Tips For Setting Your Rates As A Freelancer
Wage is rarely a comfortable conversation. Most of us experience some hesitation when it comes to negotiating rates and freelancers tend to undervalue their services, especially when theyβre starting out. If you set rates too low, you canβt sustain a career and if you set them too high, no one will hire you. Itβs a challenge to know how much to charge, so at Australiaβs Freelancing Hub weβve put together some key factors to consider, which support your business as a whole beyond individual jobs.
And as always, as a freelancer, research, planning, communication and negotiation are fundamental to every project you undertake and should be part of your ongoing process. Weβre glad youβre here.
What Freelance Rates Need To Include
The bottom line is you need to understand what your rate has to cover; thatβs the total cost of delivering your service. You need to drop the employee headspace, as you no longer have access to company benefits. Leave entitlements no longer exist, tax and superannuation are not automatically deducted. You are responsible for insurance, licences, legalities, marketing or training courses and office management also comes out of your pocket, including rent, utilities, hardware, software and supplies. Your rate needs to account for all of this.
It would also be a mistake to take your monthly earnings during a boom period and multiply it by 12, to indicate an annual income. You need to factor in the lean times too.
Ask yourself the following questions:
- Is your skill set in high demand?
- Do you have the relevant qualifications?
- How many years of experience do you have? (Entry Level through to Senior)
- How much do you need to support your lifestyle?
- What is the benchmark rate for other freelancers with this skill?
- How easy is it for you to produce the work?
- What are your deadline and revision expectations?
- What are your overheads?
- How much administrative work is required?
- How much is your contingency budget?
- The size of your clientβs corporation?
- Whatβs your ultimate work-life balance?
The Different Freelance Models
So how do you get paid what you’re worth?
There is a standard formula for calculating hourly rate, which is a valuable starting point. The key is to accurately estimate your operating costs and the hours you plan to work. Remember to give yourself a break, factor in public holidays, sick leave, or carersβ leave etc.
Desired Profit + Desired Salary + Operating Costs / Billable Hours Per Annum = Hourly Rate.
As an example letβs say your desired profit per annum is $16,500 plus your desired salary is $75,000 plus your operating costs are $28,500 and divide that by 1500 hours – that gives you a freelance rate of $80 per hour.
There are three common strategies for setting your freelance rate:
Hourly rates
daily rates
project rates
Hourly Rates are easy to negotiate, adaptable to each client and protects you if the project is cancelled mid-way through. However, the huge disadvantage is that the better you become the less you earn. Typically this is a beginner model.
Daily Rates are simple to communicate and appealing for smaller projects. Typically you calculate your hourly rate based on 8 hours and add a third for additional admin or overheads incurred. Be mindful of potential unforeseen circumstances that extend the day beyond the standard 8 hours as itβs difficult to renegotiate, or you may set a precedent that unvalues your services.
Project Rates typically indicate the budget the client is working with and you tailor your services to the scope of the job. It does take considerable experience to manage expectations if revisions become extensive, however, day-to-day administration is considerably diminished.
Cleverism makes an interesting side-by-side analysis of hourly rates versus project based.
Secure a Contract
At its core a freelance contract will protect you from any potential legal ramifications such as disagreements, deadlines, and payment. They also help solidify rates, purview, rework or cancellations.
Negotiate Upfront Deposit
As a freelancer, you need to protect your time and your work. If you are starting work for a new client you should negotiate an upfront deposit. You may want half upfront and half on completion. You can also propose timeline payments for each component, so if you have four deadlines you get paid a 25% retainer and then at the delivery of each of the remaining three deadlines, you get another 25%. Professional clients are accustomed to retainers and will be happy to negotiate, if not, recognise this as a red flag.
Less Taxing Taxes
Unless youβre a freelance accountant or bookkeeper, your head is in a very different space when it comes to taxes but you can save yourself a lot of misery by putting a few simple tax steps in place now, so the end of the financial year is less of a burden.
Obviously, your rate is gross so you need to consider what your net worth will be once you pay tax. There are several sophisticated accounting software options that keep track of your earnings and have tax fields to make claims simple.
Rate Comparison Tool
Payscale.com is a comprehensive rate comparison tool. After a thorough Q&A segment, they will supply you with practical industry comparisons for your search.
Ironically, freedom has a price. For all the time, energy and sanity you save being a freelancer you need to ensure you are being paid accordingly, otherwise, you end up living beyond your means and thatβs no life at all.
If last year taught us anything, itβs that work can unexpectedly vanish, so you need to look at the big picture whilst also being agile in the moment. Rate yourself! You deserve to be paid for the service you so diligently provide.
