Pricing Your Services

Pricing is both an art and a science.

Most freelancers look around and see what others are charging. Or they use one of those “rate calculators” (we really don’t recommend those).

The big problem is most freelancers look at themselves and the market rather than the value they bring to their clients. We’ll show you how to charge for the value you bring to your client’s businesses, which will not only make you more money, but also get you better clients, more creative freedom, and higher conversion rates.

Our Views On Pitching:

Whether through 4+ years of in-depth articles, premium courses, the conferences and events I host, or my podcast, my #1 goal is to help you become a more successful freelancer.

Brennan Dunn

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How To Set Your Hourly Rate as a Freelancer

When you’re just starting out as a freelancer, the first question most people ask is: What do I charge?

Good news! It’s not that hard to figure out.

Don’t base your rate off your previous salary

There have been dozens of formulas that take your last job’s salary, multiply it by something, divide it by something else, and end up with a rate.

Don’t do this. While your expenses probably haven’t changed that dramatically since going solo (most of these calculators base their formulas off stabilizing your cost of living), your income potential has – if you know what you’re doing.

How good of a communicator are you?

There’s (unfortunately) a natural bias towards those who communicate more elegantly and cadenced than those who don’t. If you’re a pessimist, you might call these people smooth talkers. But our deliverables are more than just great technical execution. We need to dazzle, and that starts by making the process of working with you as smooth and worry-free as possible.

Confidence is something that I wasn’t born with but I’ve slowly leveled up, largely out of the necessity of running a small business. If you can portray confidence, and be perfectly frank with clients about what you know and what you don’t know, you’ll put a lot of skeptical clients at ease.

Is what you can provide in high demand?

If you’re a Ruby on Rails developer and know what you’re doing, you’re being robbed if you aren’t charging 3-figures per hour. Likewise, many other disciplines can justify a substantial hourly rate.

Offshoring and the “race to the bottom” attitude that Craigslist and other outlets have cultivated make a lot of people think that they need to lowball their rate. Then they can at least win the contract and make a little money, which in their mind is better than no contract and no income at all.

There’s a very good reason American developers are still hired by American clients (feel free to substitute with your country of residence). If it was all about the numbers, no one would hire me. But my rate is fairly high, and I justify that rate by letting potential clients know that the risk of failure is minimal, I communicate well and often, and it’s my goal to equate the income I receive with the value I produce.

Do a little Googling and get a sense for what someone of your skillset in New York, Boston, or San Francisco charges. Then start there.

Don’t negotiate (too much)

If a potential client has enough cash on hand to hire you, they’re probably at least decent at business (even though many of us might disagree!) And good businesspeople know how to negotiate and haggle.

My rule of thumb is that if I can get a client to book me for a large amount of time, I’ll lower my rates a bit. This saves me from downtime and the overhead of lost time spent marketing and getting that next client.

But don’t be a pushover. Trust me: You’ll be respected by your client if you can stand firm and explain why you charge what you charge.

Treat each new project as an experiment

Whenever you get a new client, push your rates up a little. You’ll be surprised at how high you can get it.

In my experience, most resistance comes when you change the first digit. $100 an hour to $200 is pretty big, and is going to lose you a lot of work. But $65 to $75 an hour isn’t going to make most clients hesitate, and after a hundred hours that’s another $1,000 in your pocket.

My winning formula:

  • Find what your peers in high cost of living areas are charging. This is your base.
  • Present yourself as a premium service. There’s a lot of risk in hiring freelancers (will they flake out?), if you can assuage any fears and stick to being a professional, you won’t get much pushback.
  • Offer a bulk rate, but only if you need to. This totally depends on what you do. (As a Rails developer, my idea of long term is greater than 6 months of full time booking.)
  • Go higher with each new proposal. Your confidence will grow, and you’ll be able to scope out your natural ceiling.

How To Convince Your Clients To Pay You Hourly

If there’s one thing I’ve ever regretted while freelancing, it’s having been suckered into fixed bids – or to put it plainly: projects where the client has a vague idea of what they want built, and wants you to read their mind and tell them exactly how long and how much it will cost.

Of course, it’s never clearly spelled out like that when contract negotiations are happening. You pretend you know exactly what your new client means by “messaging feature”, and your client thinks they have any clue how that feature will work. After all, you want to win the contract and for the client to sign on the dotted line.

But then things get real, and that messaging feature turns into a can of worms you could never expect. And because you’re on the hook for building that feature at a fixed cost, your client’s going to reshape that feature until it satisfies whatever is floating around in their head at that minute. The more hours you work, the less profitable that feature is.

I’ve heard a lot of excuses about why flat project fees are superior. They include:

  • It’s hard for clients to appreciate the value they’re receiving for your hourly fee.
  • It’s hard to justify raising your rates.
  • You don’t need to track your time anymore!

The underlying idea in those excuses are that your clients don’t respect you as a professional, and you don’t respect yourself. The first is countered by simply communicating with your client what you’re getting done. The second’s the easiest: Supply and demand. Your time (the supply) is limited; if more people want to work with you, you raise your rates. Last, if you’re not tracking your time, even if you’re working with a flat fee, you’re not being accountable to yourself and your client.

How I get my clients to pay hourly

Would you ever walk into a custom furniture store, ask the price of a custom made bed, and put up with “Hmm… Well, we’ll see how long it takes. I’m not sure. But we’re going to charge $100 an hour and we’ll send you an invoice when it’s done.”

Clients, like the rest of us, budget their money, and it’s important to respect that. When you charge hourly, you run the risk of going over – or under – project budget (usually over, because scope always gets added.) It’s your job to get into your client’s head as much as possible, and to attempt to comprehend exactly what they need built. Assumptions are fatal. Don’t ever assume that you know what the “messaging feature” is!

Before I give you the stump speech on winning an hourly contract, here are a few concepts you must master:

  • In a previous post, I discussed a few ways to create better estimates. The last takeaway is most important: For any decently sized project (read: over a week of full-time work), charge for an estimate. You’re a midwife of other people’s ideas. You take vague concepts that are floating around your clients’ heads and bring them to life. This will create a strong list of deliverables, and will also be granular enough that you should be able to put together a decent time estimate.
  • Split the estimate into must-haves and want-to-haves. Prioritize accordingly. This will ensure that everything that needs to be in place will be there before the budget burns out.
  • Commit to staying in constant communication. Sure, Client Portal helps this happen, but good ol’ fashioned email works just as well. You need to ensure that value is being constantly correlated to the amount of time you work.
  • Explain to your client that dreaming up a project is like gazing into a crystal ball. The reality is as the project evolves, the scope will inevitably expand or contract around certain features, and because you’re charging hourly and burning budget, you’ll be able to steer quickly towards what the business needs dictate.

Finally, when you get pushback when explaining your hourly rate, here’s your line: “I understand your concerns. I do. But I’ve worked on a lot of projects and can tell you with certainty that what you’re wanting to be built will change over time. An hourly rate will keep me from pushing back each time you ask for a small change or to go towards a new direction – which believe me, you will. I want to see your product succeed, and you need to trust me to make that happen, because otherwise this will be built based on what you want today, instead of what you need tomorrow.” And then list off some of the concepts above: You’ll constantly clue in your client about what you’re working on and what it’s costing, and serve as a consultant, helping them deliver the best product for their buck.

I still don’t win them all, but my success rate has gone up substantially since I started focusing on why hourly is better for them, and not just me. And I no longer have had to lose money for the time I’ve worked, which is just plain stupid.

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