As the friction of employment is being removed, many people are taking the opportunity to freelance out their skills. The independent digital craftspeople are arriving thick and fast, but one of the trickiest parts of doing such work is knowing how to price it. Getting it wrong seems scary, as it can be the difference between getting paid this month or not. So the inclination is to take a conservative approach, price low and ensure we get the business. But all is not as it seems. So here are some hacks to remember in order to get your freelance pricing right.
General rule of thumb:
Charge yourself out at least double the rate you would earn in full time employment doing the same work.
So if you would earn $50 an hour, then charge yourself at a minimum of $100 an hour. If you’d earn $100k a year, then your rate should be based on $200K per annum. Divide $200K by 52 weeks and that’s the rate to charge out for a days work. And if you think you were getting under paid in previous gigs as an employee, then you should double the rate you think you should have been getting paid.
We need to remember that being independent has a lot of added costs, and we need to take them into account in our price. Even in a digital world we still have real costs like office materials, electricity and equipment. And there is no one providing us with paid leave, health care or a superannuation / 401k.
But there is also more to it than that. What we must do is put ourselves in the shoes of those who need the skills we can provide. We need to remember the costs of the alternatives and the mindset of the end customer. When we do this, the ‘double the price’ concept won’t seem nearly as aggressive.
Here’s a few things things to remember:
– It usually costs around 50% more than a persons wage to employ them. Office costs, management, administration, payroll taxes, annual leave payments, public holidays and the like really add up. This is inside the calculation of those who need people. They always consider the substitutes and make their own calculations on full time employees, so the premium on your rate is not nearly as high as it seems.
– We also need to remember that it is quite likely they only need your skills temporarily. Short term resources always come at a premium – just think of the price of renting a hotel room, versus leasing an equivalent place for a year – we pay a premium.
– Chances are the ‘buyer’ can’t afford you all year, and while your cost per day might be much more than it would be per day for an employee, you are most likely still a much cheaper option overall. You will be saving them money.
– It must also be said that smart employers know that much of an employees time is eaten by ‘the office paradigm’. Freelancers much less so. In this way, freelancers are usually far more effective in output per hour.
– Price is a perception game – in all products. The natural and automatic perception of all products is that higher priced goods are of better quality. Pricing sends a signal to potential buyers more than anything else in purchasing decisions. And counter to what we might believe, pricing ourselves too low has as much potential to lose work as pricing too high does.
– It’s easier to find people who will pay the correct rate than it is to make a living working for half of what you’re actually worth. It’s better to hunt a little harder to find a premium customer. They also tend to appreciate your work more than cheapskates, and take they advice they are buying seriously.
Finally, we need to embrace the idea that price is an experiment. It is the easiest thing to change in our offer. And we can do it without notice. Over the years of catalogues, discounts and sales, people are groomed to expect prices of all things to vary. Why should a freelancer be any different? So you can play with your prices. In the end it is about finding the right balance of demand with the personal supply of hours you have available.