There’s plenty to like about the freelance life, from the autonomy to the lack of annoying managers, but you’ve got to make sure you earn enough cash to make the move work.
The key to making enough cash? Having an effective pricing structure. Whether you want to replicate your old salary, earn even more money or just cover your expenses and take the rest of the month off, you need to ensure that your prices get the job done.
There’s a surprising amount to think about, too, so we’ve covered the critical areas here – read on and you’ll be ready to set appropriate prices and propel your freelance career towards success.
We’ve also got more information about freelance life, including a guide to finding freelance clients and the most important steps to take before you take the freelance plunge.
Add up your expenses
Your freelance income must cover your monthly expenses – if it doesn’t even do that, you won’t get any far.
There’s plenty to think about here, too. Your rent or mortgage, household bills and car running costs all need to be taken into account alongside food shopping, subscriptions to media services and having some extra disposable income and cash to put into a savings account.
It’s not just those everyday living expenses, either: consider the costs of running your website (opens in new tab) and paying for marketing (opens in new tab), buying hardware and software (opens in new tab) for your new job, any training or professional memberships you need and your insurance. Remember that you need to put a certain percentage of money aside for taxes and factor this into your figures.
If you calculate your expenses, you’ll be able to see exactly how much cash you need to earn every month, and that’s a great starting point for devising a freelance pricing strategy.
Research the market
You won’t get very far if you pick prices out of thin air and find out that they’re wildly different from your freelance peers. If they’re too high then people won’t hire you, and if they’re too low then potential clients won’t trust you and they’ll look elsewhere.
To combat this, research the prices that other freelancers in your industry charge. Some freelancers advertise their rates online, and you can delve into freelance websites (opens in new tab) like Fiverr and Upwork to see what people in your field are charging for jobs. And if you know freelancers you trust, you could just ask them for advice and guidance in this area. You could also head to the websites of industry bodies and unions – many of them publish surveys about earnings with data gathered from members.
Bear in mind that if you’re a new freelancer you may have to charge a little less than many of your more experienced peers because you’ve not yet established a professional reputation – but this can be rectified when you’ve got some of that precious experience.
Think about how you’ll get paid
You’ll need to consider exactly how you’re going to get paid for your work. Freelancers use three main methods to price their services: time-based, project-based and value-based.
The first, time-based, is pretty straightforward – you’ll charge per hour or per day. That’s easy, but it does mean that you’re restricted to the number of hours you’re willing to work. Project-based pricing tasks you with figuring out how much time you’ll spend on a task and quoting a figure based around that. You might earn more here if you’re efficient, but if you underestimate the task you could earn inefficiently.
Value-based pricing enables you to charge based on your level of expertise and experience – which means you can use high prices for relatively basic tasks because people will pay for your proficiency.
Those three methods all have pros and cons, and they will work differently based on your industry and level of experience – you may have to use time- or project-based payments because you’re not ready to move up to the more lucrative world of value-based pricing.
In some situations you can think about alternative pricing methods, too. Some freelancers sign up for long-term contracts that see them functioning almost like full-time employees, while others are on retainers that call for certain amounts of work every week or month. Writers also sometimes charge on a per-word basis.
Consider altering your pricing based on the urgency of the project. No matter what pricing method you choose, you’ll be able to charge more if a client needs something finished in a hurry.
Also remember that most of the time you’ll be entering into a negotiation for your services. While this is often a good opportunity to increase your pricing, don’t be opposed to lowering your rates too – you could offer an introductory rate to a client and benefit from more full-priced work in the future.
Make it official
You should ensure that clients sign a contract that clarifies how much you’re earning and what work you’ll be doing across each project – the process will likely be smooth on most occasions, but if you’ve got a written contract, you’ll be covered if any disputes arise.
Similarly, ensure that you have professional invoices (opens in new tab) that clearly lay out your payment terms and information to ensure you get paid on time. Consider adding a note to your invoice that clarifies your legal position if companies don’t pay within your payment terms – in some countries, clients have to pay within a certain amount of time and they’re liable to pay extra fees and interest if they miss those deadlines.
Devise a salary
You may have calculated your expenses, how much you should charge for each piece of work and the kind of payment methods (opens in new tab) you’ll use, but you should also think about what kind of salary you’d like to earn each year.
Sometimes you’ll just want to replicate a salary in your previous job and on other occasions you’ve been undervalued and you’ll want to earn far more. No matter the situation, if you calculate an annual earnings figure based on your expenses and goals, you’ll be able to divide that by months, weeks and days – and then you can see if the prices you’ve devised will be enough to meet your objectives.
There’s no doubt that it can be difficult to develop a freelance pricing structure that earns you enough cash and attracts enough clients, especially when you’re new to the business – but if you research the market, calculate your expenses and act sensibly then you’ll get your freelance career off to a flying start.
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