Leaving Work Behind

Freelancing: a Complete Guide to Setting and Negotiating Rates

Written by Tom Ewer on June 27, 2012. 90 Comments

Freelancing: a Complete Guide to Setting and Negotiating RatesIt’s the most common question I receive from aspiring freelancers of all types:

How much should I charge?

The question comes packaged in various different guises — whether it is a beginner dipping their toes in the freelancing waters for the first time or someone who has been freelancing for a while but wants to renegotiate their rate with a client.

Setting and negotiating rates can seem like one of the most complicated and intimidating parts of freelancing but it really doesn’t have to be. Today I am going to give you an in-depth overview of how to set and negotiate rates with prospective and existing clients.

Although I am a freelance writer, I believe that most of the following advice applies to any service-based business.

Your Minimum Acceptable Rate (MAR)

The first thing you must do as a freelancer is ascertain the lowest equivalent hourly rate you are willing to work for — your Minimum Acceptable Rate (MAR).

If you are already a full-time freelancer (or are planning on being one), your MAR calculation should look something like this:

( (personal overheads + business overheads) / hours worked ) + tax

Let’s look at a practical example. Say your personal overheads (i.e. the total cost of keeping a roof over your head, food on your plate, and so on) are $30,000 p.a., and your business overheads are a projected $5,000 p.a. You plan on doing client work for 6 hours a day for 48 weeks of the year (1,440 hours total). Here’s the calculation for your MAR (gross of tax):

($30,000 + $5,000) / 1,440

Your MAR (gross of tax) is $24.31. Add say 20% for tax, and your MAR (net of tax) is $29.17.

If the above calculation seems a little rough, that’s because it is. Don’t concern yourself with trying to set a precise MAR, because there are far too many variables at play to perfect it anyway. Using the above calculation does the job well enough, as long as you err on the side of conservatism.

Another way to calculate your MAR is to take your previous (or current) salary and divide it by the number of hours you plan on working. The addition of overheads should be covered by the reduction in tax from being self-employed, but you may want to confirm this for yourself.

I am not a fan of this approach – you will probably be underselling yourself wildly. Freelancers should earn far more than employees, pound for pound. However, it can be a good starting point — it’s the calculation I made when I was deciding whether or not quit my job.

If you are just getting started with freelancing part time, your MAR is more a case of how highly you value your own time. You need to work for an amount of money that puts you in the right mindset to deliver an exemplary service. If you do anything less, you may deliver poor work and end up damaging your reputation.

As you develop as a freelance writer, your MAR may increase based upon how much you want to earn, as opposed to how much you need.

Pricing Format

When it comes to deciding how you should price your services, start with this key understanding in mind — charging by the hour is one of the worst mistakes a freelancer can make. There are two key reasons for this.

1. It Limits Your Earning Potential

If you charge by the hour, it will only be natural for you to work less efficiently than if you had priced on a per job basis. And given that you only have a certain number of hours available in the day, you are essentially capping your maximum earning potential. You can of course raise your hourly rates, but you will still only have the same number of hours to work with (literally and figuratively).

If on the other hand you price on a per job basis, you are limited only by the speed in which you can complete your work. You will learn to work more productively, and in turn, will earn a higher equivalent hourly rate (and impress clients with your efficient style and quick turnaround).

2. It Clouds Your Clients’ Judgement

An hourly rate is a big psychological hurdle for many prospective clients. The same job priced in two different ways can provoke wildly different reactions.

Let me explain. Say you’re presented with the opportunity to write a 1,500 word article on a complex and technical topic that you just happen to be well-educated on. Given the nature of the content, the client is happy to pay $150 for the article. He assumes it will take 3 hours, and deems $50 to be a reasonable hourly rate (but you don’t know that).

Consider these two different pricing approaches:

  1. State that the article will cost $150 to produce
  2. State that the article will take you around an hour to produce, and will cost $150

The client would happily accept option 1. He would almost definitely balk at option 2.

It’s simple psychology — the perception of value. Chris Guillebeau touched upon this in The $100 Startup. He paid $50 to a locksmith for an ultra-quick turnaround in an emergency, yet he felt shortchanged by the transaction. Chris remarked on his illogical reasoning:

…I realized that I secretly wanted him to take longer in getting to me, even though that would have delayed me further. I wanted him to struggle with unlocking my car as part of a major effort, even though that made no sense whatsoever. The locksmith met my need and provided a quick, comprehensive solution to my problem. I was unhappy about our exchange for no good reason.

