Entering the world of freelancing can be both exciting and daunting. Inevitably there will be some trial and error, some questionable decisions and some mistakes made. However, with a bit of research, planning and a willingness to learn, the mistakes can be limited to inconveniences rather than disasters.
One area that needs careful thought is pricing. Many freelancers struggle with this and end up charging too much or not charging enough. Both can result in your business failing before it even gets off the ground.
Dinghy was founded by freelancers, for freelancers. We understand the challenges you face when deciding your pricing structure. To help, we’ve put together this ultimate guide to pricing work as a freelancer to help you get what you want (and deserve) from your freelance business.
We will be covering the areas:
- Deciding your value
- Start with the end in mind
- Choosing your pricing structure
- Amending your pricing
- Key takeaways
By the end of the article we hope that you have the confidence to charge the right price for your work, and be justified in why you chose that price. If you have any questions, please ask them in the comments box at the end.
Deciding your value
Valuing your skills and services is the first stage in setting your prices. Some freelancers suffer from ‘imposter syndrome’ and massively undervalue themselves. Others set their prices ridiculously high without first understanding their target market or establishing their credibility within the industry.
What are you selling?
As well as the product or service itself, you are also selling your time, skills, knowledge, experience and ideas. Your prices need to reflect this. If you are too cheap, potential clients might think you aren’t skilled enough for what they need. If you price at the top end of your industry, then you need to deliver more than the basics as your clients will have high expectations.
Know your market
As well as understanding what you are selling, you need to consider who you are selling it to. If your target audience is start-up businesses, then you will probably struggle to sell them a £20,000 website build. Corporate companies will have bigger budgets, but it’s likely you’ll be competing with bigger agencies and well-established experts in your industry. Decide who you are targeting and how you can convince them to invest in you.
Know your competition
There will almost always be somebody cheaper than you and probably somebody more expensive too. Position yourself where you feel comfortable. Pricing lower than everyone else devalues the industry and you will attract clients who don’t truly appreciate your skills. Price too high, and you could price yourself out of the market.
Start with the end in mind
Be realistic about what you need to earn to cover your lifestyle and your costs. Once you have calculated your annual target, you can work backwards. How much do you need to earn per month? How many clients does this equate to? Is this realistic? If you need to win 30 new clients in your first month, is it likely you will achieve this? You may need to take a financial hit in the first few months whilst you build up your reputation and sales pipeline.
Covering your personal needs
Work out how much you want to earn. What earnings would you be happy with in your first year, second year, third, fourth and fifth year? At the very least, you’ll want to cover your mortgage (or rent) and bills in the first year and then increase your earnings going forward. Calculate how much you need to earn as a very minimum to cover your personal costs.
Equipment and marketing
As well as setting yourself an earnings target, you also need to cover the costs of your business. For some freelancers, this can be minimal; a laptop at your kitchen table will suffice to begin with. Others will need specialist equipment, vehicles or office space. On top of your equipment, you need to set a budget for marketing yourself. What advertising and marketing activities are required to win clients?
Legal, accounting and insurance
Depending on your industry, there may be legal requirements, such as accreditations, licenses or lawful contracts.
Not every business will need an accountant or bookkeeper, but it is beneficial to have good accountancy software such as Xero, Quickbooks or Sage. This can help you keep track of your invoices and expenses.
Insurance is another cost that needs to be accounted for. Again, this depends on the nature of your business, but you should consider:
- Professional Indemnity Insurance
- Public Liability Insurance
- Cyber Liability
- Business Equipment
- Business Vehicles
- Income Protection
- Critical Illness Cover
Insurance can be confusing; what type do you need and what level of cover? Luckily, Dinghy specialises in freelancer insurance and offers some exceptional products, designed specifically for freelancers.
Choosing your pricing structure
Once you have decided how much you need to earn and have researched the market, you can decide how to structure your pricing.
Hourly rates can work well for freelancers who offer consultancy work or those who work concurrently on various tasks for the same client. You set your price per hour, track how long you spend doing work for each client and then bill accordingly.
