how to set them and raise them (when the time is right)
If you’re leaving your 9-to-5, it might feel a little overwhelming to try and rally up the right number of clients to fill that gaping hole left by your no-longer recurring salary. Knowing what to price might leave you blank, but we’ve got you covered.
It’s easier than you think. You need to calculate what you need to make each month to keep your standard of living. If you left your job because it wasn’t paying enough, then your freelancing rate can’t be at that same rate. You need to push it higher.
Tally up all your expenses, plus some new ones that might come along with your new role. Think changes to your taxes, additional insurances, paying your own health insurance.
Once you have a monthly figure in mind, it’s time to break it down to your weekly, daily, and hourly rates. Take a deep breath if it feels too high, it probably isn’t.
2. Your experience level
This is where things might become a little tricky because experience is a big bonus. Clients want to know that you’re familiar with their projects, needs, processes, systems, whatever. They don’t want to feel like they have to train you. So your pricing strategy has to be on point.
If you’re starting out in the freelance writing industry, it’s going to be hard to charge $100 per hour. In fact, going to a client with that rate and nothing to show for it might conjure up a giggle and good chance they’ll ghost your emails.
3. The client’s willingness to pay
This one is a little bit of a tight rope and one you’ll need to watch closely. If you’re only dealing with cheap clients, you’re never going to get the rate you deserve, beginner or not.
Think of those $2-per-hour offers on bidding sites where you need to scour for hours, plus compete against other freelancers, before landing a project. Just don’t. You’re worth more than that. Even as a beginner, you shouldn’t work for anything under the $20 mark in most industries with a high percentage of freelancers.
On the other hand, if you’re constantly coming up against brick walls and not even bigger agencies can afford your rates, you might be overpriced. Request a counteroffer if a client rejects your rate, and see if it’s something you can work with. Just make sure that you’re not undercutting yourself for cheap clients.
4. Your resentment number
What is the lowest rate you’re willing to go before you start resenting the project? $30 an hour? $20 an hour? Maybe even $10? That figure is your lowest rate and shouldn’t ever come into play. No matter how nice the client or the project. Why, you may ask?
Imagine working for a company that offers you everything you like. Endless coffee at the coffee bar, football in the conference room on Sundays. But the pay keeps you on the edge of your seat. One flat tire or a medical emergency not covered by your insurance and you’re in the hole.
One more emergency and you find yourself applying for a personal loan. You can hardly pay the bills, you don’t have enough money to join your friends for dinner, ever. How long before all those lovely benefits start curdling in your stomach?
Now let’s get back to that lowest rate. You’re going to need to increase it. Even double it. As a freelancer, there are few things worse than living on the edge of your income. It’s tough to make good financial decisions when you’re constantly in the hole. And the hole is your resentment number and lower.
Take Ramit’s friend who considered tanking her consulting side hustle because the $25/hour and endless hassles with the client were simply not worth it. With Ramit’s help, she landed a new client at double the rate and suddenly $50/hour seemed worth the effort. Only, the new client wasn’t half as disorganized as the first one.
The lesson here is that even if you’re making money, you will get to a point where effort and reward need to make sense. If it doesn’t, then it’s time to raise that rate, or else, you guessed it. Resentment.
5. Your goal salary
A ballpark figure is not a great idea. You need to know the salary you want to earn and the billable hours you can and are willing to work per day. More importantly, you want to know how many hours you’re willing to slog away at your desk to meet that salary.
For instance, if you have a monthly income goal of $10,000 and you want to work a 40-hour week, you need to earn at least $62.50 per hour.
If you’re a work-from-home parent, is a 40-hour week still realistic? Would you need to cut back to 20 or 30 hours? More importantly, can you adjust your rate higher if you do? These are all questions that you need to work through when deciding on your goal salary.
6. Your competition
Ramit tells the story of two freelancers who did great work. Both were equally great, but the one charged double what the other did. When it was time for renegotiation, Ramit chose the freelancer with the lower rate. There was simply no reason to keep the other on, as the quality of work was the same.
When you’re looking at setting your rate, it helps to know what others in your industry are charging. A few dollars here and there are not worth mincing over, but it’s when you’re looking at rates that are no longer competitive that you place yourself in the danger zone.
Ask around on social media boards or befriend a full-time freelancer to understand work hours, income per month, and whether their years’ experience affected their pricing. Scour blog posts and industry best practices to draw up your own rate sheet.
7. Whether people are buying what you’re selling
It doesn’t matter what rate you set, how much time you spend marketing, or even whether you’re the cheapest on the block. If you’re putting out a product that no one is buying, you’re wasting your time.
The opposite might also be disastrous for a decent rate. If people are buying and too many are selling, you might find yourself in a price war in no time. Think of the bidding sites such as Upwork and Freelancer. Many freelancers have made a substantial career out of freelancing just on those sites.
But move the parameters to the lower end of the market. Suddenly you’re competing against hundreds of other freelancers who can offer the service at a fraction of the price you want to go in with. In fact, it’s not uncommon to have to pay for more bids or higher placement in the queue just to get noticed. And then get paid $4 for an hour’s work.
You need to stand out from the crowd and even if you’re entering a saturated industry, you can still place your own spin on it.