#FreelanceSurvivalSkills no. 5: What to charge

#FreelanceSurvivalSkills no. 5: What to charge

When talking to people who say they want to go freelance, this question is one of the top three. The easy answer is: charge what you want. The hard warning: the first mistake is not charging enough and failing as a business because you had TOO much work.

In reality, there are as many opinions as there are people doing the work. There are different tactics too. I see people saying "don't charge by the hour, charge by the project!" but it depends. Only using one pricing structure is ridiculous and dangerous. Having a plan, schedules, and flexibility is the best. Everything should be based on analysis, not feel goods or pixie-dust opinions.

First, how much should you charge per hour? Freelancing from home is different than freelancing from an office. Here is how I decide my hourly rate for working at home: how much do I need to live per year including all bills personal and business (operations cost), multiply by 1.25 (25% of income for taxes), divide by 2,000 hours (standard work year = 40 hours a week x 50 weeks (two for vacation)), then double it. As a math expression:

(($70,000 * 1.25) / 2,000)*2 = $87.50

Why multiple by 2? Because, as a freelancer and starting out, you have to be prepared for not having 40 hours of work per week, for 50 weeks of work. So, in a sense, you are preparing for a potentially tough issue - not enough work. The upside is you are also setting yourself up for better profit.

If you get 6 months of work at $87.50, then get more work on top of that, that's awesome - bank it. Be grateful for the feast because you will hit a famine at some point and having banked money protects for these. I budget every two weeks and have a separate account that I draw from for our pay periods, which are tied to when my wife gets paid. I measure my banked income by pay-period, so I can accurately project how much famine I can endure. Hope is nice, but it is not a strategy.

I also charge per project, but guess what, it is based on projected hours. How do I decide how many hours? I use objective data, like ATDs regular research on projects. I offer clients three options - basic, good, and gold standard. Depending what they want, I budget and charge accordingly.

But here is the thing about project based charging - it is a commitment. If you say it is going to take 140 hours to do a project, ETHICALLY you should not charge more if it takes YOU more time to do it. Your clients should not be paying for your learning curve, unless it is part of the agreement. If you say it takes 140 hours, and it actually takes you 200 because you made mistakes, your software issues, or you didn't accurately project the time, you get to eat it. If THEY make substantial changes, then you can charge more, but what those client-based changes are need to be established in a contract. Oh, and everything should be by contract. If you change how much something cost by no fault of your client, it will wreck your reputation and makes you look unprofessional. Don't complain about it either, that makes them feel guilty. Be a professional and eat it.

I charge by the hour for production work. I charge by the project if I am designing or creating (see Scope of Work Performed Matrix article). I also charge a retainer, which is where I guarantee a certain number of priority hours for a guaranteed monthly payment. The project dictates what I charge. The project is dictated by the clients needs, expectations, and my availability.

I raise rates as I get busier, but NEVER on current clients. I started doing this with my graphic design clients back in the 90s. I freeze rates for those that helped me become successful. I raise rates on new clients. The only time I raise rates on current clients is when they leave me for someone else (a competitor) and try to come back. They can come back, but they pay the new rates. This tactic creates more goodwill and loyalty than I had ever imagined. For those that left and came back, they never left again. Sometimes your clients will start taking you for granted if you do your work well. Sometimes they regret their choices.

I NEVER discount for new clients. Discounts and favors come AFTER they have established a relationship with me. If you discount at the beginning, you set your wage with it, and they will always expect it afterwards. Discounts go to the people I trust and when I offer it, which I have. I will also do extra work just to be nice, once we have that rapport. That stranger that tells you that if you do this one project at a discount rate and you will get great exposure and more work is blowing smoke. The exposure rarely manifests; the additional work doesn't come, and they won't pay full price even if it does. I am sure there are a few that has worked out for, but they are the rare exception, not the rule.

I have provided people quotes for projects, they showed up and it was twice the work they claimed. I tell them the new cost and they push back, saying I quoted one price. Stand up for yourself. If they give you 200 hours of work based on a 100 hour quote, you only hurt yourself by sticking with it - it was their lack of understanding or dishonesty, not yours. Is it really worth your life units to do twice the amount of work? It also shows you the future of your relationship with that person - fire that client before you start.

Of course there may be exceptions. You may really believe in the cause, you may really like the project, you may have been referred by someone that trusts you for someone who has a real struggle or need. Do your research, decide analytically. We want to run a business with empathy and compassion, but your bills aren't empathetic with your grace.

Ultimately, pricing should be based on your needs, your goals, and what you want to your life to look like. I don't want to work 2,000 hours a year. Once you build a reputation and get a solid famine bank squared, you can be more picky, increase your rates so you can work fewer hours. That should be the goal.

I don't have a dream job because I don't not dream of work. I want to goof off, ride my motorcycle, play with my kids, do absolutely nothing sometimes. I work my butt off when I have it, but my rates reflect my expertise, my knowledge, my years of training and building, but also how much I don't want to work. Analyze what you want your life to look like (should have been part of your business and strategy planning) and use that as your thermometer of what your rates should look like. Charging less at the beginning can help, but it doesn't necessarily need to be that way. Charge what you are worth and, if people agree, they will pay it.

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