Our theoretical client would feel illogically unhappy about pricing option 2, in the same way as Chris did about his locksmith experience. The difference is this — most people don’t have Chris’ presence of mind to understand their illogical reasoning.

Your competence and the speed at which you are able to do you work can have a huge impact on your bottom line. Don’t undercharge yourself by charging by the hour just because you happen to be good at what you do and can do it quickly and efficiently.

Service Value

It is always important to view your work through your client’s eyes and from a commercial perspective.

Consider this: how will your work benefit the client? How will it positively affect their bottom line? The answer to this question dictates in part the amount you can charge.

For instance, an article for a small business blog is likely to have a relatively limited impact. If on the other hand, if you are writing copy for a huge multinational corporation, the benefit of your services could be enormous. You should price accordingly.

Bear this in mind when developing your freelancing business. When possible, place your services in what I like to call “huge client benefit areas.” Instead of writing blog posts for small clients (small client benefit), migrate your services to high-end blog editing for Technorati 100 blogs (huge client benefit). Instead of designing logos for local businesses (small client benefit), work as a design consultant for Fortune 500 companies (huge client benefit).

Such ideas may seem outlandish at this point in your career, but it’s amazing where endeavor and planning can take you.

The Competition

What you can charge depends to a large extent on how much your competition charges.

But what are they charging? Can you find out? Many freelancers post their rates on their websites. You might even consider asking them — the worst they can do is tell you to sling your hook.

Furthermore, how good area they? How does their experience compare with yours?

In essence, the overruling question is this: where do you fit in with the competition? Are you nearer to the bottom or the top of the scale? The answer to this question dictates how aggressively you should set your rates.

Supply and Demand

I recently negotiated an improved rate with a client of mine. However, it wasn’t as high as I wanted it to be. But I couldn’t argue with her point of view:

Writers are, I gotta be honest, insanely easily to come by for very few dollars indeed…given that my background is in writing, it’s pretty scary. I’ve got friends who are Financial Times journalists that are increasingly shitting themselves! I mean, it’s great for the company and all that, but not for quality folk…

I don’t agree with her clear implication that you can’t make money writing. However, I don’t doubt for a moment that she can find an abundance of cheap writers for the type of content her blog produces.

My point is this: an abundance (or dearth) of other freelancers like you has a hefty impact on the rate you can set. And here’s the kicker — the lower the quality of work you do, the higher the supply of similar freelancers is.

So be aware of supply and consider how it can affect your rate. But most importantly, work hard to get yourself above the first few rungs of the ladder as quickly as possible — otherwise you will always be dealing with negotiations like the above.

Furthermore, consider the demand specific to you. Do people approach you by referral? Do they seek you out specifically because they like your work? Such prospective clients are likely to value your work far more highly than those that you seek out.

Indirect Benefits

When setting or negotiating a rate (and/or considering your MAR), it is important to not think solely about financial compensation.

Take the client mentioned above. I continue to work for her, even though I get paid an equivalent hourly rate of about half as much as every single other client I have.

Why? Because of the indirect benefits. Namely the following:

There are many more indirect benefits that can affect the rate you would be happy to accept, such as potential (could the work lead to greater things?), and referrals (e.g. a client in a new sector). Bear them in mind.

Negotiating

Negotiation is something that comes fairly naturally to me. I worked in property management and development in my previous life, and was no stranger to seven figure negotiations. That may well be why I have no difficulty in negotiating with freelance clients on what are, by comparison, minuscule deals.

But that doesn’t detract from my firm belief that negotiating does not have to be a terrifying prospect. Whilst the common perception seems to be that clients are after a cheap deal, I have found that not to be the case, for the most part. This could be a side-effect of the forward-thinking blogging culture I generally operate in, but you only have to see how well my friend Ruth is doing to see how handsomely corporate clients are prepared to pay.

With that said, let’s delve into the world of negotiation for freelancers.

The Scope of Works

Always be certain of the scope of the job you are pricing. I cannot stress that enough.

A freelancer’s worst nightmare is a misunderstanding between them and a client regarding the scope of the works. This can lead to a faltering relationship, and extra hours allocated to a job that you did not budget for.

Make sure that you come to an agreement on the precise nature and scope of the work. If the job is to be more of a work in progress, come to a temporary agreement with the client, on the basis that a firm contract will be agreed for the long term at a future date.

But whatever you do, make sure that you come to a unambiguous long term agreement regarding the nature of the work. This can be in the form of an email exchange, or a formalized contract. The point is that you must be able to clearly demonstrate that you have delivered exactly what the client asked for.

