Determining Your Rates

There are no hard and fast rules on what you should charge as a freelancer, although there are customary practices on how jobs are quoted in some industries. For some projects, the price the client is willing to pay may already be dictated by a purchasing agent. For example, in some writing assignments, you may quote per word, per page, or per article. In the case of newspapers and magazines, they may quote you what they are willing to pay. You can then decide to either take the project or leave it. For other types of freelancing assignments, the client is generally looking for an hourly or whole-project quote.

How you approach your pricing is as much a philosophy as it is about economics. When you’re just starting out, one of the first things you need to decide is whether to price yourself at a rate reasonable to make a living or a rate intended to get you clients. Until you get established, you may find that you have to bid low to get jobs. This is especially true if you use the freelance job site bidding systems, where there is heavy competition for precious few jobs in your area of expertise. The good news is that as clients become comfortable working with you, you can generally raise your rates without too much push-back.

On the other hand, you can look at pricing from the point of view of what the job is worth — both to you, and to the client. If this is just a “filler” assignment that you’d have to work around other jobs you’re doing, or an undesirable assignment you’d rather not do, you could quote a higher rate to make it worth your while to consider it. On the flip side, if the client is going to derive a long-term benefit from the effort you’re expending, it’s worth more to them, and, therefore, you’d be justified in charging more because it carries a higher end value.

Here are some other considerations that you should factor into your rate quote:

• Project scope. Are you going to be tasked with something that is relatively straightforward, or is it going to require significant research to accomplish? Are there others involved who you will need to coordinate with? Meet with the client before providing the quote, document your understanding, and get client concurrence on what’s involved.
• Going rate. What is the “going rate” for this type of work? Find out what your peers charge and contact agencies to see what they pay for your specialty. You can also ask the question on online forums and blogs or post an ad on Craigslist to test the waters.
• Try to determine what the pay scale is for employees performing similar jobs from salary surveys, the Federal Occupational Outlook Handbook, or headhunters, and then increase that amount by 35 - 50% to factor in the employer not having to pay benefits.
• Seek out associations for your industry, such as the American Society of Journalists and Authors and the Editorial Freelancers Association, for guidelines of what to charge.
• Only a portion of your work week will be billable, so you also need to factor in your operational overhead expenses in determining your rate.
• Be sure that you specify clearly up front that your out of pocket expenses, like courier fees, postage, duplicating costs, etc., are not covered in your rate so that these expenses are not eating up all your profits.

• Avoid scope creep. Build in a contingency fee at the end of your quote to cover any client requested changes or additional work beyond the original request. Assure the client that this fee only kicks in if the condition is met, but be very clear about what those conditions are from the onset.
• Rush jobs requested by customers should command a higher rate.
• Size of the client. Mom and Pop may not have the budget that a mid-sized company has. The same goes for non-profits.
• State of the economy in the client’s industry. If it’s been a tough year for them, they may feel you’re not willing to “work with them” if your quote comes in too high.
• If you are interested in quoting flat rates, it’s advisable that you first have a comfort level in both being able to complete the work on schedule and in your estimating capabilities. Build in contingency fees, as noted above, for unforeseen circumstances.
• Make sure your prospect understands what value you bring to the table. In reality, they may not have any concept of what it takes to do what you do, so give them a mini-lesson and step them through your process so that they can gain an appreciation of your craft.

We’ve been purposely vague on suggesting what you should charge for your specialty because of several variables that come into play. We agree that it’s a challenge. Your rate needs to be high enough to cover your expenses and earn you a profit and yet be competitive. There are many things that you have to figure into the mix - the state of the economy, the “going rate” in your area, the level of competition you have, and generally what the market will bear.

Believe it or not, your level of experience is not as big a factor as you might think. Generally speaking, the difference in technical skill level between you and a high-level freelancer is probably too minor for the average client to notice. Ultimately, you’ll only get paid for what you’re willing to ask for, so start with what you feel the job is worth and be willing to be flexible. As you gain experience and develop a following, setting your rate will become easier.

