Taking on new clients is both exciting and nerve-wracking. It's an opportunity to start fresh, create something new, and build relationships.
I can't believe how much freelance work is out there.
After a conference or major networking event, it's easy to get swept away by the idea of dramatically increasing your income.
But it's important to take a step back and be strategic before accepting new gigs.
One of the questions I get asked a lot is what to charge as a freelance writer or social media consultant. We all struggle with fears of undervaluing our services, but don't want to scare away potential clients, either.
It's a tricky situation.
If you are still struggling to get paid what you are worth — and most of us do — I hope you find this post helpful.
Here is why you can't afford low paying freelance gigs:
Self-employment is expensive.
As a full-time employee, your hourly rate or salary may include several large expenses like health insurance, a retirement plan, paid time off for vacation, taxes, overhead costs like an office, and more.
Before you start quoting your rates, you need to calculate how much it actually costs to run your business.
Here are some important questions to think about:
- Have you considered taxes? Experts recommend setting aside 25-30% of your income to cover quarterly taxes. Have you factored this expense into your rates?
- What is the cost of running your business? The Freelancers Union created an infographic with expenses you may need to budget for:
- Office or co-working space
- Website maintenance
- Invoicing & accounting software
- Project management software
- Cell phone
- New laptop every two years
- Other software
- Uncollected payments
- Accounting and tax preparation fees
- How much is your health insurance? Most freelancers are footing the bill for health care on their own. Tip: if you have a high-deductible health plan, consider opening a health savings account.
- How much are you willing to work? One of the toughest things about freelancing is finding the right balance. Most people I know either struggle with too few or too many clients. By deciding how much you are willing to work, you know how many billable hours you have available, and you can adjust your rates accordingly.
Pricing too low reduces the perceived value of your services.
When I was a concert promoter, one of my mentors was always telling me, “perception is reality.” And he was totally right!
Pricing your services appropriately signals your value to prospective clients. It shows them you are in-demand, talented, and expect to be compensated fairly for your work.
There's an opportunity cost to every gig you accept.
Let's face it—it's easy to get trapped in the scarcity mindset when you are self-employed. This can lead to accepting work that either pays too low or isn't a match with your long-term goals.
The problem is, by accepting lower paying gigs, you may be wasting your time and energy. This means you may not be available for better opportunities as they arise.
Low paying work can lead to burn out.
One of the biggest mistakes freelancers make in the beginning is charging too little for their services. With lower rates, more hours are required. This quickly leads to a fuller schedule than you want.
Even if you have a full-time job, I still recommend using the formula below to determine your hourly rates. If you decide to become self-employed or you are are laid off in the future, you will be prepared.
How To Price Your Services
So, how should you price your services?
A good starting point is determining your desired annual salary.
Here's an example:
Target annual salary – $50,000
Plus overhead costs – $15,000 (est. cost of running business + health insurance + taxes)
Adjusted annual salary – $65,000
Workable hours per year – 2,080 (40 hour workweeks)
2 weeks of vacation – 80 hours
7 U.S. holidays – 56 hours
5 sick days – 40 hours
Adjusted workable hours – 1,904 hours
Less non-billable hours – 25%
1,904 x .75 = 1,428 billable hours
$65,000 adjusted annual salary / 1,428 billable hours =
You need to charge $45.51 per hour.
Many gigs will be priced per project, so it's important to properly estimate how many hours it will take. By keeping your hourly rate in mind when offering a project quote, you will know you aren't being underpaid.
Careful Cents Club – Without a doubt, Carrie Smith's Careful Cents Club is the best online community for freelancers. I've lost count of how many times I've searched her Facebook Group for an answer about rates, contracts, and more.
Here is a great post from Carrie on landing freelance gigs with no experience.
Who Pays Writers? – An anonymous, crowdsourced list of which publications pay freelance writers, and how much.
Readers: How have you overcome the challenge of adequately pricing your services?