Price your freelance work: 4 models and tips
It can be tough to determine your hourly rate as a freelancer, especially if you’re just getting into the industry. As a result, most freelancers commit the fault of undervaluing or overvaluing their work from time to time.
According to a 2021 study by the University of Toronto, over 55% of freelancers strongly believe that they’re being paid fairly for their work. If you’re also wondering: “How much should I charge for my services?”, then you’ve come to the right place. Keep reading to learn more about the main factors that go into calculating your freelancer price, and review our 4 different methods on how to price your freelance work.
What to consider while calculating your rates
Pricing your freelancer rates can be a real challenge. It has the potential to create a lot of financial anxiety and make you feel insecure about your work. So how do freelancers actually calculate their income, and how do they effectively determine their freelance day rate?
Here are some of the most important things to consider while calculating the price of your work as a freelancer:
Expenses and tax
As a freelancer, you’ll most likely have many additional expenses that go into supporting your solo work career. Your rate of work should incorporate all of these investments you make into your brand, such as the money you spend towards advertising and marketing, internet connection, hosting your personal website, any service costs and/or subscriptions, etc.
An additional thing to factor into your freelancer price are your taxes. Differentiate between your taxable and non taxable income, look into the specifics of paying taxes in your place of residence, and calculate your rates accordingly.
Available work days
While contemplating how to determine your hourly rate, another aspect is your available work days per year. Your price per hour should be able to cover all expenses for the days you’ll be handling your billable workload.
Try to be reasonable and remember that you’re a human being when you’re calculating your availability. Taking regular breaks and having a reasonable amount of vacation days are essential to protect your mental health as a freelancer. Leaving room for possible absences, such as sick days, is also important.
Minimum acceptable rate (MAR)
MAR stands for “minimum acceptable rate”, which means the bare minimum amount you’ll be willing to work for. For those of you wondering: “What should be the hourly rate on freelancer work for beginners?”, setting an MAR would be a great starting point.
Of course, calculating your profit margin shouldn’t mean that you should be content working for your MAR. Think of it as the least possible quantity you’ll need in order to cover your living and working expenses, and always aim above it.
Industry-specific market rates
While on the topic of how to price freelance work, looking into rates in your industry is a must. Finding a basis on how much people in your industry and/or niche are requesting is a great way to not undervalue yourself.
In addition to exploring the current market yourself, there are many freelancer rate calculator websites available online, which usually incorporate the market average to some level. Here is a small list we prepared to help kickstart your hourly rate research (keep in mind that our research is mostly US-based):
When your clients don’t meet the agreed-upon period for payments, you should have a late fee policy in order to compensate for your lost time and effort. Having this policy in your contract will also establish that you’re serious about your freelancing career.
How to price your work as a freelancer: 4 different pricing models
There are four main models to consider when you’re deciding on how to price yourself as a freelancer. These are:
- time based pricing
- project based pricing
- value based pricing
- competition based pricing
Review the descriptions of each one, and decide which freelancer price model works best for you.
Time-based pricing is perhaps the most commonly known among the freelancer price models. In this model, you determine an hourly rate (or, though rarely, a daily rate), and are compensated for the exact duration that you work. There are many methods you can use to calculate this, like using time tracking tools.
Though this is a very popular pricing model while determining your freelancer price, it’s usually not preferred among experienced freelancers. There are several reasons for this:
- It requires you to timetrack very diligently, which might be destructive to the point of affecting your work efficiency.
- It lowers the value of your expertise, since working fast will lower your profit. Ultimately, it’s up to you to decide if it’s a method that can work for you.
With project based pricing, your rate of work can change based on how long the project will last, how intensive you’ll be working on it, how urgent your deadlines are, etc. You can adapt your preset time-based pricing to fit a certain project’s criteria, or create a new rate based on these factors–the choice is yours. Ultimately, it requires a great deal of communicating with your client so you can create a detailed contract beforehand.
Especially if you’ll be working for a long-term project, you might feel the need to guarantee that you’ll get paid. Make sure you’re using a secure platform with invoicing and payment features designed specifically for freelancers to safely self-rule their career, like Ruul. You can also consider asking for a deposit to be paid before you start working, or creating a retainer agreement. A retainer agreement ensures that you will be paid for a certain project and/or duration, even if your work isn’t used in the end.
Value-based pricing is a relatively new concept in the freelancing world. Similar to the previous model, you can determine how you want to calculate value based pricing.
Since it’s based on how significant your work will be to your client, you should incorporate how much traffic/business/growth it will bring to them. One of the best ways to do this would be to charge a small work fee, and then ask for the rest of your compensation as a percentage of their profit. This will also show that you have confidence in the work that you do.
Competitor based pricing, as the name suggests, is the pricing model where you set your price depending on your competition’s rates. Since it doesn’t factor in your living costs, it might not be the best option if you’re just starting out as a freelancer.
This model necessitates a thorough market research for your line of work. For example, you can try to research reliable freelancer job platforms to see what people in your industry are requesting. Doing research on the average hourly rate of other freelancers in your industry can help you on how to charge as a freelancer. You can also ask your friends and acquaintances within your niche about their rates if you want to make a more localized comparison.
Move forward in your freelancer journey
Now that you know what elements go into determining your freelance day rate and how to price your freelance work, it’s time to set your own rates.
Don’t be afraid to try out different methods in different jobs, and see which one fits you and your work the best. Also, keep in mind that you can freely adjust your rate as you gain more experience. Good luck on the rest of your freelancer journey!
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