Startups, freelancers, contractors and growing agencies have all been asked this question: “What’s your rate?” But there’s rarely a simple answer.
How exactly do you attribute time and value to your role — and to those of your team members — when accounting for your work? Or, more simply, how do you establish your worth?
A quick glance at a freelancing platform such as Upwork shows just how varied rates can be for the exact same job. Designing a website, for example, could cost $500 or $50,000. There are a lot of differences that can go into those prices, so it’s never quite apples to apples.
Here are a few points to consider when calculating the value of your time.
By the hour or by the project?
The first point is whether to charge by the hour or by the project — neither of which is as straightforward as it sounds.
An hourly rate, for example, should take into account your overhead, health benefits, retirement savings and taxes. You can determine an hourly rate by calculating your total expenses per month and how many hours you’d need to work to cover those.
Thanks to the proliferation of freelance marketplaces, you can also see what your peers are charging clients. Glassdoor, for example, allows you to search and compare salaries, while PayScale provides the average salary for thousands of jobs and offers a ‘pay report’ on what your skills are worth in the marketplace.
Tools like Harvest and Timely can help you track — and better manage — your time. With an hourly rate, however, there’s a downside: As you become more proficient at your work, you get faster — which means you get paid less.
The reality is, a client doesn’t care if it takes you 20 minutes or five hours to complete a project — as long as it’s done well.
What about scope creep?
That’s where a project-based rate makes sense. As you become more proficient, you have the potential to earn more money in less time. You define a scope of work for a set price, and your rate is tied to the end result — not the amount of time you put into it. In other words, it’s tied to the value you deliver.
But this can be tricky to determine in advance, particularly if you end up dealing with scope creep. Many independents estimate how many hours a project will take and base a flat project fee on that estimation, with a few extra hours as a buffer. But if that’s the case, you might as well charge an hourly rate. So it may be best to consider value-driven pricing instead.
On the flip side of the relationship, many clients like a fixed rate because they know exactly how much to budget for a project. But there should be a clear understanding that additional changes or requests — beyond the scope of the original agreement — will come at an additional cost.
Know your industry
Other options include retainer billing (a flat fee typically charged on a monthly basis) or retainer against hours (a monthly retainer, plus a monthly or quarterly invoice for time charges in excess of the scope of the retainer). Clients like the predictability, and independents like the cash flow.
When determining a project or retainer rate, it’s helpful to know what’s realistic in your industry. Ask your peers, turn to online forums or check out related industry associations. While this can provide guidance, keep in mind that rates will vary widely.
Someone new to the industry may undercharge for their work — others who have built up a reputation may charge more than average. Consider your experience, along with your geographic location and demand for your services. If you offer niche expertise in a high-demand industry, you can increase your fee.
Consider the client
Perhaps you’re working with a non-profit that has a limited budget. In that case, you might be willing to charge less than your usual rate because they’re a stellar client or you feel passionate about their cause.
If, on the other hand, you’re working with a more demanding client — one who requires more meeting touchpoints or requests multiple revisions — you might increase your rate to make it worth the time and energy you’ll put into the project (or at least ask for a large down payment).
Whether you choose to charge by the hour or by the project, be careful about undercutting your competitors to snag new clients. If you charge far below the average rate, it may give the impression that you’re not in demand, thus driving away clients.
While there isn’t a simple formula for setting your rates, have confidence in your worth — so you can increase your revenue while continuing to deliver value to clients.