It’s Time to Give Your Pricing a Makeover
One of the hardest things to do as a freelancer is settle into a price that makes sense for us and our clients. When we’re just getting started, we tend to set a low rate because we’re not sure what to charge and often not even completely sure people will hire us. On the other hand, some of us start with a high hourly rate, which is also tough because we want to stay competitive against other freelancers in the market while making enough money to survive. Trust us, we’ve been on both sides of the fence. The pricing struggle is natural, but it doesn’t have to be as stressful as it seems. We’ve put together a few tips to help you settle into a rate that feels good and fits your bottom line. There’s no better time than now to give your pricing a New Year’s face lift.
First off, should I really raise my rates?
Look, we all have a bottom line for sustaining a realistic freelance career. When you know what your bottom line is, the easy part becomes designing your rates and billing around it. If you’re where you need to be today, the obvious suggestion is to keep doing what you do well. But, if you’re like most of the freelancers we talk to, you’re wishing you had a little more cash to pay bills, set aside for vacation, or reinvest in projects and work. If you’re in this boat, you might consider raising your rates as the more you bill per hour or per project, the better prepared you’ll be to hit your personal milestones.
Of course, justifying a price hike can be hard, but keep in mind that you’re providing value to your clients, plain and simple. You’re a professional at your job and this is exactly why clients hired you in the first place. While you’re doing what you do, they’re able to focus on other work, and that’s definitely worth paying a premium for.
Still, we know increasing your billing can be pretty uncomfortable. What if my clients think I’m being unfair? What if I can’t find any new clients and lose the ones I have because of my new rates? While the truth is you may lose a client or get some pushback from some of your current clients, there’s a chance you’ve outgrown your existing client base and it’s time for new ones anyway. If you haven’t increased your billing in the past couple months you’re likely not being fairly compensated anymore. After all, every time you land a new client or finish a project, you’re adding legitimacy and experience to your repertoire - which is undeniably more valuable to your clients. This is your business, it’s your job to make sure your clients clearly see the value you’re providing for your compensation. Expecting to get a little pushback from clients here in there is the best way to keep you on your toes and make sure you actively bettering how you position your work to clients.
The second reason getting pushback from clients is important is because this is how you settle into the sweet spot of what you’re worth. As you start playing with the numbers a bit you’ll find that there’s a certain price tag that clients just can’t stomach, you want to stay right under this mark. As you continue to add more projects to your portfolio you’ll find that this number will start increasing. That’s why it’s important to test the waters with new clients every once in awhile to make sure your still billing what you’re worth.
Alright, I’m bought in. How do I figure out where to start my rates?
There are a ton of different strategies for figuring out where to start or how much to raise your rates. Everyone’s situation is different so there isn’t a “one size fits all” method to billing, but the best method we’ve found is to decide your bottom line, outline your work parameters, and then back into your hourly rate.
Say for instance you want to net, or take home, $50,000 this year. Your work parameters could be something like this: you want to work 30 hours a week and take a month long (4 week) vacation. This means you’ll work for 48 weeks over the course of the year and will need to make $1,041.67 per week to hit this annual goal ($50K/48 weeks). If you work 30 hours per week, your hourly rate should be at least $34.72. Seems reasonable, right?
We’ll take it a step further, because remember, we started with a simple calculation of what you’d like to net for the year. This number alone leaves little room for error, sickness, or unforeseen circumstance. On top of that, as a business owner there’s a fair amount behind the scenes that needs to happen to make for a successful year. Rent, taxes, bills, and general overhead expenses, all begin to pile up and need to be taken into equation. As we read recently from one of our favorite freelancer bloggers, “know your worth, then add tax”. So, let’s run through the equation again, this time adding tax and a few other expenses.
Say you still want to net, or take home, $50,000 this year and you still have the same 30 hour week, 4 week vacation requirements. This time, we’re also going to calculate roughly 30% for self-employment taxes and $1,000 a month (12,000 annually) for business expenses like internet and rent. This means, you’ll need to make an additional $12,000 a year for rent alone and over $25,000 for taxes. At the end of the day, you’ll really need to gross close to $90,000 and bill $60.00 an hour in order to take home $50,000 each year. Quite a significant jump when all things are taken into consideration.
So, all in all, how do you know what you’re worth? The short answer is you decide and then you tell your clients. Simple as that. As we’re written about before, there are plenty of ways to back into the number, but deciding what “the number” is the first big step.
Increasing your rates is not as scary as it may seen and is an extremely important part of becoming a professional in your industry. Not only will healthy rates increase your perceived value, you’ll have more control over which clients you work with and the amount of time you get to spend with each client. Not to mention it will keep the pressure on you to continue bettering yourself and your freelance career! Good luck!