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Going freelance can be daunting, but setting your rates doesn’t need to be. According to a report by Upwork, three quarters of freelancers now make the same income, or more, than they did in their previous jobs.
There’s certainly money to be made as a freelancer, you just need to price your work right. Here’s our freelance fees guide to help you find that magic number.
Factor in non-working time
“When I first started I made the horrible mistake of using my full-time employment salary as a base line and worked out a day rate, then project rate from this,” says Sophie Biggerstaff, Founder of retail consultancy BYRCOLLECTIVE.
“Why was this such a big mistake? When you're freelance you don't get any employee benefits, such as healthcare, pension, holiday and I hadn't factored any of this in so I was actually earning way less per day than when I was full time employed.”
Use a formula
One rule of thumb for calculating your freelance rate is:
(Your annual salary + 30%) / 220 working days
Let’s say you were previously earning £50,000 as an employee and you want to match that. Add 30% on top of your basic salary to account for lost benefits like holiday pay, sick pay, pension contributions or car allowance. Then divide that figure by 220 (an estimate of how many days you might work during the year). With around 254 working days in the year, this allows for several non-working weeks such as holidays or the gap between contracts.
£50,000 + 30% / 220 = a day rate of £295.
You’ll likely flex your rates depending on who the client is, what the project involves, how long you’ve been freelancing and how much you want the job, but this handy formula gives you a good starting point.
Research your competitors
“It’s worth researching your competitors,” says Yelena McCafferty, from translation agency Talk Russian. “By finding out more about what they do and how they work, you can set a baseline for yourself, too.”
Survey the data
Check out salary surveys, like Major Players annual report on salaries across the creative industries. Some professional associations, like the National Union of Journalists (NUJ), have a suggested freelance rates’ guide. If there are no public salary surveys for your sector or type of work, try asking your connections on LinkedIn or your followers on Twitter how much they charge.
Choose your fee structure
There are a few different ways you can break up your pricing structure. Here are some of the pros and cons of each approach:
It’s common for freelancers to start out charging by the hour. It’s simple to track and easy for clients to understand but charging by the hour can be inefficient.
A day rate is a fixed fee that’s paid for a single day of work. If your contract states a specific number of hours (for example, seven hours) or working hours (nine to six with an hour for lunch) then be sure to keep track of and charge for overtime. If your contract doesn’t detail what counts as a day, you could get paid the same amount for a 7 hour workday as a 14 hour workday.
As you get more experienced, you may be able to get work done more quickly. Charging by the project rewards you for speed and efficiency, but it could also encourage scope creep.
Value-based pricing means that you charge your client not for the time, complexity or effort involved on your side, but by the value you can deliver to them. If, for example, you believe your work will lead to a 5% increase in sales, you put a price on the extra value you will deliver and charge accordingly.
A retainer is a flat fee paid to you regularly, usually every month or week. Whether there’s a lot of work for you to do or a little, you hold a fixed amount of time in your diary for that client. Additional work beyond the retainer may be priced by the hour or day.
In some industries like headhunting, it’s common to quote a low rate or even no payment, with a success fee that’s paid when you achieve a successful outcome.
If you’re working for a fast-growing startup, it could be worth asking for stock options as part of your fee. Tread carefully: there’s no guarantee that stock will retain or increase its value, plus you could wait many years before you see financial benefit, so spread the risk by asking for a blend of cash payment and stock options.
Try a hybrid approach
You could combine a few of these approaches. For example, you could set an hourly or daily rate range, and then charge clients towards the top end of that range if your work will have a strong impact on their profit, or towards the lower end of the range if it won’t.
“I learnt quickly that setting rates was way more than just factoring in the time I was spending on a job,” says Biggerstaff. “It was also about the value my work was bringing to a business. You don't get bonuses when you are freelance so when a business starts seeing the rewards from the work you've done, that's it, you've been paid. The value your work adds has to be factored in, as the business you are working for has unlimited return on their investment in you, but you'll only be paid once.” Biggerstaff now charges clients using a formula that combines time taken, value added, plus an uplift to cover self-employed benefits.
Be wary of price competition
Even if you can deliver great quality work at low prices, you might not want to. Bargain basement prices can make you appear less skilled, less in demand, and less valuable than you really are.
“I think when prospective clients see that a freelancer is charging below market rates, they assume that you’re under-qualified or that your work won’t be great,” says freelance writer Jess Rohloff. “By keeping your rates low, you’re lumping yourself in with the people who are unreliable and deliver poor quality results. Cheap clients [also] have a tendency to expect way more than they should. They’ve been known to complain, micromanage and try to take advantage of you.”
It’s vital to charge what you’re worth. But that doesn’t mean that you need to be paid the exact same rate for every piece of work. Each client and project is different, so sometimes you’ll want to adjust your rates based on the circumstances.
You could think about:
Is the customer your ideal client? Will you build up your skills or get a valuable brand name in your portfolio? Can you write up a winning case study about the project, that will get you more dream clients in the future?
Many freelancers discount their rate slightly for long-term projects. If you can expect predictable income over a significant period of time, you’ll save the time you would be spending pitching to other clients, so a small discount may be in order.
If they’re a breeze to work with, clear and friendly to communicate with and pay your invoices speedily, it could be worth discounting your rates. Conversely, if they set aggressive targets, change deadlines, demand excessive changes or are otherwise difficult to work with, consider uplifting your quote by 10-20%.
Stand your ground
Prospective clients may try to negotiate your rate down, so it pays to be prepared.
“Spend some time thinking about how you can communicate benefits to clients as clearly as possible,” says Seun Oratokhai, founder of Sparkfire Marketing. “This could be through testimonials, reviews, breaking down the return on investment (ROI) or through your marketing messages.”
Your attitude matters, too. You can meticulously research the market rate and show evidence for why you’ve selected your prices, but you won’t get paid that rate unless you’re confident, clear and consistent in how you communicate your value to prospective and current clients.
“Are you willing to be bold enough to ask for what you want?” asks Oratokhai. “Are you willing to say no to clients who won’t pay you what you’re worth? It starts with you.”
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This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.