Pricing a Job

The key to pricing a job is to break it down into its constituent parts.

Once you have segmented a job, allocate a conservative time frame to each part (plus contingency). Add up all the elements, and consider adding an overriding contingency.

The client is more likely to negotiate than not, and many will feel that they are being hard done by if they don’t get the price knocked down at least a little (regardless of whether or not the price represents true value). So be sure to price your job accordingly.

What is hopefully clear at this point is that all of the above factors should be taken into account when pricing a job. Ask yourself the following questions:

Your MAR is your bottom line. The key now is in making a proposal that strikes a balance between maximizing your earning potential, and not scaring the client off.

Worst case scenario, your prospective client sees your price, and walks away. The likelihood of this is small, unless you have really priced yourself out of the market (in which case, you need to go back to the drawing board in terms of analyzing what you deem to be a reasonable rate).

It is far more likely that they will attempt to negotiate you down, which is where the conservatism you built into your price comes into play.

How hard you choose to negotiate above your MAR is essentially down to how much you want the job. Do you have lots of work booked? Can you afford to play hardball? Or, are you in need of any and all work at or above your MAR? Consider your situation and negotiate accordingly.

Remember, so long as the equivalent hourly rate is above your MAR, the additional pay represents the potential for a boosted income. It is not the difference between life and death. If you are genuinely in need of the work, don’t try to get too cute with your negotiations.

Your Bottom Line

If your client attempts to negotiate below your MAR, you have one of three options:

  1. Accept
  2. Stand your ground
  3. Negotiate the scope of works

Option 1 is only to be considered if you feel that the indirect benefits associated with the job outweigh the difference between the actual equivalent hourly rate and your MAR.

I have a client who is a prime example of this. They pay me a little under my MAR, but I get a free link back to this blog in return, which makes up for it. After all, I expend plenty of energy in promoting this blog without any financial reward, so getting paid to do the same can’t be a bad thing, can it?

Option 2 should be taken if you are comfortable that your MAR should not be breached for the job at hand – a straightforward decision if there are no indirect benefits.

Option 3 represents a compromise in service delivery, and I am not keen on it. It can often lead to client dissatisfaction, and a fractured relationship.

Generally speaking, I will stick with option 1. After all, if they are not willing to pay what keeps a roof over your head, why on earth would you want to work for them?

Finally, if a client plays hardball and you find yourself saying “I might be willing to work for a little less,” it may be time to reassess your MAR.

Retainers

In my opinion, you should never request a retainer (unless the job is particularly large and will require a lot of upfront investment).

Nothing screams “I don’t trust you” more than requesting a retainer. It is not a good way to start what will hopefully be a profitable long term relationship.

Instead, vet your clients appropriately. If you are uncomfortable with the proposed payment terms, suggest a shorter payment period over a probation period, followed by a permanent long term agreement (if applicable to the scope of works).

Finally, understand that the occasional non-paying client is a cost of business. The sooner you accept that, the better.

Rates Are Not Permanent!

Budding freelancers are often paralyzed into inaction when it comes to setting rates. But remember this: each client is only one client, and rates are never permanent. In negotiating a rate with a client, the worst outcome is that you lose that client. It’s not the end of the world.

I’ve said the following to new clients on more than one occasion:

Let’s start with this, and take stock after a few articles to see how expectations match reality in terms of the scope of works.

I have never had a client react negatively to this. The answer has always been something along the lines of, “that seems fair” (because is fair — for both parties).

If you act towards your client in such a way that demonstrates your trust, they are far more likely to want to work with you, than try to rip you off. And if you are totally transparent in the way you do business, they will want to work with you in the long term.

In conclusion, the key to setting and negotiating rates successfully (beyond your reading of this article) is simply to do it. The more clients you negotiate with, the more experienced and capable you will be come. It’s that simple.

If you have any questions, please don’t hesitate to ask in the comments section, and if you found this guide useful, please share it with your friends and followers!

Creative Commons photo courtesy of Alan Cleaver

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90 Responses to “Freelancing: a Complete Guide to Setting and Negotiating Rates”

  1. Chris
    June 28, 2012 at 1:25 pm

    Ah – the crippling first question “How much should I charge?”…

    Brilliant guide Tom – thanks. Asking “where do you fit in with the competition?” is a helpful starting point I think. I’m quite new to freelancing, but looking at the competition seems to be a quick way to get moving, before adjusting prices further down the line if needed.

    Clearly defining the scope of work is so important too. As a minimum, in writing by email. I have fallen foul of that before. Never again – although it’s easier said than done!

