How to Set Your Prices as a FreelancerApr 04, 2023
By: Scott Trevethan
How much should you charge when you’re a freelancer? The answer depends on a few factors but it is probably more than you think.
Aussies discuss a lot of things openly but somehow money remains taboo. Because of this, many of us are uncomfortable not just talking about it but asking for it.
As a freelancer, you might feel pushy when you’re putting your hand out for money but getting paid is the whole point. You’re going to have to move past the discomfort and make it happen if you want freelancing to work for you.
Let’s dive into some of the most important points about pricing, invoicing and getting paid.
Setting your prices 🤑
The basic rule of economics is supply and demand. The more people want something, the more they will pay for it. Think ice cream on a sunny day, tickets to the world’s number-one-selling band — or toilet paper in the early days of a pandemic.
In the world of business, if you have something people want, they will be willing to pay more for it. However, it’s not all about the ‘thing’ you can give them. It’s about the quality of the thing, the level of your service and the speed at which you can deliver. It’s also about whether or not they can get the thing from anywhere else.
If you’re freelancing and there are very few people who do what you do, you can set your price high from the get-go because you have less competition. If you're in a field with lots of others who offer similar services, your prices should reflect your skill, the quality of your work and the number of requests you get each week.
In the beginning, you may be ok to set your prices low just to get runs on the board. You can jump on sites like Fiverr and Upwork and grab the pennies being flicked out, or agree to do hours of work for your friends in return for a case of booze. But this isn’t sustainable for a couple of reasons.
First, if you don’t charge enough, you won’t have enough money to pay all your bills and enjoy your life.
Second, you are creating a ‘race to the bottom’ and devaluing yourself, not to mention others in your industry.
With all that in mind, here are some ways to set your prices:
Look at what others are charging
Do some sneaky shopping around to see what other people are charging per hour, per report, per one-on-one session, etc.
Consider the ‘opportunity cost’ of doing something else
How much would you expect to be paid if you had a job doing what you do? Can you earn more than that per hour as a freelancer? Hint: you’re gonna need to because you’re running a business, not just doing a job.
Choose the annual salary you want to earn (e.g. $100,000) and work backwards, breaking down how much you will need to earn per hour, after expenses
When you do your sums, don’t forget that you will have to pay tax on top of your income.
Going back to point two and the consideration of what you could earn in a job, don’t set what you were paid per hour when you were employed full time as your rate.
When you have a job, your employer pays for your equipment, your insurance, the software you use and even the biscuits in the kitchen. If they are billing you out to a client, you can guarantee you’re not seeing 100% of that money. Your employer needs to keep some of it so they can pay bills and also make a profit, otherwise there is no point being in business.
Let’s say you earned $50 per hour at your old job, which works out to a salary of just over $100,000. If that’s the kind of money you’d like to earn, you need to add a premium to cover your operating costs and expenses. You should factor in enough to pay yourself superannuation plus some breathing room to tide you over during lean weeks or when you’re on holidays. Then you need to consider how much time you’ll spend fiddling around with emails, taking phone calls and trying to remember the password for your task management software… none of which you get paid for.
So... where a paid worker may earn $50 per hour, your rate may actually be closer to $80 or even $100. If you’re worried businesses may baulk at this, consider how much they are saving by not paying a full-time employee to do what you do. By using your services, they are skipping the cost of office space, insurance, the cutlery that employees sneak into their laptop bags, etc.
How to set your prices 🤗
Your next step is to decide how to price. Your options are:
- By the hour.
- By the job/project.
- By the task e.g. research/draw/edit.
- By the word (if you’re a writer).
- By the person (if you’re doing make-up, etc.)
- By the day, week or month.
- By the item.
- By the package.
Depending on what you do, you may have a mix of pricing options. It can help to be flexible and to have a couple of options ready.
Here are a few things to keep in mind about pricing:
- If nobody is buying, you are probably too expensive.
- If everybody is buying and referring their friends to you (and you’re not making much money), you are probably too cheap.
- You are the one who sets your pricing so you have the option to increase or decrease it at any time.
- Some freelancers have different rates for different clients. This is fine, particularly if you know some clients take up more of your time or if you have a mix of big business/not-for-profit types that you work for. Just make sure nobody sees a rate card with a lower price than what you charge them.
- It can be a good idea to set a ‘mates rates’ price for friends, family and goodwill jobs and have a limit for how many you will do per month.
- Upsell, baby! Packages can help you to increase the amount you earn from each client. For example, a photographer may offer an engagement + wedding package with a bonus family portrait voucher. This is three jobs acquired from just one customer.
- If you offer a few different services, create a rate card so you’re not forever explaining or trying to remember your prices. You can add it to your website or email people who want to know how much you charge.
As a final tip, remember to review your prices regularly to make sure they are delivering the income you need to get by.
Scott Trevethan is a financial professional who helps freelancers to stay in control of their money. This article is an excerpt from his book Finance for Freelancers.