It’s worth noting that if other people in your industry offer fixed pricing, you might find it hard to compete for work if you charge by the hour. Clients may be cautious of an hourly rate if you can’t give them a rough estimate of how long it will take.
When you price by the hour, ensure your price covers the hours you spend on non-billable work too.
As an example, let’s say you want to earn £52,000 in a year and work 40 hours a week. £52,000 over 52 weeks is equal to £1000 per week. Divide £1000 by 40 hours and it works out you need to earn £25 per hour.
However, if you are spending 40 hours a week on billable client work, when will you be running your own business; dealing with telephone calls, marketing, networking, attending meetings, invoicing, chasing payments and taking care of general admin tasks? If you need to work 52 weeks of the year, when will you have holidays or time off? You’ll end up working more hours than you would in a full-time job and you’ll probably come out with less money after expenses.
What you need to work out is how much time you will spend doing client work and how much time you will spend running your business.
For ease, let’s say this would be an even split of 20 hours for each. Now account for holidays, personal commitments and potential sick days throughout the year, so you’ll maybe work a total of 47 weeks over the year. 20 hours of billable work a week for 47 weeks equals 940 hours over a year. If your target is £52,000, then you’d need to charge £55-£56 per hour.
Your billable hours may fluctuate from week to week, but you know that over the year you need to work a total of at least 940 hours to hit your target.
In some industries, a day rate can be the most practical way of working. For example, if you are a copywriter or designer, some clients or agencies may prefer to hire you to work in-house for a day or a week at a time.
If you act as a retained consultant, such as a marketing or HR consultant, you may have to spend one or two days per week or month working at your client’s business premises. A day rate will make billing more straightforward.
You may decide to price on a project by project basis. Get a brief from the client, work out how much of your time will be required to fulfil the brief, then offer a bespoke quote. This works well where every project is different as you can choose your rate to suit the requirements of each individual client.
Fixed pricing may appeal to clients more than an hourly rate because they know upfront what the total cost will be and can budget accordingly.
It is important to ensure you get a clear brief before you agree on a price. You could lose out if a project takes longer than you initially accounted for or involves more work than you expected.
When pricing by project, you should account for research time, client calls and any amendments (if you include these), as well as the project itself.
As with hourly rates, project rates need to cover the time you are not doing client work. Let’s say as an example, your average project rate is £500. To bill £52,000 in a year, you would need to win 104 projects. That works out at 2 projects per week.
If it takes you an average of 5 hours to complete a project, then you can realistically accommodate this. If it takes you 25 hours to complete a project, then you are looking at 50 hours a week for client work. This leaves you very little time to run your business or take care of admin tasks, let alone take a holiday.
Packages can be an easy way to price your work and often appeal to clients because of their transparency. You might package your time, for example, 10 hours per month is £x, 20 hours per month is £xx.
Alternatively, you might package different levels of a product. For example, a basic 4-6 page website build is £x, a 6-10 page website is £xx and a 10-20 page website is £xxx amount. You can then price optional extras such as e-commerce solutions, booking systems or online quote calculators.
Some projects will take you longer than others but hopefully, this should even itself out over the course of the year.
Retainer packages are an excellent option as they give you some level of financial security. If you have several clients on retainer, then you know that as a minimum you will earn £x amount for the next 3, 6, 9 or 12 months.
Retainer packages can be for an ongoing service, such as an accountancy package or daily email management. They could also be for a set item of work on a regular basis; for example, 10 social media posts per day, a monthly blog post or completing quarterly VAT returns.
Retainer packages can also be added on to project work. For example, you may charge a set price of £xx for a website build and then £x per month for hosting and SEO management.
Alternatively, your retainer packages may be based on the number of hours you work with a client each month, regardless of what type of work is completed. This can work well for designers, virtual assistants, bookkeepers and consultants, where the projects can vary each month.