    Chris

    • Tom Ewer
      June 28, 2012 at 5:03 pm

      Hey Chris,

      I think setting your MAR is the right thing to do up front, but moving onto an assessment of the competition is a logical second step.

      As for clearly defining the scope of works being easier said than done, I totally agree. You learn with experience!

      Cheers,

      Tom

      • Chris Walker
        August 1, 2012 at 11:44 pm

        Hey Tom,

        Just wanted to say thanks for everything you’ve shared on freelancing so far (this post and others). I’ve just landed my first client (first post should go live tomorrow), and I’m pretty sure I would have bottled it if you hadn’t convinced me it was possible, and laid out how to get there over the last few months.

        Keep doing you’re thing – thanks :)

        Chris

  2. Charley
    June 28, 2012 at 4:12 pm

    Hi Tom,
    I totally agree with your reasons why writers shouldn’t charge by the hour. But as the situation is in every aspect of life, there will always be upsides and downsides. I believe per hour payment is more convenient (for me of course).

    • Tom Ewer
      June 28, 2012 at 5:05 pm

      Hey Charley,

      How is it more convenient for you? I’m curious…

      Besides that, I prefer higher earning potential above convenience ;)

      Cheers,

      Tom

      • Charley
        June 28, 2012 at 5:35 pm

        My responses to your points:
        1. The speed at which you work limits your efficiency, whether you are being paid per hour or per job. I could complete a 3 hrs project in 2 hrs and submit it 1 hr later. I’d still get “my hourly rate x 3″. If you ask me, only a lazy or unserious freelancer will attempt to complete a job within the projected time instead of lesser.

        2. Why would my client have a low opinion of my work just because I was faster than he expected or because the estimated time I stated was less than he expected? That could be true, but I don’t see how it’ll affect earnings (and the ultimate goal is to earn as much as possible).

        The convenience of hourly payment is evident and doesn’t need to be explained. Furthermore, with hourly payment comes higher earning opportunities (contrary to what you think). For example, if you agreed on $250 for a project you thought would take 3 hrs of your time and it ended up occupying your whole day, how in the world would you get your client to pay you more?

        Opinions differ of course but I’d opt for hourly payment any time.

        • Tom Ewer
          June 29, 2012 at 5:41 pm

          Hi Charley,

          You say that “the speed at which you work limits your efficiency”, but I would argue exactly the opposite (i.e. your efficiency defines the speed at which you can work). I don’t understand how you are reaching this conclusion. Perhaps we’re just getting down to semantics…

          You could simply bill more hours than it took to do a job, but no professional freelancer would do that, so I don’t understand how that point is relevant.

          I must be lazy and unserious, because I always aim to complete a job within the project time. If I finish it in less time, it is a bonus (and an effective boost to my equivalent hourly rate). I usually do finish in less time, because I am conservative in my projections (as you should be).

          I’m not claiming that a client would have a low opinion of your work if you finished it quickly, so I’m not sure of the relevance of that statement.

          I understand your argument regarding higher earning potential, but I don’t agree with it. You’re essentially saying, “If I completely misunderstand the scope of works (in which case you’ve failed in your due diligence, and should slap yourself on the wrist and learn from your mistake), and woefully under-budget the necessary time needed for the work, I can still recoup my hourly rate”.

          Putting aside that such a situation has essentially revealed a failing in your ability to successfully budget for work, your client will probably be seething (and may well refuse to pay the full amount), because unless they are in the business of simply telling you to get on with it, regardless of how long it takes, you will have already given them an idea of how long it will take.

          Having said the above, since you’ve stated that the convenience of hourly payment is self-evident, I guess that there is no further discussion to be had (although I must say, taking that position might be considered a little arrogant).

          I don’t mean to offend you with any of the above, but I am surprised at your outlook and am keen to better understand your reasoning.

          Cheers,

          Tom

          • Charley
            June 29, 2012 at 8:08 pm

            Hi Tom, you completely overwhelmed me with your last comment and invalidated my argument. With that said, I rest my case. I still maintain that hourly payment is ideal for freelancers, but I’m now too weak to argue. I’m going to test though and see which option is best. I’m being paid per hour currently.

  3. Thomas @ Mobile App Tycoon
    June 28, 2012 at 4:49 pm

    Very detailed post! I definitely agree with a lot of your points here – it’s super important to have a minimum rate in mind that you would accept for your services. It’s also a good idea to negotiate IN services rather than negotiate OUT money. That’s a win-win for everyone because you get more money and your client gets a better value!

