An early challenge faced by freelancers is determining what you are going to charge for your time. Though there are examples of average salaries for different industries available online, there isn’t a set fee. When working out your rates, you will need to consider a few different factors likely to impact your fee.
5 Ways to determine your freelance rates
Setting freelance rates is an important task you’ll have to accomplish before getting into the nitty-gritty of the actual freelancing. But when it comes to your freelance success and work-life balance, determining your freelance rates is a key influencing factor that should not be underestimated. Here are a few invaluable pointers on how to set your freelance rates and not regret your decision at a later date.
Put your experience forward
Just because you’re going freelance, doesn’t mean you’re starting from scratch. OK—in terms of freelancing, it does, but not necessarily as a professional! When setting your rates, it’s critical to take into account your real-world experience in the field. Everything from the number of years you have worked in the industry to degrees and certifications you hold can be used to justify your price. You’ll find that freelancers tend to cluster in three main groups – junior, mid-weight, and senior. Research your industry to understand how the categories are worked out to be able to benchmark your own experience against the industry standard.
When the time comes to pitch a new client, it’s best to set the stage with a brief personal story that’s relevant to the client’s brief. You might have worked on similar projects, studied the subject at university or worked for a company that operates in the same industry. Help the client see that you’re not a complete newbie. Once the trust is established, you’ll find the negotiation part of the deal much easier and quicker.
Look at your freelance expenses
As a freelancer, you will be responsible for paying any and all bills that come your way. So, it’s important to consider these expenses when fixing your freelance rate, or you’ll end up working longer and harder to earn a decent living. What sort of expenses could these be?
- Phone & broadband bills
- Website & advertising costs
- Rent & utilities
- Software subscriptions
- Travel expenses
- Insurance costs
- Taxes, pension & student loans
- Legal & accounting fees
- Hardware equipment
- Training & professional education
- Professional membership fees
By working out your total freelance expenses, you’ll be able to average them across all your clients and save yourself from high overheads. Of course, be reasonable when calculating your expenses—just because you want new noise-canceling headphones, doesn’t mean you have to raise your rates to be able to afford them.
Compare against your salary
One thing you wouldn’t want is to go freelance and earn less than what you had while working for someone else. So, quite naturally, a great place to start when calculating your freelance rates is your previous salary. Now, what do you need to do? The rule of thumb is to add a third to the salary you were receiving before to cover things like holidays, weekends, sick days, and various freelancing costs.
Once you have a figure in mind, say €45,000 per year, divide it by the number of days you are planning to work that year. On average, it will be around 220 days, which would bring your day rate to just over €200. And there you have it, your freelance day rate. Depending on your professional experience, skills, and ability to get work, you might end up working more or fewer days over the year, so remember to always adjust your freelance fees to fit your circumstances.
Ask other freelancers
Honestly, just ask! If the thought of broaching this subject makes you shudder, rephrase the question. Ask for a ballpark figure or for a range. No one knows the market better than the people who earn their bread by pitching daily. The easiest way to obtain this information is to turn to your network of friends who are freelancing or join a local freelancer community. Other channels, such as online forums and chat groups, can also prove to be useful.
Set a benchmark
If you don’t have a lot of freelancer friends, focus on doing your research online. Lots of freelancers share their pricing strategies and pitching methods online, so you might find a lot of practical help on personal blogs and freelancer-focused outlets. Besides that, there are increasingly more and more surveys and research reports published by agencies and consultancies around the world—make the most of those to understand the market’s going rate. We also have a helpful average freelance salary table that will give you a better idea of freelance rates across Europe.
What are the main pricing models to use?
There are three main pricing strategies for setting your freelance rates, and each comes with its own advantages and disadvantages:
- Time-based pricing
- Project-based pricing
- Value-based pricing
Time-based pricing is the easiest one of the three strategies and one that new freelancers tend to favor. A lot of professional services businesses work that way, too—you work for an hour, you invoice the client for an hour. Depending on the size of the project, you’d be quoting either your hourly rate or your day rate. The problem with time-based pricing is that you can only earn as much as the hours you’ve got available. In other words, you constrain yourself with a price ceiling. And the only way to earn more is to work more hours.
Project-based pricing requires you to estimate how much effort (and how many work hours) it will take to achieve the result your client is looking for, then quote a total project cost based on that estimate. The benefit of this strategy is that your client agrees to a budget before you start working on the project, so there are no unpleasant surprises at the end of the day. If you’re efficient and know how to manage your time well, you might be earning a much higher day rate than you normally charge. The downside, however, is that you ought to be experienced in evaluating the scope of the project. If you get that first quote wrong, you could end up working a lot more hours or upsetting your client.
Value-based pricing is based on the idea that you’re charging at a perceived value for the client, rather than the time it takes you to deliver the project. For instance, it may only take a day or two for an experienced freelance copywriter to write some killer landing page copy. But if the landing page is estimated to bring the client €15,000 in sales, it’s not unreasonable to charge 5% or 10% of that amount.
The downside to this strategy is that only highly experienced freelancers have the bargaining power when it comes to charging dramatically higher rates than the industry average. To get to that stage, you’ll need a strong portfolio and a highly tailored, value-focused pitch.
An important factor to keep in mind when setting your rates is leaving a little wiggle room to allow for lost benefits. As a contractor, you will only get paid for the days you work, so no standard benefits such as holidays or sick pay apply. Nor any of the additional cash benefits enjoyed by permanent employees, such as pension contributions, car allowance, and other cash or in-kind benefits. Never feel afraid to increase your rates and charge for the work completed—as long as the client sees the long-term value, your fees are justified.
Your money at N26
Going freelance is exciting, and now banking can be too. N26 are here to help with their free bank account for freelancers and the self-employed, which makes things easy, letting you earn 0.1% cashback on all purchases you make, and enjoy free card payments worldwide. It only takes a few minutes to set up, too.