Whatever type of freelance work you provide, aim to offer retainer packages as they are extremely beneficial.
If you only offer one-off project work, you have to repeatedly win new business, which eats into your time. If you retain clients, you can spend more time on the work that makes you money.
Amending your pricing
You might not get your pricing right straight away. In your first year, it can be hard to plan for peaks and troughs and accurately forecast how much business you can win or how long work will take. Once you have a bit of experience, you will find it easier to set your pricing.
The best way to price accurately is to track everything you do. Set yourself a system to record how many new clients you win per month and what type of work you are doing for them. Track your average project rate or hourly rate and the number of hours spent on each project.
You can then use this information to decide which packages or types of work people are most interested in, and which types of project are most profitable. If you aren’t winning enough clients to meet your targets, you might need to adjust your marketing strategy or your pricing. If you are converting all your enquiries into business, then you may be pricing too low.
Increasing your prices
Once you have a good idea of how long projects take, how much business you can win and how much you need to earn, you might decide to increase your prices.
If you have retainer clients, you should give plenty of notice. If you are good at what you do and provide value to your clients, then they will usually be happy with a slight increase. However, if you suddenly double your prices, be prepared to lose a few clients.
If you advertise your hourly rate or packages on your website and marketing materials, then ensure you amend these.
If you intend to increase your prices in the next couple of weeks or months, make it clear on any proposals prior to this that the quote is only valid until a specific date.
Holding your price
You will inevitably get people who question your pricing and say you are too expensive. As a freelancer, this can often cause self-doubt.
If you have carried out research, can deliver what you promise, and have set a rate you feel comfortable with, then be confident in your price.
When to discount
There may be times when it is appropriate to offer a discount. For example, some businesses like to offer special prices to charities and not-for-profit organisations. You might also decide to discount if the project is bigger than usual, the client is high-profile and will improve your credibility, or the project is of special interest to you. Discounting may also be worthwhile if completing the project is likely to lead to a lucrative retainer contract.
You might decide to discount if you are struggling to win enough work to cover your bills and need to work for less until you get back on track.
If you find you are discounting often, then check whether your pricing is right and if you are marketing to the right audience.
Showing how you add value
Be confident in your pricing and give clients confidence too. Ask for reviews and testimonials to show potential new clients how happy existing clients are with your work. Put together case studies showing how you have added value to a client’s business or what return on investment your services have generated.
When you pitch for business, be as clear as possible about what you are offering the client and how this will add value.
People buy expensive cars on finance or take out credit cards and loans to afford the latest gadgets because they believe their life will be better as a result. Show clients that their life or business will be better because of what you offer. If someone believes that there is value in what you are offering, they will be happy to pay for it. Just make sure you can deliver on your promises.
When a new client asks if you can discount a one-off project, you should be wary. If they are unlikely to use your services again, what benefit do you get from discounting? You will simply end up doing work at a reduced rate, giving the client a good deal but not getting a good deal for yourself.
Don’t get a reputation for being cheap. Otherwise, you’ll only attract clients who are interested in securing bargain prices rather than a quality product or service.
If other clients are prepared to pay full price, why should a new client, who you have no relationship with, get a discounted rate? Don’t feel pressured into discounting if it holds no benefit for you. People are quite often working on an ‘if you don’t ask, you don’t get’ theory and won’t be offended if you say you can’t offer a discount. Even if they are offended, do you really want to work with clients who don’t value what you do?
- Set a target to cover personal and business expenses
- Decide the most appropriate pricing structure for your type of work
- Make sure your rates cover the time spent working on non-billable tasks
- Retainer work is highly beneficial
- Track your billable hours and adjust your pricing as necessary
- Show clients how you add value and be cautious about discounting
We hope you’ve enjoyed this article and feel more confident in your ability to price your work. If you have any questions or comments, please post them below.
If you know any freelancers who would benefit from reading the above or anyone thinking of taking the leap into the freelance world, then please share this with them. Help more freelancers price with confidence and get the results they deserve.