    Thomas

  4. Corinne
    June 28, 2012 at 6:56 pm

    Great info! This is an age-old question for freelances. Even when I have set my prices, I always find myself questioning them or wanting to tweak them.

  5. Sam
    June 29, 2012 at 5:21 am

    Hey Tom,

    Useful article, Im curious why you dont use your blog to focus more on the freelance writing side of things, possibly become a hub for people looking for this sort of information.

    It seems like that’s what you’ve become a bit of an expert in since you started your journey.

    Just a thought,

    All the best

    Sam

    • Tom Ewer
      June 29, 2012 at 5:29 pm

      Hi Sam,

      I certainly wouldn’t consider myself an expert (although I appreciate the compliment), but plenty of future posts will be dedicated to freelancing – that’s for sure.

      However, there are also related topics (entrepreneurship, mindset, and so on) that I love to write about, so it’s a case of balancing them out.

      LWB is really for anyone interested in quitting their job and creating the best life possible. Freelancing, to me, is one way in which you can do that, and a way in which I have experience, so it’s not going to get neglected.

      I hope that answers your question :)

      Cheers!

      Tom

  6. Leslie
    June 29, 2012 at 6:25 pm

    Fantastic post Tom! My only gripe is that you didn’t write it three months ago, before I accepted a steady blogging and web content gig for a ridiculously low hourly rate!

    I was pretty short on work at the time, even considering looking for a non-writing part time job to make ends meet, and every one I talked to said, “you can’t make the same hourly rate for steady work as you can for a project” so I accepted it, even though it started out as less than half of my usual rate.

    The more I have written for this client and the more I understand his businesses, the faster I am writing. I cannot in good conscience slow down, but he is now getting excellent (if I do say so myself) SEO’d 500 word web pages and blog posts, with inbound and outbound links and a photo! for about $15 each at this point…

    Yikes! Time to sit down and reassess. Any advice?

    Love the clarity of your writing, by the way!

    • Tom Ewer
      June 30, 2012 at 12:18 pm

      Hi Leslie,

      First of all, thank you! You’re very kind :)

      In fairness, it is often true that you can’t make the same hourly rate for steady work, although there are certainly exceptions to that rule (and of course, it shouldn’t be much less.

      May I ask how long it takes you to write the posts? And if there is any additional benefit beyond the financial to working with this client?

      If you could write the posts in say 30 mins, it wouldn’t necessarily be disastrous. $30ph x 8 hours per day x 5 days per week x 50 weeks per year = $60k p.a. Obviously there are potential flaws in my calculation (writing 8 hours solid a day is really tough, etc), but perhaps you should take a view along those lines in terms of calculating your MAR (as a starting point).

      This is of course all dependent on how easily you can find better-paying work. $15 for a 500 word article is very low, regardless of any other point I make. Based solely on your comment alone, there is no doubt that you have the potential to earn far more.

      Hope that helps!

      Tom

      • Jen
        November 2, 2012 at 2:33 pm

        Hi Tom –

        I’m just now starting my writing career, and have my first client, who’s a very small company willing to pay me $15 per blog post. The posts are currently monthly, and are typically about 300 words. It only takes me about 15-30 minutes to create a post…would you say that’s a fair amount, considering I don’t currently have a large portfolio of work to share to make the case that I need to charge a higher rate? (BTW, I keep seeing lots of job posts for freelance blogging that offer $15 an hour, which I can’t believe. I’m glad to see your opinions that this would be way too low).

        Thanks so much!

        Jen :)

        • Tom Ewer
          November 2, 2012 at 3:33 pm

          Hey Jen,

          1. $15 isn’t crazy low to start with — that’s the precise hourly rate I started on (albeit for a high authority blog that gave me indirect benefits). Whilst I would always encourage people to up their rate pretty quickly, the fact that you’ve started above that is great!
          2. Think less about how long it takes you to write a post, and more about the value you deliver. I wouldn’t write a 300 word blog post for $15, but $15 for 15-30 mins work isn’t too bad at all. So consider instead how much you feel the client values the post itself, rather than your time. Does that make sense?

          Cheers,

          Tom

    • Justin
      July 1, 2012 at 7:42 pm

      Hey Leslie!

      I would add that having writers adjust their rates over time is something we’ve come to expect. We require a TON of content to do what we do and, honestly, our pay scale is really at the low end of the spectrum. It’s not uncommon for us to take a few new writers on for a while and they ultimately “graduate” to the next level.

