The gig economy boom: 4 questions to ask when pricing your freelance rates
So you’ve started off as a freelancer. It doesn’t matter if you’re going to focus on gig economy sites like Fiverr, Upwork, or Freelancer.com, or go the more traditional route—you have to figure out what your rates should be.
It’s the age-old question all freelancers face, and one of the hardest to answer. But here are the four most important questions you need to ask yourself when figuring out what your ideal freelance rates should be.
What are your expenses?
How much you need to earn to keep a roof over your head and food on the table drives the rest of the decisions you make. We all say “it pays the bills” or “I gotta eat” when we talk about earning money, but this part is working out just how much that is.
Beyond accounting for all the basic things (rent, food, gas, internet, utilities, etc.), you have to think about the other expenses you cover when you’re a freelancer like:
- Setting money aside for taxes
- Paying for services like accounting to handle bookkeeping and taxes
- Paying to market your business (website, advertising, and everything else)
- Paying for health insurance
And don’t forget about paying for going out, having fun, or taking a vacation. Life isn’t just about working. Make sure you include in your monthly expenses the simple line item: fun.
Ensure you know your bare bones, no frills number too. You can cut back on some things for a month or two when times are tight, but not mortgage/rent or utilities. With that number set, you know how much you have to bring in.
Now you decide how many hours you can work to get to that number.
How much do you want to work?
There are 264 non-weekend days a year. Interspersed in there are also holidays and sick days and taking a day off because you need it. This means you have about 230 working days a year.
Now you need to figure out, on average, how many hours you want to work a day. While you can work twelve hour days, you can’t do that all the time.
Before you just say, “oh I’ll work 8 hours a day, just like any other job”, remember you never get eight full working hours a day. Plus, most creative people only have 4–6 hours of productive work a day.
Which means, based on 230 working days a year and an average of 5 hours a day you can work, you have 1,150 hours a year to get work done. Except you’re not going to be able to get 1,150 hours of paid work in a year.
As a freelancer you’ll be doing a lot of unpaid work hustling for more paid work. That might take your average number of paid hours of work down to 4 hours or less. Now you’re at 920 hours a year.
If you need to earn $80,000 a year, this means you need to charge at least $87/hour for your work and work as close to 920 hours a year as you can.
Maybe. And that depends on the next two questions.
Who is your market?
Who your clients are will make a big difference in what you can charge. If you work with large, established companies with budgets to match, you can charge premium rates and often get a retainer. If you work with small businesses, you might be working on more of a project-to-project basis.
When you have clients on retainer, you have a set amount of money coming in every month, which means less hustling for work to make up the difference. If all of your clients are project-to-project, you’re always hustling for work and you rarely know what money is coming in when.
On a retainer you can discount your rate because it’s guaranteed. Project-to-project rates are always at a premium. You can’t afford to discount your rates when you’re always working to fill up your docket with clients.
All of this means you might need to increase the rates you calculated to make sure you meet expenses and don’t have to work all the time.
What’s the going rate?
The “going rate” doesn’t mean what it used to. In the pre-internet days, every city had its own going rate. A freelancer in New York City commanded a higher rate because it was New York City.
Today it’s different. Today, there isn’t a going rate. Freelance gig sites have democratized what people can charge for their work.
Most gig economy sites work on the basis of the lowest bid wins the work. This means someone who can afford to charge less—for all the reasons above—will. There’s nothing wrong with this, unless prices are driven down so low you can’t win jobs that are worth your time doing.
Unless you don’t compete on price. You compete on quality and experience.
You set your rate based on professionals with similar experience as you. Someone just starting out can’t command a top-tier price for their work. They might be really good, but they don’t have the experience under their belts yet to say they are better than someone who has been writing or designing for a decade.
That’s the real secret. When you’re competing on the global stage, the price you charge is based on both what you need to live and the quality of your work. People who are great at what they do can always command a higher price.
Wave makes getting paid easier
While we’re talking about rates, we need to talk about invoicing and getting paid. Wave lets you send unlimited invoices for free and set up online payments with no hidden fees.