Freedom is a double-edged sword. And nowhere is it more evident than in the life of a freelancer. The freedom here is close to absolute – you can set the hours, decide your workload, choose your workplace, and so on.
The freedom to set your rates, however, is an altogether different proposition. It would have been a breeze if you were one of the few freelancers on the market. But we don’t live in a perfect world – there are millions of freelancers in the modern digital economy, and more are being drawn to this field each day.
Freelancers, particularly new ones, face a dilemma when setting their rates in such a crowded market – set it too low and you run the risk of getting underpaid, set it too high and you might drive off potential clients to others (and end up not getting paid at all).
There are many factors at play here and no easy answers. But with some soul-searching, self-assessment, and research on your chosen niche in the freelancer market, you can remove a lot of the uncertainties and unknowns. This guide will help you get started!
Common misconceptions about freelancing debunked
Moving from the stability of a single employer and stable income to a world of unknowns can be quite daunting. People often enter the world of freelancing with trepidation, and a lot of preconceived notions. Many of these are shaped by common perceptions and fears about freelancing.
While they may seem logical, these misconceptions can severely hinder your long-term prospects as a freelancer. Here are three of the most common myths harbored by freelancers (including some pros) about their line of work:
1. I need to accept low rates as a beginner (as I can ask for more later)
Beginners in the field often suffer from a crippling sense of insecurity. It creates a mentality of “beggars can’t be choosers.” The desperation to land your first client can often lead to rookies accepting rates that are simply too low for the project.
This is often driven by a false notion that you can ask for better rates in the future based on a job well done. But when a lot of freelancers think and behave in this manner, it only drives down the average rates further.
Clients, especially business firms, are always looking to cut down expenses – and when freelancers start accepting sub-standard wages, it sets a precedent that clients can lean on. Gradually, it becomes harder for you to negotiate higher rates, because other new freelancers would follow this same mindset and drive down rates further.
2. I need to create a body of work to ask for higher rates
This is a bit of a Catch-22 situation – you can’t ask for higher rates until you have a decent body of finished projects. But as you continue to accept low rates, it becomes harder to find clients willing to pay more. Besides, where do you draw the line on how much is an “adequate body of work” to demand higher rates?
There is no doubt that experience is worth a premium in the freelancing world. This is especially true in the more creative realms like writing, design, or even coding for that matter. But in many cases, you already have a “body of work” to show clients your value – academic credentials, degrees, published work online, experience in offices, and so on.
3. I cannot afford to reject low paying gigs
Many beginners often suffer from this fear, which is based on the intense competition in freelancing these days. The logic is that if you don’t accept that particular gig, someone else will – you lose while someone else wins.
While that is probably true, this does not mean you have to accept every gig that comes your way. The freelancer market is huge and growing a fast clip, particularly during the COVID-19 pandemic – more firms are hiring freelancers to cut down on operating costs.
4. I have to work for free sometimes
Photographers are often asked to give photos for free, in exchange for “exposure.” Bloggers, musicians, and others have all had the same experience, especially when starting as beginners in freelancing.
This is unfortunate as it can easily be avoided. If someone is asking for you to create something using your time and effort (despite your beginner status), it has a clear, tangible value. You should be seeking payment for that, period.
How to estimate your worth as a beginner freelancer
In full-time employment, there are established pay scales and average salaries that can provide you guidance. Plus, you don’t have to constantly negotiate your pay with your employer. None of this is true when it comes to freelancing – the client expects you to know your worth.
Your worth as a freelancer will determine how well you do in this career – it will determine your rates and the kind of work you will end up doing. So, it is important to get this right early on in your freelancing career. Here are the important steps involved:
Research your niche/market
Before you start a new business/company, you would naturally do quite a bit of background research – on your market segment, target consumer demographic, potential rivals and their products, average pricing, emergent technologies, and so on.
In freelancing, you are the firm – and you cannot move forward successfully without some research on your field. Check out popular freelancer platforms online. What are the rates being set by clients for projects you are interested in/capable of doing? What about the rates set by other freelancers with similar skills as yours?
Understand the value you bring to your clients
This part calls for some self-assessment and frank introspection. Your value to clients is based on several things – academic credentials, work experience, and expertise in specific fields. The individual importance of these aspects will vary depending on your niche.