Should You Work on Speculation or Consignment?

“Speculation” means doing something without compensation with the hope of future reward. “Consignment” means placing your work in the control of another to sell, but retaining ownership until the sale is made, for which you receive a portion of the proceeds.

The question of whether you should consider these practices will most likely be raised if you’re a newbie to freelancing or are attempting to break into an area where you haven’t worked before — either a skill area or a desirable client. And the best answer we can offer is that it depends.

The most important consideration is the potential for your compensation to materialize. One big factor is the track record or how well established the benefactor is. For example, if you’re an illustrator or graphic artist, and would like to break into creating greeting cards for Hallmark, and you put together some samples, there’s a risk that you may not hear back from them. On the other hand, Hallmark is a well established company, and if they like what they see, there could be a huge upside potential for you! However, if you’re approached by someone you don’t know to do work on “spec”, be sure to check them out thoroughly before committing your resources.

We used a creative person approaching Hallmark on spec as an example, but in truth, professional design organizations frown on the practice. The American Institute of Graphic Artists states:

“AIGA believes that doing speculative work seriously compromises the quality of work that clients are entitled to and also violates a tacit, long-standing ethical standard in the communication design profession worldwide. AIGA strongly discourages the practice of requesting that design work be produced and submitted on a speculative basis in order to be considered for acceptance on a project.”

Another professional organization, the Association of Registered Graphic Designers of Ontario, adds:

“Doing work on spec amounts to providing design work for free (or for a nominal fee) as part of a pitch for new business. Uninformed clients mistakenly believe that requiring spec work as part of their search and selection process for a graphic designer or design firm is a good business practice. Spec work is universally condemned as an unethical business practice by responsible designers and design organizations around the world.”

So while the practice is not condoned in many circles, sometimes it’s the only opportunity you have to break into a new field or test out your skills in an unfamiliar area. Perhaps it’s a topic that interests you and producing some work allows you to research with a purpose and experiment with little risk as to the outcome other than an investment of your time. In addition, it may give you an opportunity to add to your portfolio and it definitely broadens your experience. Therefore, the reward you receive is not necessarily monetary, but nevertheless still valuable.

Estimating What the Job is Worth

Estimation is a skill that improves with practice. Experience is the best teacher in learning how to estimate. In many industries, one can simply add up the cost of materials, add in a published labor rate, mark up for profit, and have an estimate. In freelancing, estimating creative effort is more difficult. Often, it boils down to what the client feels the value is and is willing to pay.

Without experience to fall back on, what is the best way to come up with a price? Here are some suggestions to consider:

• Gut feel. What would you be willing to pay if you were in your client’s position? Admittedly, this requires some prior exposure to prices for similar work, but try to get a feel for the going rate for such a service.
• Look at your competitor’s prices. What do they charge? You need to be in the ballpark anyway, so factor in what they offer for the money.
• You’ll of course need to carefully analyze all of the requirements and determine what the perceived value is for the client. The longer the benefit delivery time, the more you can actually charge.
• You can simply apply the amount per hour that you want to earn and multiply that by the number of hours you predict the job will take. Come up with a range between worst case scenario and best case scenario of hours and choose a midway point.
• Break the job down into tasks that would take 4 to 8 hours to accomplish and the visualize how you would complete them. Then assign them a monetary value. Add up all the values to come up with a number. Take that number and then double it to account for miscalculations and unforeseen problems that you might encounter during the project. Track your time, and then when the project is complete, compare it to your original estimate. Over time, make adjustments based on your accuracy. Eventually, you’ll become a pro at estimating.
• Make sure you know what you’re quoting on. If the specs are kind of fuzzy, contact your client and ask if you can review the project so you may obtain a good understanding of what you’re agreeing to do. Then prepare a statement of understanding and get your customer to sign off on it as part of your agreement.
• Try using an hourly rate calculator. It may ask you to consider expenses you hadn’t thought of.

After you’ve been at it for awhile, and built relationships with several clients, you’ll develop a sense of what you should be charging and all of this will become second nature to you.

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