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Good pricing is important for the future of your business. Many freelancers, especially startups, find it difficult to determine their rate. So I'd like to share some hints and tips with you that should help with this.
Calculate your hourly rate
Aim for an income that covers all your expenses and which allows you to live comfortably, while ensuring you can take on exciting freelance assignments and also have plenty of time for yourself, friends, family and hobbies. Lots of freelancers work on the basis of an hourly rate. To calculate this, follow these steps:
1. Decide what you want to earn per year.
- Estimate your net income as a basis for calculating your rate.
2. Make a list of all your additional costs:
- You have to pay about 25% social contributions on your net taxable annual income. Your personal income tax is then also calculated on this amount. This can be tricky to put a fixed percentage on, since it depends on your personal situation (whether you’re married, living with a partner, have dependent children etc.). As a self-employed person, you should work on the basis that you will have to "hand over" about half of your income in social contributions and personal income tax.
- As a freelancer, you will also incur additional costs: a car, travel expenses, accountant fees, insurance, training, office and office supplies, a computer and software, marketing costs, etc. These are all costs that you need to take into account in your calculation.
3. Determine how many hours you want to work each year.
How many weeks will you work and how many hours are there in your working week? Take into account any annual leave and holidays, quieter periods (e.g. summer), days when you might attend training or events, and any days you might have to take off because of illness. You also need to realise that some hours cannot be billed to customers – Sourcing new clients, administration and bookkeeping, preparing quotes and invoices, doing your own marketing... Freelancers who are just starting out often underestimate these non-billable hours, which can take up as much as 30% of your time.
Divide the sum of your net income and expenses by the number of hours you will work on an annual basis. This way you can work out your hourly rate.
Just remember, this is only an estimate! If you are just starting out, I recommend that you work out the calculation above together with your accountant. That way you won't have any surprises later down the line because you didn't account for various cost items.
Factors that affect your price
1. Your experience
The more experience you have, the greater the value you can offer to customers. This is certainly something that you can reflect in your rate. The knowledge and expertise you acquire over the years are worth a lot. It is therefore a good idea to review your hourly rate on a regular basis.
2. The assignment
Each one is different. If it’s a complex project or an assignment with a short deadline, you might want to charge a higher rate. Do make sure you’re transparent about this with the customer and explain why the rate is higher. If you communicate this well to them, the customer will normally understand – at least that’s what I’ve found from my own experience.
3. The type of customer
Large companies often have larger budgets than an SME. If you charge a higher price, it goes without saying that you will need to provide a top-notch service – it’s a quid pro quo. Geographical regions also play a part in determining the price, as does the industry in which you’re working. Ask other freelancers in your industry what rates they charge and make sure your rate is in line with the standard rates in your industry.
4. The value you can add
I think this is a very important aspect, and one which is still often underestimated. Focus on what makes you special and interesting to a client. What is your USP ('unique selling proposition') that sets you apart from your competition? What service can you provide to customers and what “added extra” can you do for them? Highlight your added value through personal branding. Share your expertise via social media (e.g. LinkedIn), write blogs and articles... This way, your (potential) customers will see why they should definitely work with you.
Fees per project or a fee per order?
An hourly rate won’t work for every freelancer. For example, translators, copywriters and journalists often work with a price per word, line or page. Graphic designers usually use a project price and consultants tend to work with a daily price. As a freelance copywriter, I do both. For some clients I work on the basis of an hourly rate, while for other assignments, I set a fixed price in advance. It depends on how the client likes to work, so I just make sure I am flexible when dealing with this client.
There are advantages to a fixed fee model:
- The client knows how much a particular project will cost.
- You do not have to account for your hourly rate or how much time you will spend/have spent on the assignment.
- Your fixed price may depend on how complex or how urgent an assignment is. This allows you to be more flexible with your own rate.
Keep track of the hours you work, even if you are working on the basis of a total price. This will allow you to calculate in retrospect the hourly rate at which you worked, which is important information for making sure your quotes are accurate in the future. It also helps you to work efficiently on an assignment.
Finally, here are 3 tips:
1. Don't overdo it
Fees that are either too high or too low can deter customers. Setting your prices too low is no guarantee that you will receive lots of assignments or good clients. Aim for a market rate that is in line with your experience and what you can offer. Be brave and "sell" yourself – don’t be afraid to negotiate your price.
2. Don’t compete on the basis of price, but on quality.
Some freelancers try to win contracts by working as cheaply as possible. This is rarely a good strategy, because there will always be someone who is willing to do it even cheaper. Are you an expert in your field? Then have the courage to ask for a correct, market-based price. Explain to your potential customer(s) the quality and services you provide and the results they will achieve with you.
3. Evaluate your fees on an annual basis.
Do you now have an extra year of experience and have you got better at what you do? Have you specialized in an area of high demand and low supply? Then you can factor that into your hourly rate. You should also keep in mind how prices can increase over time. If you are in a salaried job, you can count on the automatic indexing of your role and regular pay increases. As a freelancer, you don't have these "advantages”, so you have to make sure that your prices change to reflect the fact that life is getting more expensive.
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