The more experience and education you have, the more you can charge for your time.
Think about the complexity of your skillset. How easy is it to find someone who does what you do? Other considerations include the project's complexity and your customers' geographic location.
A standard rate in the Western United States is different from what people pay for the same services in the Central U.S. And rates also vary internationally.
The bottom line? It's best to know the market rate for your services. One way to find out is to ask, “What are other freelancers charging?”
Competition research is vital to success in any business. You need to know who your competitors are, how much they charge, and how they engage with their customers. Understanding your competitors helps you learn what works and what doesn't work.
Research items such as: their products and services, their pricing details, their advertising and marketing campaigns, their websites and social media platforms, and any customer reviews and comments you can find.
When researching, consider the search words people would use to locate the services you offer.
For example, if you're a graphic designer, your customers might use search terms like “logo design”. Or, they could search How much does it cost to hire a graphic designer?
What words would you use when searching for services like yours online? The people and businesses that end up in the search results are your competitors.
It's also a great idea to attend industry trade shows to network and get an in-person look at your competition.
And of course, it is a good idea to follow them on Facebook and other social media platforms to observe how they engage with their audience.