      While we generally can’t afford to pay their higher rates for our process, we understand this is just a part of the business and are happy to part ways. If you can get to the point where the majority of your clients are paying your higher rate and that continues to grow, re-negotiating with your current (major) client is not at all unreasonable. Because they’re giving you higher volume, still giving them a discount off your current rate would be a nice touch.

      Lastly – I would give them a timeframe rather than just switching it up right away. Let them know they have a 30 day period so that if they’re not going to continue with you they have time to find a replacement writer.

  7. Josh Escusa
    June 30, 2012 at 4:54 pm

    Great tips for people new to the game! I use to do site transferring for people when I first started and it would only take me about 5-10 minutes to do because I had done it so many times. However, it was a very important task that needed to be done correctly otherwise the site could get messed up. Even though it only take a few minutes, I charged $25 to do it. If I ever told them how long it actually would take, they probably would have balked at the idea just as you mention in your example above.

    • Tom Ewer
      July 1, 2012 at 7:04 pm

      That’s a good example Josh. The point is in the value proposition – is what you do worth $25 to the client or customer? If the answer is yes, it doesn’t really matter how long it takes you.

  8. Charles Green
    July 1, 2012 at 10:56 pm

    Great post and perfect timing as I’ve recently gone from full-time contractor to independent consultant.

    You make many good point. When previously working on side projects I always preferred fixed price projects as long as they had a well defined scope. For all large projects I usually broke them up into smaller milestones and treated each step as a project in itself.

    At times when I was working on either a proof of concept or when upgrading legacy systems I’ve generally opted for hourly rates as surprises can show up.

    Recently my business I’ve added a bit of a twist by adding international customers to the mix and now I am faced with going from local pricing to global pricing (US & Japan) and I am trying to determine if it is better to lead with a single pricing structure as all the work is being done in the US or if it makes more sense to continue going with locally adjusted pricing in each area.

    Any thoughts or recommendations?

    • Tom Ewer
      July 1, 2012 at 11:23 pm

      Hi Charles,

      You’ve pointed out a couple of good examples where you might choose (wisely) to charge by the hour. I probably should have made a better point in the article (rather than just implying) that charging by the hour is a good idea when it is not possible to get a good handle on how long a project will take.

      As for your question – it’s a good one. I have no experience in working with Japanese clients, but I do have clients in Australia, America, Eastern Europe and the UK. In the UK I go with pounds sterling (as I am also UK based) – everywhere else I go with US$. I think that most clients who work with international service providers expect to pay in dollars, but that assumption might be incorrect.

      Cheers,

      Tom

  9. Dragos
    July 2, 2012 at 3:45 am

    Great article!
    I’m always trying to figure out the client’s budget and what I can offer in exchange for that. Never charge per hour though. It’s irrelevant, just because I build websites faster that doesn’t mean I should make less. Obviously.

    • Tom Ewer
      July 2, 2012 at 7:55 pm

      Hey Dragos,

      It is obvious to some, but not to others. It’s definitely a defining moment for a freelancer when they make the realization!

      I love this statement by the way: “I’m always trying to figure out the client’s budget and what I can offer in exchange for that.” Great advice to live by as a freelancer.

      Cheers,

      Tom

      • Dragos
        July 2, 2012 at 8:04 pm

        I also hate when somebody comes to me and asks: how much for a website? As if it’s potatoes :)

        It’s still better to be asked “how much for that?” instead of “how much do you charge per hour?”

        Tom: I wish I can live by my advices :) Sometimes I don’t do what I preach. That’s because I’m still at the beginning. I’m almost a week in being full time freelancer.

  10. Dave
    July 2, 2012 at 9:34 am

    I will certainly go for a whole figure payment without specifying the number of hours. I totally agree on the point on “cloud your clients’ judgement”. We may complete the items faster than we think.

    Thanks for your article!!

  11. Tracey - Life Changing Year
    July 2, 2012 at 10:33 am

    Super helpful post. I must admit to reading it in two parts as it was so indepth. I find it really difficult to set rates – I’ll use these tips the next time I price a job. Love the idea of no more hourly rates!

  12. Dragos
    July 2, 2012 at 8:05 pm

    When I buy a car I don’t ask for the man hours spent on making one.
    We buy concepts and convenience.
    We buy visions :)

  13. no
    July 3, 2012 at 9:22 pm

    Great post! Thank you!

    Unfortunately, for the last year or so, I am forced to grossly undersell myself.

    When you have to put food on the table, there is no “MAR”.

    What is even more depressing is the fact that my work (mobile app development) is something that should be in demand and some of local freelance developers are charging 5-10X more (that’s X , not %). I even have nice portfolio and real references from known clients.