For instance, degrees may be more important in software-related sectors, or academic work. On the other hand, it will carry less weight in niches like graphic design or photography as they give more weightage to experience and specific skills.
Experience is important in freelancing – even if you are a beginner freelancer, you can command premium rates based on the time you have spent working elsewhere in a traditional office environment.
Position yourself on the market
The freelancer market is quite mature these days, with wide diversity in task complexity and project budgets. How you position yourself in the marketplace will decide the type of clientele you attract. This decision should be based on insights gleaned from steps one and two above.
Experience is important in freelancing – even if you are a beginner freelancer, you can command premium rates based on the time you have spent working elsewhere in a traditional office environment. You can set a premium rate and position yourself on the high-end of the market.
But if you are a fresher with limited experience, your choices will be somewhat limited, unless your degree is in a “hot” tech field like data science or AI. You will have to bide your time at lower than average rates, at least until you gain some relevant experience.
Important factors to consider when setting your rates
Value, worth – these are all rather vague, ambiguous terms. They are like the preliminary sketches you draw while making a painting – giving a baseline for your next step, which would be to set specific rates for your services. This involves some unavoidable number crunching:
Figure out your revenue goals/necessary profit margins
At the end of the day, freelancing is just another way to earn for your survival. And that involves a specific amount of money that you have to earn each year. This involves everything – living expenses, holiday expenses, retirement fund, and savings for contingencies.
This is one area where freelancing falls short when compared to full-time employment in an office. Apart from a fixed salary, employees often get other benefits like health insurance, pension fund, holiday bonus etc. Tax is also deducted from the salary beforehand.
Working as a freelancer, you get none of the above – you have to account for everything while setting your rates. And tax is a major factor you simply cannot ignore, as freelancing often attracts different taxation rates compared to businesses or salaried employment.
Consider all business costs/expenses
Like all businesses, freelancing also involves overhead – you will incur at least some ongoing expenses, regardless of your field of work. But it will vary vastly depending on your niche. If you can work from anywhere with just a basic laptop and internet, it will be minimal – internet bills, online subscriptions for services like Microsoft Office, accounting software, and so on.
Others may have to factor in a lot of other expenses – the cost of specialized hardware like cameras and AV equipment come to mind, as well as studio space, or other labor charges if they have to use extra hands during the production process. All these costs have to be factored into your rate calculations.
Rates you set may apply to your short/medium-term future
There is a lot of ebb and flow in freelancing – There might be days and weeks when you are swamped with work, while on others you are sitting idle. Ignore this aspect and you will be compelled to hike your rates at times to cover your expenses.
Clients will not appreciate this kind of haphazard behaviour. It might deter them from developing long-term work arrangements with you. So be extra careful when setting rates or quoting a price for a project. Try to set a competitive rate that you can maintain even during lean spells.
Why flexibility in pricing is important
Freelancing gives you an option to lead a very flexible lifestyle. But in return, it also demands a measure of flexibility and accommodative spirit from you. To succeed and prosper in this field, you have to maintain an open mind when it comes to your rates.
You also have to think about the client’s perspective when negotiating a rate. Playing hardball may work against you here, for the following reasons:
Projects vary in terms of available budget
Freelance gigs come in all shapes and sizes. Some are one-time gigs with a strict budget. Others may be medium/long-term arrangements with some leeway regarding the ongoing rates. You may not find a project that perfectly fits your asking rate all the time.
Some tasks are more complex
It would be foolish to expect clients to pay you the same price for jobs that require different levels of engagement. For instance, a five-minute-long video with complex lighting and special effects will cost more than one with basic content. Likewise, writing gigs can involve varying levels of research and content requirements.
Clients have varying expectations about freelancing
Clients come in all shapes and sizes in the realm of freelancing. Some may be individuals, others could be SMEs looking to outsource specialized tasks, or it could even be big enterprises filling gaps in a project at short notice.
This leads to a wide disparity in terms of financial prowess and expectations regarding the cost of a freelancer. A few clients may have deep pockets and the liberty to pay top dollar. Others may seek freelancers who can deliver acceptable results for the lowest price.
