Being self-employed brings a multitude of advantages, including the freedom to set your own rates and pursue multiple streams of income. However, it can be difficult to determine how to charge your clients, especially when you have just started freelancing or contracting.
In this article, we will take a look at some pricing strategies for freelancers and contractors based on a variety of factors, as well as some best practices for setting your rates.
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The Different Types of Pricing Strategies
There are five common pricing strategies that you can choose from as a freelancer or a contractor. These pricing strategies include:
- Hourly Rates
- Daily Rates
- Weekly Rates
- Monthly Retainers
- Fixed-Fee Projects
The payment terms discussed in this article can be applied to each of these pricing strategies.
An hourly rate is the price that you charge per hour of work. This is one of the most common pricing strategies that freelancers use worldwide, and may be the one that clients are most familiar with. This pricing strategy is ideal for projects that have no clear timeframe, however, there is a limited earning potential with this model.
It is not recommended to opt for an hourly rate if the work is likely to be finished quickly, or if it is likely to span over a long period of time. If you do choose to charge by the hour, you will need to track your time using a spreadsheet or a time tracking tool, and include the details of what you completed during each hour.
A daily rate is a set price that you charge per day of working for the client. This strategy is also a common one, and is ideal for short-term projects that will take only a few days to complete. A day’s work is usually between 6-8 hours, depending on your schedule and the amount of work.
This strategy may backfire when working with clients who expect you to dedicate the entire day to their project, and therefore it is important to define what your working hours are within a day in the initial meeting. It is best to use this pricing strategy when working with one client at a time, in order to best focus on the project and avoid burnout.
Charging per week of work is one of the less common pricing strategies, but it is ideal for medium- to long-term projects. However, as some projects may not take an exact amount of weeks to complete, it is important to determine a pro-rata rate for any extra days worked (for example, four weeks and two days).
It is also crucial to define how many hours are in a working week – for some, it can be assumed that you will be working on a project full-time, i.e. around 40 hours per week. Implementing this pricing strategy may pose challenges and complexity for certain individuals. By skillfully negotiating and including explicit provisions in your contract or proposal, this approach has the potential to be highly effective.
A monthly retainer fee is an amount that a client pays upfront to retain your services for the month. This does not necessarily mean that you will work for them for the duration of the month, but rather whenever they need your services. This is ideal for long-term clients that require many smaller projects to be completed over a matter of months or years.
This can be tricky when working with multiple clients at a time, as you are at the disposal of the client that retains your services whenever they need you. However, it is a great way to increase client retention rates and you have a regular, reliable income for every month that they retain you, regardless of whether you did no work for them at all or worked every day.
A fixed fee is a predetermined amount charged for the completion of a project. This fee remains unchanged and is typically calculated based on the estimated duration of the work. This pricing strategy is well-suited for projects with clear timelines and offers reassurance to both you and the client, as the cost is clearly defined. Displaying these prices on your website can be beneficial in filtering out undesirable clients.
However, if the project takes longer than expected to complete, you are not entitled to any compensation for the extra time that you worked. Similarly, if the project is completed well before the estimated date, the client may feel as if they were charged unfairly, and it could cause problems.
According to Finances Online, 45% of freelancers in the US are paid a fixed amount, while 32% are paid hourly.
Best Practices for Setting Your Rates
When setting your rates and deciding on your preferred pricing strategy, it is important to take a few things into consideration. When deciding on a fee as a freelancer or contractor, you should not only consider what you will earn for that project, but your income as a whole.
Determine Your Desired Income
When you start working as a freelancer or contractor, you should take a look at your finances and calculate what your desired yearly or monthly income is and how you can earn that from your clients.
Set Clear Boundaries
When setting your rates with a client, it is essential that you establish clear boundaries around your time. If you charge a daily rate, define your working hours (for example, from 9am until 5pm) and explain that you will not be working for them outside of that time frame. This can reduce the likelihood of conflicts and misunderstandings later on.
Never Work for Free
It can be easy to let an hour slide here and there, but in order for your clients to truly value your work, it is important to charge for every hour or day worked. Additionally, when asking for a weekly or monthly rate, it is important to determine your pro-rata amount if there are extra days worked.
Know Your Own Worth
Don’t undercharge because you feel that you are not deserving of a higher amount. Set your fee based on your skill level, your qualifications, your experience, and the industry standard. Do not accept less than what you know you are worth. If possible, speak to others in your field and ask them about their pricing strategy.
Determining the right pricing strategy as a freelancer or contractor is essential to your success in the industry.
Hourly, daily, weekly, monthly, and fixed-fee projects are all viable options, but it is important to consider the nature of the project and your own personal preferences before settling on one. Additionally, setting clear boundaries and knowing your own worth are all important best practices to follow when setting your rates.
By taking these factors into consideration, you can ensure that you are being fairly compensated for your work and can continue to thrive as a freelancer or contractor.