Determining your rates is one of the hardest things to do as a freelancer. If you charge too much for your work, you may scare away potential clients who can’t pay your rates. If you charge too little, you may not get paid enough to cover your living expenses.
The trick is to keep your rates affordable enough to compete with other freelancers. And you must do this while ensuring you get paid what you’re worth. Here are some steps to take that will help you with that.
Decide How Much Money You Need to Support Your Lifestyle
Before deciding to freelance, figure out how much money you need to make to survive. There are a lot of factors in determining how much you must make. If you have various skills, consider which ones will provide you with the most income. For example, you may desire to work as a freelance web designer or make money with Doordash. Selfgood provides tips on how to make money doing Doordash. Select work that ensures you make enough to pay your bills and put away money.
The jobs you take on must cover your expenses. Typical expenses include food, rent, and utilities. Plus, remember supplies, software, insurance, and anything else you need to do your job.
Look at your expenses and determine the minimum amount of money you need to make. Then, set an annual salary goal based on that.
You may need to make sacrifices if you cannot make enough money initially. For example, if you’re used to getting to-go food nightly, try to cook at home. Simple steps like this will allow you to cut back on expenses.
Billable Vs. Non-Billable Hours
Your minimum annual salary should be based on a full-time work schedule, which is 40 hours a week. If you had a $50,000 yearly salary, you make about $26 an hour. However, this only accounts for billable hours.
As a freelancer, you take on many unpaid tasks. For example, invoicing, replying to emails, and reaching out to potential new clients takes time. These all account for non-billable hours. Keep in mind that they take up a significant amount of your time. You can justify asking for higher rates for your services.
Every situation differs, but the average freelancer’s hourly breakdown is 60 percent billable and 40 percent non-billable hours. If you stick to this 60/40 ratio, you must charge about $43.40 an hour to achieve a $50,000 annual salary. Again, everyone is different. But you can use this as a baseline when determining your rates.
Incorporating Freelancer Expenses
As a freelancer, you’ll have plenty of expenses that a salaried employer will not. These include office space, insurance, taxes, marketing costs, and equipment. Also, be sure to expense software subscriptions you need for your job. Since working for yourself gets expensive, keep track of your expenses on your own or use a site like Freshbooks. You can’t afford to forget an expense. Everything can make a difference when you file your taxes.
How much your expenses are will help you determine how much to charge. If you calculate these expenses and they equal over $10,000 a year, raise your rates to compensate for them. If your annual goal was $50,000 before, expect that to go up to $60,000. That will bring your hourly rate to around $52.
Know the Market Rate for Your Services
Knowing how much money you need to make is only part of determining your rates. You also need to know the average market rate for your services.
Do some research and check your competitors’ rates. If your rates are close to your competition’s charges, you’re charging just enough. If your rates are significantly higher, you could be pricing yourself out of a lot of work. If that’s the best, it’s best to lower your rates.
Lowering your rates doesn’t mean that you should be taking substantial pay cuts just to take on more work. You could lower your rates to make yourself more attractive to clients. Yet, you don’t want to end up starving while working around the clock. So, try to find a happy medium.
Another thing to keep in mind is not to get greedy with your rates. But at the same time, be confident about your worth. If someone isn’t willing to pay the rates you charge, walk away and find another project. Continue doing excellent work you can put in your portfolio. Then, you will find someone willing to pay what you’re worth.
Conclusion
Freelancing is an attractive prospect for someone who likes to be their own boss and set their own schedule. Yet, it comes with a lot of challenges. Setting your rates is the hardest part, but it’s also the most important. As long as you know your worth and aren’t willing to compromise too much, you’ll excel as a freelancer.