There are a number of methods to working out how much you should charge and I would advise you to explore as many as possible before coming up with a number.
Many people work backwards from a figure they need to earn and then divide that by the actual amount of time they expect to be working. Never assume maximum capacity if this is your method.
Ideal Salary/Weeks Worked/Hours Worked Per Week = Hourly Rate
Actually this pretty crude formula, assuming you’re fair with the values you enter does give you a good platform to start from and gets a figure into your head. Of course there are other factors that come into play though. There is often a ‘going rate’ for freelancers and it can be tough to deviate from that figure, particularly when your client is someone that regularly books freelancers. Keep this figure in mind when you’re quoting on projects. Do you consider yourself better or worse than the average freelancer? Assuming you’re better, how much better are you?
Ear To The Ground
Another method to knowing what to charge is getting your ear to the ground, do a little bit of scouting. Have a word with friends, anyone you know in the industry, see if there’s a common denominator. It doesn’t hurt to ask. Also scout around online. I’ve included some links to online tools that hope to solve this particular problem for you. My advice to you is don’t take the figure they give you as gospel though. Only through trial and error will you arrive at a realistic figure.
Some useful links on pricing…
All freelancers will experience a period without work at some point – often the circumstances that dictate this are completely out of your hands, cancellations and illness are a good example of this. Whichever method you use to decide upon your freelance rate you must factor this in to your decision. During the early part of my career I had a few last minute cancellations and I do literally mean last minute. I found myself scrabbling around for work for the next day at 5:25pm on a few occasions due to cancellations. These days my booking terms and conditions which stipulate a minimum 24 hour cancellation notice cover me in event of something like that happening again.
It’s very easy to price yourself too low and it’s a common mistake to make. You feel like you will only get the job if you drop your prices. The problem with doing this is that it’s then difficult to increase your prices to a more reasonable rate – particularly for any client that associates the low rate with you. One thing I’ve never negotiated on is my rate. My rate is my rate. To drop lower means I’m getting less than I think I deserve and I don’t believe that puts me in the right frame of mind to actually do the job. I’m pretty open about this to my clients, I consider my rate to be a fair price and I openly admit that my heart won’t be in it if I’m working for less and do you know what? They totally understand that. Don’t undersell yourself!
One thing I’ve never negotiated on is my rate. My rate is my rate. To drop lower means I’m getting less than I think I deserve and I don’t believe that puts me in the right frame of mind to actually do the job.
Pricing low, particularly when starting out is very tempting. It’s so tempting to try and win a project. Unfortunately it establishes the relationship on the wrong footing. You just become the guy that is cheap and unless that’s your particular plan (which it might be) then don’t do it.
Value Based Pricing
Value based pricing is almost the total opposite to working out an hourly or daily rate. What you’re doing here is setting a fee based upon the value that you expect to bring on that particular project. It’s probably best illustrated with an example…
A client comes to you that has an e-commerce site which has a poor conversion rate. They task you with solving the problem. If you’re pricing yourself based on value then you start crunching some numbers, if you can raise that conversion rate by 5% how much is that worth to the client based on what the site currently brings in? Thousands? Tens of thousands? Value based pricing is almost a total disregard for the amount of time that you work. If you can solve that problem in 10 minutes or 10 days, you charge the same.
I really like value based pricing, not just because it can be quite lucrative but because it has the tendency to build stronger relationships with your clients. You become a problem solver, more of a consultant to the client. Clients stop coming to you with their idea of a solution and start telling you their problems in the hope that you can solve them.
The main problem with value based pricing is that it’s a very difficult sell. Why should a client use you, who may charge thousands for a very small amount of work when they can use someone else who will bill by the hour?
Ultimately I think this one comes down to the type of work that you’re doing. You can’t deliver value based pricing if you’re given a very specific task to achieve. It works far better for consulting type work where you’re brought in as a problem solver and your solution is one that either saves or makes money for the client.
The article you’ve just read is a section from my ebook Go Freelance.