What the hell do I charge?
This is probably the most common question any established freelancer is asked by a newbie freelancer. And at varies different times, everyone spends a whole lot of chin scratching time trying to postulate on what it is you should be charging.
This conundrum stretches to pondering how you should price a product. Or whether you should give a discount, run an early bird, give into a request for an add-on and so forth.
Whatever you charge for any of these items comes down to 3 cornerstone considerations:
The cost to you in terms of doing business
The importance of what you offer to the customer
Competitor analysis
The problem is, all these measurements are fairly subjective and at times, downright faulty.
However, they are the best thing you have. You can find an in-depth examination in this blog I have written called ‘The problem of pricing against your peers.’
It’ll also help you with the maths of the equation. But for now, let’s tackle the cornerstones.
The cost of doing business
You can’t physically charge what you earned at your last proper job because you’re now responsible for your tax, super, replacing your own office equipment, office rent (if you have one), software, accountants and things that you may need such as professional memberships, insurance, an assistant and furthering your education and so on.
Your costs are higher. That’s why the boss probably paid you a salary that was a lot less per hour than what they charged to the client and/or what you financially returned to the company.
You also need to make a profit. Freelancers suck at this. But you need to be able to save money for your family and for your leisure. Have money in the bank for those unexpected times when things blow up. Give yourself something to aim for and enjoy like holidays or a new DVD player. Stop being poor and all those wonderful ideas.
It’s a business decision to price yourself well. You need to pay yourself for the “free stuff†like fielding enquiries that don’t pan out, answering emails, your marketing and social media, blogging, admin, clients that take longer than expected and anything where you’re physically working on the business that doesn’t have a hard value attached to it.
What it costs you to get up each morning and ply your trade needs to be incorporated. You need to make time to run your business and market it effectively, but you shouldn’t be doing it for free.
If you are already established, the best way to figure this out is:
Track how many hours you work on the business (not just client facing work)
Divide that by the amount of money you bill on average each month
Whittle it down to an hourly rate
Now ask yourself if you’re being paid enough based on that figure. If you are, now you know what is working, you’ve got a better chance of noticing if it starts to slip in future.
If not, you have one of two choices:
Work more efficiently
Raise your prices
Newbies, please note: If you are just starting out, what you charge will not be so much influenced by this cornerstone – yet. Smart freelancers will build up a body of work so they can get to a point where they can charge. This may be through leveraging relationships you’ve had in previous workplaces or through charging lower rates until you get a few case studies, testimonials and relationships behind you.
Whatever the case, some hard and fast rules for you are:
Always aim to make a profit of 50% on your hourly rate. So if you bill yourself out at $100, it should cost you no more than $50 to sit at your desk. That’s because all that tax stuff and paying super etc costs money and the tax man also wants a slice. There’s no point in freelancing if you’re paying out over 50cents in each dollar you make to something else.
Look at your efficiency levels first before raising your prices. If you spend a lot of time at coffee meetings with no result, having lunch with the girls from the local business network without any referrals and a lot of time on social media not getting a single enquiry, what’s the point? At the risk of sounding like a complete jerk, the business people who promote this kind of approach to business (coffee networking and luncheon entertaining) have the money or the marriage to afford this holiday camp lifestyle. Successful people don’t until they are successful. Until then, they work their arse off.
If you’re going to raise your prices, do it gracefully. We cover this in another lesson, but it’s important to realise that regular clients and repeat business will make your business work. So treat these guys with care. That includes fully informing them about price rises and what it means to your relationship with them.
Exercise:
Work out what your hourly rate is
Look at what you do each month- ask yourself if it is efficient
Read the article on problems with pricing products
See what you can do to trim the fat
The importance of what you offer to the customer
Can they get what you offer elsewhere? What is it about you that makes your brand of freelancing special? Neil Gaiman’s 3 things rule of reliability, being easy to deal with, and being good at what you do is very important now.
You MUST fulfil 2 out of 3 of these things to charge premium rate. If you are all 3, you’ve got yourself an amazing business. And if you’re hanging your hat on only 1, you’ve got some serious work to do.
I’ve seen a lot of brilliant freelancers who do the whole “I’m so amazing, I’ll build my website and they’ll flock to me†scuttle off with their tail between their legs back to a “real job†within the first two years. Actually, it’s less scuttling and more a blamed-filled situation where apparently it’s the clients, the economy or other freelancer’s fault Mister Brilliant failed. What bollocks.
The real answer is because an elephant-sized ego is the last thing you need as a freelancer AND because being brilliant simply isn’t good enough.
You need to be good at 2 out of the 3 to survive. And you need to hustle and not be a jerk.
Remember that homework you did at the beginning around your goals for your business and what you offered? This is what defines you. But it also makes you different.
It helps sell freelance you.
Why is your writing better? What is it about your design process that makes you more efficient? What kind of love and support can your clients get as part of the development process that other freelancers don’t give?
Define your personality:
Are you the freelancer who-
Delivers what the client wants, no matter how crazy?
Comes up with the brilliant ideas?
Can rally the troops and make the project easier to complete?
Is calm under pressure?
Tells it how it is?
This needs to shine through your marketing, social media, web copy- and then get backed up in the way you treat each job and keep the relationship going.
Exercise:
Define what you do that is your way of approaching a project
Ask yourself where the special and a-ha moments are within your process
Describe the attitude you have to the work and your customer service
How are they different to what is out there? Write them down
Fold into your marketing- and your client management processes
Competitor analysis
Don’t price off your competitors. They’re just as confused and clueless as you. Instead, look at how they position themselves, what they price, and how often the booked sign is hung up on their business.
Apples are not apples in freelancing. We’re individuals managing an approach to business without a uniform approach, no unions, no pricing cards, no shared education level, from varying backgrounds and with distinct attitudes.
You need to understand your competitors so you can continually remind your clients, referral base and yourself why you are special and do what you do.
Exercise:
True competitor analysis comes down to answering the following questions honestly:
Who are your competitors
How do they price themselves
What do they do better than you
What do you do better than them
What kind of client wants to work with them
What kind of client do you want to work with
Where is the gap between you and them based on the questions above
A SWOT analysis (strengths, weaknesses, opportunity, threat)
How can you turn that gap and that SWOT analysis’ results into a selling point
The bottom line on pricing
You’re only going to know what you need to charge and what you need to live off in order to make the freelancing gig work for you.
But always remember this –
What you earn is not about earning to keep the wheels turning.
You chose freelancing for a reason. Most likely because it gave you some kind of freedom a standard job couldn’t supply. It costs a lot of brain space to be a freelancer. At times, it can be filled with moments that make you doubt that freelancing was a good idea.
So you need to earn enough money to take the sting out of that. And/or earn enough money to give you the creative freedom you are seeking.
If that creative freedom was to produce a film, be a good parent, open a different business in the future, look after a sick relative, travel the world while you work, have a mac daddy fly house with a bunch of expensive toys, or be the rebel without a boss you are- make sure you include that in your pricing and how you operate your business.
Freelancing is hard enough without cheating yourself out of the desired end result by being swayed by what others charge or what clients want to pay you.
Got it? Good!
Next few lessons, we’ll be looking at raising your prices, upselling what you offer and whether you should also jump on the workshop and education band wagon.