A Comprehensive Guide
As an independent architect or designer, you have the freedom to set your rates, and your earning potential is uncapped. But, freelancers are often troubled by the question of pricing. While freelancers know they have a valuable skill set companies need, they may not know the appropriate rate for their services or how much they should charge.
This guide will review pricing strategies and share best practices to help you set your freelance rate with confidence.
1. Ask yourself these basic questions
Consider the following questions when thinking about setting your freelancer rate. Reflecting on the answers can help you identify the factors that will define your pricing strategy:
- How much money do I need to make to support my
lifestyle?
- How much money do I want to make as a goal?
- What do other freelancers charge for similar services?
- How much money would I make as a full-time employee?
- What expenses do I have as a freelance business owner?
Are my skills in demand?
- How much value am I bringing to the client?
2. Set your annual salary goal
Are you supporting yourself or a family? Do you have money saved up, or do you need your income to pay for your living expenses? Freelancing can supplement an existing income or provide a full-time income.
By understanding how much you need to make and how much you want to make, you'll work backward to find your freelancer rate. Pick a yearly salary, and then you can use this to calculate how many working hours you'll need to get to that salary.
For example, a $50,000/year salary breaks down like this:
- $50,000/year (before taxes)
- Working 40 hours/week (5 x 8 hour days)
- 4 weeks off for vacations, sick days, and unexpected
absences
= 48 working weeks x 40 hours week = 1920 working hours
= $50,000 / 1920 hours = $26 per working hour
But, this rate considers all of your working time as billable hours. In reality, many activities require time that you don't get paid for, such as administrative tasks, invoicing/billing, replying to emails, prospecting and finding new clients, marketing, and more. That leads to the next step.
3. Number of billable hours you need to work.
While each situation is different, freelancers' average hourly breakdown is 60% billable hours and 40% non-billable hours. When calculating your freelancer rate, you can adjust this ratio to match your expectations and processes.
If we are allocating a total of 1920 work hours from the calculations above, how much of that time will be billable vs. non-billable time? Using the 60%/40% as a baseline, we can recalculate the hourly rate using only the billable hours:
= 1920 hours x 60% = 1152 billable hours (+ 768 non-billable hours)
= $50,000 / 1152 billable hours = $43.40/hour
As a freelancer, you'll have to balance the best way to use your time. Do you want to pursue a larger number of projects at a lower rate or a smaller number of projects at a higher rate? Understanding the amount of billable time for a project will help you calculate if it makes sense relative to the number of non-billable hours required to get that project. You can also increase your rate for smaller projects and provide a discount for more significant or long-term projects.
4. Freelancer expenses into your price
As a freelancer, you will have business expenses that must be accounted for in your rate. List out all of your costs and total them up. You will need to add this number to your salary goal and increase your hourly rate to cover these expenses. Below are some of the standard costs that freelancers should consider:
- Health insurance
- Taxes
- Business insurance & licenses
- Equipment
- Office space/rent
- Software subscriptions
- Marketing and advertising costs
If these expenses total $10,000/year, your annual goal needs to go up to $60,000, and your hourly rate increases to $52 ($60,000/1152 billable hours).
If your freelancing hourly rate is higher than you would be paid for a regular salary, that's okay. Clients typically expect to pay a little more for freelance services because many other costs shift to the freelancer. As a freelancer, you're responsible for the additional expenses associated with running and growing your freelance business. Plus, your client doesn't pay for employment taxes and benefits as they do for full-time employees.
5. Know the market rate for your services
Now that you have a rate that covers your salary goal and expenses, it's time to compare this hourly rate to the market. What are other freelancers charging for a similar service?
To find this information, do some research and look at your competitors' rates. On CO-architecture or sites like Glassdoor, you can get an idea of freelancers' hourly rates. You can also check out this article to learn how much freelancers make in various industries.
If your rates seem consistent with the other freelancers in the market, you have a good starting place. If the rate you are looking to charge is too high, you may need to revaluate your expenses or salary goals. If the rate is too low, then you may be undervaluing your skill set.
6. Understand your value
You should know your value to make sure you're charging a reasonable price for your services. Anchor your price point based on the value you provide to the client. How do you put a value on the knowledge you've learned, the skills you've developed, and the services you offer to clients? One way to determine your value is to reflect on your experience, skill level, and past work portfolio.
Expertise is an investment, not an expense. Naturally, the more experience you have, the more you can charge for your time. A freelancer with 10 years of experience as a web developer will be able to charge more than a freelance web developer with two years of experience.
The rarity and complexity of your skill set will play a role in your pricing strategy as well. A freelance programmer proficient in three different coding languages will be able to charge more than a programmer with the same level of proficiency in a single coding language. If you can demonstrate the level of quality and return on investment, you'll be able to set a higher price for your services.
Additional things to consider
- Project complexity. A complex project will have stricter requirements and utilise more advanced skills, which
means you can charge a higher rate for that project.
- Education. An advanced degree or industry certification
may enable you to charge more for your services.
- Talk to your clients. Client communication is crucial. You
need to understand the client's goals and how your
project fits into their bigger picture. Effective
communication will help you identify ways to provide
more value or expand your service offering.
- Don't forget why you're freelancing. It's important to -
remember that your freelancing rates should empower
you. If your rates aren't giving you the lifestyle, freedom,
and income you want, it may be time to change your
pricing strategy or re-examine how you create value for
your clients
Conclusion & next steps
As a freelancer, you're in control of deciding how much to charge for your time, attention, and skill set. There are many considerations when setting your rates. You can reflect on the questions posed in this article, use the annual salary calculation, review your competitors' rates, and adjust based on the value you provide.
But, the most important thing to remember is that your rate isn't permanent. Pick a freelancing rate you're comfortable with, and try it. The market and prospective clients will let you know if that pricing strategy matches your service's value. You can change your rate as you gain experience, improve your services' value, and as your income goals evolve.
If you're ready to get started on your freelance journey, sign up on CO-architecture.com. Set your freelancer rate and apply to projects to see how potential clients respond to your pricing. Check out this article for helpful tips on how to improve your freelancer profile.