    Sometimes I think I am in it just for the freedom… and will end up eventually as a homeless guy from the recent Hacker News story.

    • Tom Ewer
      July 4, 2012 at 3:06 pm

      Hi no (interesting name…),

      Well it sounds like your MAR is whatever it takes to put food on the table. There’s always a MAR…

      It sounds like you need to objectively assess why local developers are able to charge so much more – what do they offer that you don’t, or how do they promote themselves more effectively?

      Cheers,

      Tom

  14. Kathi
    July 5, 2012 at 3:20 pm

    Thanks, Tom! Great post. I give project quotes whenever I know the time involved, and save hourly rates for anything that seems like it could succumb to project creep. I enjoyed the chance to review my thought process, though. It never hurts to reexamine why I’m doing something the way I am. It’s also food for thought as I work towards being completely online as a designer since I will need to set prices without immediate feedback from prospects.

  15. Gregory Ciotti
    July 6, 2012 at 8:38 pm

    This is a great piece Tom, and the “core” of the piece (that you shouldn’t charge by the hour) is really interesting.

    I will play Devil’s Advocate here though…

    Without an hourly rate, you are pressured (internally) to complete your work as fast as possible.

    For some longer projects, this could be a hindrance.

    I’ll give an example.

    I’ve been paid as a content strategist to create full e-Books and whitepapers, these can take 4-5+ hours to create, easy.

    If I was getting paid a set rate, I’d have to spend some time brainstorming and the like, and this is hard to guess.

    Say I brainstorm + outline for 2 hours when I expected it would only take 1.

    If I was getting paid by the hour, that’s fine, because I’ll just add that to the bill.

    If it’s per project, now I’m pressure to complete the full thing faster, or to just take extra time to work on it, now reducing my overall rate.

    I hope you get what I’m saying here.

    My point being, a HIGH hourly rate allows you to take things at the “right” pace, not necessarily the fastest pace.

    • Tom Ewer
      July 6, 2012 at 10:53 pm

      Hey Greg!

      How’s it going?

      “Without an hourly rate, you are pressured (internally) to complete your work as fast as possible.”

      I agree with your statement to an extent, although I would phrase it differently. I wouldn’t use the word “pressured” – I would simply point out that your equivalent hourly rate is determined by your speed and ability to accurately budget your time.

      I think that your example straddles the ground between “you should be better at estimating the time taken” and “you should be billing by the hour”.

      As a few other people have (quite rightly) said in the comments, you should charge by the hour when the project length is particularly difficult to estimate. I don’t disagree with that (and perhaps should have explicitly stated so in the article).

      But whenever possible, I would advocate charging per project. So in the example you mentioned, I would suggest that you build in a healthy contingency, taking into account your uncertainty regarding brainstorming.

      Cheers!

      Tom

  16. Rosyel Sawali
    July 10, 2012 at 11:03 pm

    Hi there! I found your blog from attending the Hot Seminar Series by Kelly McCausey. I actually didn’t make it to the live one but I did listen to the recording in full. I’m really glad I did as I learned lots from it. I’m a blogging enthusiast and have indeed considered doing freelance writing. At the moment, however, I’m into blogging on my site mainly. I guess you can say I like it that way. Thanks for sharing this article and your expertise. Your insights will help me a lot to decide should a writing opportunity comes within my reach.

    Rain

  17. Raj
    July 12, 2012 at 11:11 am

    Great Article Tom!!! Very informative for any freelancer, helps in estimating yourself for freelancing work..

    I totally agree to your point – “that you shouldn’t charge by the hour” :)

  18. GnomeDromeMaster
    July 14, 2012 at 2:52 pm

    over-analyzed on price setting, try these instead–

    1. simply know what size of check you want to see in de ole mail box

    2. visit a parking lot to view plate #’s, pick # that looks good to you, X2

    why did you talk in miles not kilometers on lori story?

  19. Gaby
    July 30, 2012 at 6:09 pm

    Hi Tom,
    Thank you for sharing. Translation business is so much alike!

    Thank you again. Brilliant!
    Gaby

  20. Paulo
    October 10, 2012 at 8:16 am

    Hi Tom, great article, as always.

    Wanted to also thank all the feedback contributors who’s snippets of wisdom are also very valuable!
    I’ve been lucky that I have a lot of friends who run companies that have been willing to allow me to experiment and build up a quantified model by doing social marketing and promotional work for them in my spare time. I now have a much better understanding of my scope of works and what the value of it is and also have a portfolio of customers who are delighted with the service I am providing them.
    I live in Midlothian, Scotland and am the only company walking into local business’ telling them that this service is available from somebody who can actually come to the office from time to time and show face. This seems to be my biggest asset…I am providing an online facility but with an offline service agreement.

