Freelancers: new year, new rate?
It’s that time again; the time when you break out a shiny new calendar, look back at the year that is winding down, and ask yourself the freelancer’s perennial question, “Should I raise my rates this year?”
The Freelancer’s Conundrum
When you are trying to establish your freelance business and attract new clients, you may fall into the trap of charging less than what your services are actually worth in an attempt to get a toehold in your niche. While that is understandable, it can be a recipe for freelance disaster. Seth Godin observes:
“Someone else is always willing to go a penny lower than you are, and to compete, your choices get ever more limited. The problem with the race to the bottom is that you might win. Even worse, you might come in second.”
Undervaluing your work affects your bottom line badly and creates a huge source of stress. Freelancers Union points out:
“Most people do better work when they feel that they’re properly compensated. In fact, research says feeling underpaid is the leading cause of work stress! You may actually do better work because you raised your rates.”
Fortunately, if you originally undervalued your worth to clients, that does not mean that you have to keep doing so. Rates are, after all, not set in stone.
Your inner naysayer might be whispering, “If I raise my rates, I will lose clients.” This is by far the most common misconception about increasing rates that freelancers hold. The reality is that your clients do not exist in a bubble. By and large, they understand that in the natural course of events, rates go up for services rendered over time. If they do not understand this, perhaps it is a good thing to lose their patronage.
Why the New Year is Perfect for New Rates
Like many things in life, changing your rates successfully requires good timing. The New Year is a perfect time to raise your rates. Why?
- The New Year is a natural time to rethink all your business goals and objectives, including remuneration.
- Clients are more likely to accept changes in rates at the beginning of the year, as it is also the beginning of the fiscal year for many of them.
- Every year that passes, you increase your experience and skill level as a freelancer, which should be reflected in your pricing model.
- Clients with whom you have built a relationship for more than a calendar year are likely to continue using your services even if you raise your rates modestly.
How to Set Your Freelance Rates Appropriately
Once you decide to raise your rates, you can rely on several factors to help you to price your services appropriately. The first thing to remember is that pricing is fluid. For freelancers, the going rate for a project is determined by multiple factors such as skill level required, experience, value to the client, geographic location, and more.
Do not neglect to also factor in the rate of inflation in your area. Freelancers who forget about inflation find their profit margins dwindling year over year. At some point, working for the same rates over time leads to significant financial loss.
The Guardian reports: “The Association of Independent Professionals and the Self-Employed (IPSE) recommends taking your equivalent earnings as an employee and adding a third, which accounts for the added costs that arise as a freelancer.”
The Freelancers Union gives the following guidelines to help you set your rates:
- Even if you do not plan to charge an hourly rate per se, determine how much time it actually takes you to complete a project on average. For your own purposes, set an hourly rate that you will use as a baseline when giving clients a project rate. In general, you can determine a ballpark hourly rate by adding annual profit, annual expenses, and annual salary, then dividing by billable hours.
- Account for any supplies and other expenses, including overhead, that will be incurred in the completion of the project.
- Build in a specific target profit range for each project.
Do Not Skimp on Researching Rates
When researching what the market will bear in the way of freelance rates, here are the items to consider:
Industry benchmarks: You can find information about going rates in your industry by examining government statistics. For instance, if you are an American freelancer, the US Bureau of Labor Statistics provides salary information for many industries.
Other good resources include professional and industry associations and networking sites, which often have discussion boards where members freely communicate their rates. Some associations may even offer an annual salary survey to members, which can be an invaluable source of information.
Other professional freelancers: While some freelancers may be reluctant to share their rates openly, you can likely find others who are willing to discuss rates with you privately, particularly if they are not direct competitors.
Research the client: The more you understand your client, the easier it will be to charge appropriately for your work. For instance, if you are aware your client is on a shoestring budget, you might consider giving that client a slight discount at first if their business model is strong and likely to see substantial growth soon.
Other Online Research: You may also be able to find a wealth of information about common rates for freelancers in different industries by doing a little more online sleuthing. For instance, check out this infographic for freelance writers based on Contently’s freelance rates database. For editors, this resource may prove to be helpful.
Regardless of the type of work you do, this infographic from CreativeLife.com is a valuable tool to help you determine a reasonable rate for your services.
Get Paid for What You Do
When you negotiate a higher rate with your clients, be sure to make it easy for them to pay you for the work you do. Payoneer is a payment processing solution that facilitates payments for freelancers globally. Check out our freelancer payment platform today.