Chapter 3

Paying the bills: How much should I charge as a freelancer?

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Ask any freelancer, beginner to veteran, what the hardest part of working for yourself is and you’ll probably get the same answer: figuring out how much to charge clients for your work.

Starting out, you might balk at some of the rates you see. Many employed workers make less than $30 per hour, even in a salaried position, so charging $50, $75, or even over $100 per hour seems outrageous.

It’s important to remember that your costs as a self-employed person are much higher than the average worker. From taxes to tools, you have more annual costs than an employee, so you also need to charge more.

A great way to adjust your mindset is this: stop focusing on numbers and start thinking about your rates in terms of value.

Yes, you need to make enough to live comfortably, but you also need to charge an amount that reflects the value you provide to your clients. When you approach your work with this way of thinking, you can guarantee that the work and clients you find will also value you highly.

How do freelancers get paid?

There are three common ways to charge clients for your work as a freelancer: hourly, fixed-rate, and retainer.

Hourly

Many independent contractors set an hourly rate that they use to charge for their time. Whether you use it regularly or not, it’s a good idea to know your hourly rate set in the event you need it.

Pros:

Get paid for every hour you work, no matter the circumstances
Allows for easy scope changes and edits
You can charge for client communication, such as phone calls
No need to estimate the work involved with each project
Ideal for full-time positions

Cons:

Requires careful (and sometimes provable) time-tracking
Harder to ask for pre-project deposits
Easier for clients to dispute
Makes budgeting less clear
Hourly rates can seem higher than project costs
Harder to raise rates over time

Fixed-Price

With a fixed-rate project, you give your client a set price for the total project. Many clients prefer to use this method so they can anticipate the full cost and how it fits within their budget.

Pros:

You can potentially charge/make more than you would at an hourly rate
Provides opportunity to ask for deposit at the start
No need for time-tracking (though you may want to for your own needs)
Easier to raise rates
Clear costs make your budgeting easier

Cons:

Easier to lose time and money to scope creep and edits
You may not get paid until the entire project is complete
Rates are set by estimates of the work required, which may lead to making less than you should

Retainer

This is the least common option, but still a great way to charge your long-term clients. When you work for a client on retainer, they are paying to retain a set amount of your time on a regular basis, often at a discounted rate. Say a client needs you to complete regular work, but they’re not sure how much of your time they will actually need. They can agree to pay you a fixed rate for a number of your hours that month, whether you actually work that number of hours or not.

For example, a client can require five hours per week every month. Rather than charge your usual rate of $75 an hour, you can charge $60 (not necessary, but common). The client will pay you $300 per week every month to guarantee your availability for their projects. Retainer agreements can be set for any amount of time, including weeks, months, and years.

Pros:

Guaranteed income from a trusted source
Upfront payments
Set maximum amount of hours worked for that client
Stable workflow
Clear costs make your budgeting easier

Cons:

Lost contracts have bigger impacts on your schedule and income
May end up doing unpaid work
May be on-call 24/7
Less time to give to new/other clients

How to determine the value of your work

When setting your rates, there are a few factors to consider:

Time - How much time do you have to devote to your work? Typically, how long do your projects take?
Market value - What do similar freelancers charge? You will see wide variation, so use this to get an idea of the general range contractors of your caliber charge.
Client/project price bracket - Clients wanting to pay $10 per hour are drastically different than those who will pay $100 per hour. Do some research to see what the clients you’re focused on pay for their contract work.

Once you have this information, it’s time to do a little math (we know and we’re sorry).

Start by determining your hourly rate. One way to do this is to determine the amount you want or need to earn in a year. This should include the amount you need to cover your costs, as well as extras for emergencies or fun.

Then decide how many hours you want to work. The easiest way to do this is to decide on a weekly goal and then multiply that by the number of work weeks in a year.

When you have both numbers, divide the amount you want to earn by the hours you’re willing to work. You can also compare that with the market value research you did to see if it’s a reasonable rate.

After your hourly rate is set, you can then use it to calculate prices for your fixed-price projects. Just estimate the amount of time involved (you’ll get better at this with time) and multiply it by your hourly rate. You can also add a bit more on top of this price to cover any revisions the client might ask for.

How to bid prices for projects

The first thing to recognize is that clients often don’t know how much to charge either. You are the expert on this subject, so many will rely on you to set the price. If the initial proposed price is a little low (but not unrealistically low), don’t let it turn you away. You can likely negotiate a better one.

Let the client set the first dollar amount, if you can.

If it’s low, let the client know your standard fees and see if you can negotiate a higher rate. You could, for example, offer a lower price for a longer turnaround time or reduced project scope.

If it’s high, rejoice! But also remember you don’t have to take the first offer. Few people max out their budget on the first suggestion, so don’t be afraid to feel out their willingness to go higher.

When you have to set the price, refrain from giving your standard rate right away. Instead, see if you can find what they have paid for previous projects. With this information, you can determine if they pay enough to make this project worth your bid and the general range the client expects to pay.

Just remember to keep an open mind. Many clients are happy to work with you on project costs but you have to first give them the opportunity to negotiate.

Even after calculating a project’s cost, it’s easy to second-guess your rates. Will the client really want to pay that amount? Before you lower your estimate, however, remember this: the worst that can happen is the client says no and asks for a lower rate. If that happens, you can either continue to negotiate or decline to take the job. Often, the client will agree to the rate you propose, making that worry unnecessary.

Don’t let anxiety undervalue or limit your earning potential. You chose that amount for a reason. Trust in your processes.

Should I take free work?

You will see a lot of mixed responses for this question. Personally, we operate by a good rule of thumb: Would a good client ever ask for free work

No, they really wouldn’t.

Quality clients recognize both the value of your time and the work you’re doing for them. Just like you would never ask a plumber or mechanic to work for free, a client should respect the service you’re offering.

Plus, doing work for free hurts all freelancers in the end. It sets the expectation that we are willing to work for free, and that is definitely not the case!

It also sets a bad precedent for your business. If you’re willing to do something for free, you’re also probably willing to push your boundaries to accommodate the client’s more unreasonable requests.

Now, you may not always see free work described as free work. Instead, it might be an influential brand promising exposure and promotion in exchange for your services. It’s easy to get caught up in the possibility of such extensive reach, but you run the risk of giving your valuable time and getting nothing in return.

If a client is really influential enough to get you amazing exposure, they’re also able to pay you for your work. More importantly, they know that. No one reputable (or worth your time) will ever ask for free work.

Exceptions

All that said, there are three scenarios where we’re more willing to bend a little.

Trials

If it will take you 10 minutes to complete the requested trial run, it might not be a big deal. That’s a choice you have to make. If it’s a substantial ask, one that will require a good chunk of time, redirect by offering a previous work that is similar or suggesting a paid trial. Again, don’t take promises of future work as pay. If it’s worth your time, it’s worth your pay.

Charitable work

Volunteering your skills to help charities is a great thing! You are making the decision to offer your work, rather than being asked for free work. As long as it’s something you want to and can afford to give, go for it.

Trades

As we mentioned earlier, you might get an offer for a trade, such as designing a concert poster and getting two free tickets to the show. Use your best judgement for this type of situation and remember that, at the end of the day, trades don’t buy food, pay taxes, or cover the bills. If you’re comfortable with it, however, it can sometimes be fun to trade one person's skills for another.