With so many variables involved, the best thing for a freelancer to do is to maintain a flexible approach to pricing.
Approaches to flexible pricing for a freelancer
There are no hard and fast rules when it comes to creating a flexible approach to your freelancer rates. A lot depends on your niche, your revenue goals, and the amount of time you are willing to invest in freelancing. Regardless of all these, there is one important thing you need to do:
Set hard lines that you will never cross
In the beginning, draw a line in the sand by setting the minimum rate that you expect from your clients. This should be the baseline for all your pricing models. Make it the lowest rate you would be comfortable asking a client, based on your experience and skills (your self-worth). Avoid taking up gigs that pay less than this amount as much as possible.
Consider a strategic pricing model
A strategic pricing model will take into account not just your income expectations and goals, but also the rates of your competition. In some projects, you may have the freedom to demand top dollar. But if it is an open project where you are competing with others, you may be forced to lower your rates.
Multi-tiered pricing – introductory rates, regular rates, premium rates
If you want to take things forward to a more detailed, granular level, you can create multiple pricing tiers. This is more geared towards experienced freelancers who already have a somewhat stable clientele. Introductory rates would be aimed at new clients, with or without free samples.
The other tiers will be defined both by average pricing as well as other aspects like the complexity of the project (hours required), the budget of the client, and so on. This approach creates an aura of professionalism and shows the clients that you mean business.
Enhance your chances of getting paid your worth
Apart from smart pricing strategies, there are few other things you can do to improve your chances of closing a project to the satisfaction of your clients (and of course, getting paid as well):
Set clear expectations at the beginning
In many instances, freelancing is new for both parties – many new clients often come with an inflated expectation about freelancers. They may expect an unrealistically high quality of work for throwaway prices.
As a professional, it is your responsibility to establish clear expectations regarding the work. Convey all details and samples to your client to ensure that they know what they will get from you. Also, make it a point to get as many details about the work as possible.
Create a written contract
In business relations, disputes can always arise at one point or another. A written contract is a valuable tool that can protect you and ensure payment when a client tries to take advantage of you. Outline all important aspects, like your rates, and how they may be altered if the client expands the scope of the project later on.
Keep things professional
Run your freelancing career like a professional firm or business. Maintain good communication with your clients at all times and provide updates when requested. This goes both ways – if they don’t respond to your payment queries, keep chasing them in a polite yet formal manner.
Make it easy to get paid
In eCommerce, there is no dearth of online payment methods these days. Most businesses offer multiple options to clients – credit cards, bank transfers, Paypal. Your clients may come from different walks of life – it is important to maintain multiple payment channels.
How often to review rates, and how to set new rates
Unfortunately, you cannot simply set a rate and forget all about it. If you work in an office, you can expect annual reviews that have promotions or a raise attached to them. But as a freelancer, you have to take care of all that on your own.
On the one hand, you cannot keep hiking your rates frequently – you will get shunned by clients who will probably find better rates elsewhere. But on the flipside, stagnant rates will reduce your profit margin with each passing year.
Here are three tips to help you decide when and how to revise your freelancer rates:
Consider the annual changes in costs
Governments set their budgets on a per-year basis, as do most businesses. You could follow the same approach in freelancing as well – check out the current changes in your living expenses as well as any business costs.
Given the usual rate of inflation in the economy, costs are always increasing. You could make changes in your freelancer rates annually to reflect these changes. Even if you don’t feel the need to make significant changes (you are doing well in business), make it a point to review it at least annually.
Research competitor pricing
You are not the only one out there dealing with the changing economy and market forces. While you are at it, do some research on your peers in the freelance community. Are they drastically increasing their rates, or taking a more cautious approach?
While you may not want to base your rate revision entirely on this, it is well worth a look. Competitor rates can have a significant impact on your ability to attract new clients, and maintain existing ones as well.
Conduct surveys of existing clients
This is a very valuable source of information often ignored by veteran freelancers. You can seek feedback from your clients regarding any proposed changes in your rates. Consider sending them simple questionnaires after completing projects.
Or you can even send them a sample bill with your revised rates – ask them if they would be willing to pay that in the future. Ask for honest opinions and be prepared for any kind of response, negative or positive. Use this information to create the best possible rates going forward in your freelance career!