    My company is called Techno Loco and my mission statement is “No-one gets left behind!”. I’ve almost managed to turn it into a social enterprise for the good of my local community!

    Keep up the good work dude!

    Paulo

  21. em
    April 9, 2013 at 1:00 am

    I would love a bit more advice about raising monthly rates with clients. I’ve got two clients where the scope of work is starting to grow but the paycheck is not. I’m nervous because they are both nonprofits and on low budgets, but I can’t continue to work at my current rates. help!

  22. Marysia
    April 9, 2013 at 11:43 am

    Very useful article and no doubt I will refer to it again ;-)

  23. Batu Giok Asli
    April 15, 2013 at 1:02 pm

    Hi there! I found your blog from attending the Hot Seminar Series by Kelly McCausey. I actually didn’t make it to the live one but I did listen to the recording in full. I’m really glad I did as I learned lots from it. I’m a blogging enthusiast and have indeed considered doing freelance writing. At the moment, however, I’m into blogging on my site mainly. I guess you can say I like it that way. Thanks for sharing this article and your expertise. Your insights will help me a lot to decide should a writing opportunity comes within my reach.

  24. Nick Saalfeld
    April 16, 2013 at 5:51 pm

    Hi Tom,

    Excellent piece. Cogent and clear. Thank you!

    I often get asked about the pricing and negotiation issue; also often by people who are bumping up against the ‘I can get this for one tenth the price’ argument.

    So, three relatively unconnected additions to the list which I hope may be useful.

    Firstly, and paradoxically, I work by the axiom that nobody pays you for the job you do. They actually pay you for the service around it. I too am a corporate writer, but I don’t believe that anybody pays me for writing. They pay me for the security that when they want something written, it won’t just be good enough, it will be delivered on time and successfully fulfill the brief without lots of to-and-fro.

    I have supplanted agencies ten times my size by simply ensuring that my pieces require one round of revisions rather than eight. That promise of diligence is a differentiator which means I never compete on the basis of price per unit (which is indeed a race to the bottom).

    For any client business of any significant size, a freelancer’s fees are nothing compared to the value of reliability, sleeping easy at night, and looking good to the boss, so guarantee a demonstrable quality of service and price rapidly fades into the background.

    Second, remember your own value. Even if you’re starving. I attend (and organise) networking events regularly, and I have spotted the clammy sensation of fear, desperation or (worse still) a crisis of confidence, many times. It’s instantaneous, and nobody will commit to you.

    So, remember what it’s like not to be desperate, and to have respect for yourself and your craft. It’s the only way you’ll rediscover how to walk away from a deal which doesn’t work for you. If necessary, try something radical like applying for a job you have no intention of taking! It’s crucial to remember that walking away is better than spending time on a job which still won’t pay the bills, prevents you from selling your next job, and will make both sides feel resentful at the outcome (I guarantee this!).

    Finally, one reason to break the rules. There is just one reason to do a loss leader (only a small job), and it is this: to obtain a purchase order reference number, or a place on a Preferred Supplier List. Over a decade ago, I did a job for £250 – through a friend – which got me onto a supplier database. That client has been worth over 1000 times as much since. It is worth self-immolation and contortion to get on PSLs.

    Hope that helps – and thanks again!

    Nick

  25. Steve
    September 2, 2014 at 9:13 am

    Hi Tom,

    I read this when I started out freelancing (as a developer) and pretty much agree with everything in this article. I always try to avoid an hourly rate and work on a fixed price basis and it works pretty well.

    I’ve read a lot of articles on freelancing, and this is probably the most helpful article I’ve ever read on the topic.

    Thanks for posting this!

    Steve

  26. Dennis Schafer
    September 15, 2014 at 3:58 pm

    Pricing is always emotionally difficult because it’s the one time when you have to face what you personally think you are worth. The very first sale you have to make in business is the sale to yourself. If you don’t feel you offer great value, if you can’t prove it to yourself, then it’s going to be tough to prove it to anybody else.

    To get off topic for just a moment, why do you reference the British Pound Sterling and not the Euro in your pricing? I admit that living in the U.S. and not conducting any international business to date I have avoided the entire discussion. But all the financial newsletters and media reports I read employ the Euro as the reference currency, at least in Europe. Just curious.

    Great Blog, Thanks

    Dennis S.

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