What to Charge Your Clients to Make that Money, Honey

It takes guts to work for yourself. Going freelance, or starting your own business, is a big move to make – and not everyone is cut out to do it. But why is it that so many people who are empowered enough to begin doing their own thing aren’t willing to charge what they’re worth? 

You do good work, and you deserve to get paid for it. Being self-employed can be hard, but struggling to make ends meet is even harder. Being an artist is cool. Being a starving artist, not as much. 

In order to avoid this trap, take a look at our quick two-cents on what you need to charge clients, and why you need to charge it. 

Here’s some math stuff to help you find a starting point

(Annual Salary + Annual Expenses + Annual Profit) ÷ Annual Billable Work Hours = Your Average Rate per Hour

Wait… What? Okay, let’s back up a little bit.

Annual salary: It’s up to you… What do you want to make?

Annual expenses: Your expenses include all of your business purchases (like supplies) and any overhead costs, like utilities, rent, insurance, and marketing costs. Essentially, whatever the self-employed ship needs to keep on sailing.

Annual profit: This is the extra amount you’d like to charge over your expenses. We typically recommend charging anywhere between 10-20% of your annual salary.

Annual billable hours: This one’s pretty flexible. Take 365 days and subtract the following: Sick days, weekends, vacation, and time spent doing administrative work.

Now, multiply the number of days you will work by the average number of hours you think you will work per day. That’s your annual amount of billable hours.

Okay, got it. What else should I factor into my rate?

Overhead: We touched on this earlier, but this is everything you need to keep your boat afloat.  Sink or swim, baby. Sink or swim. Some overhead costs are fixed – like rent, taxes and licenses. Others may be variable, depending on how busy you may be, and can fluctuate with different levels of activity. Run an Etsy store? The holidays are your busy season, and you’ll most likely have increased shipping costs during this time frame.

Billable time: Figure out how long a project is going to take you, and quote your fee based on that time. As time goes by, it’s helpful to keep track of how long certain tasks take. That way, when someone wants a logo and a business card, you can have a general sense of what that would entail. And we’re talking total time… from research, brand development, presentation, and edits. Learn how to calculate billable hours.

Purchases: If you’re building someone a website, be sure to factor in the costs (and time it takes) to buy a domain, purchase stock photos, etc. Don’t let that money come out of your piece of the pie.

The great debate on how to charge: Hourly, or a flat fee by project?

Before you choose your method, you’ll need to consider a few aspects that will impact your pricing – like the market, your location, your competition, and your client type. You want to understand the need for your services. Also, your experience will definitely play a part in determining your rate

Clients in Richmond, Virginia will most likely want to pay their freelancers a lower rate than if you were in New York City. This is because the cost-of-living is so much lower. You don’t want to charge too much and price yourself out of a job, but you also don’t want to charge too little and have people not think you’re legit.

Charging hourly

The good: Simple, upfront, and can be easily negotiated. Charging hourly is pretty fair, because you get paid for exactly how much time you’re putting into the project.This method is great if you think your client might demand multiple rounds of edits or make you scrap everything and start from scratch halfway through the project. 

If you’re submitting bids, charging this way can make it easy to compare to others’ pricing. Finally, if you’re working projects for long periods of time, charging by the hour may be the way to go – because if the timeline is dynamic, the workload typically will be, as well.

The not so good: Some clients may raise their eyebrows at an hourly rate and get nervous they could get charged more in the end. But, this is assuming you aren’t the honest little angel that you are.

If you work super fast (yet deliver the same quality as others), this might not be the best option for you. You don’t want to work hard and efficiently, only to be paid less – right? Right! 

Additionally, let’s say you set your hourly rate a little bit lower than you’d like to be making since you’re just starting out. As time goes on, it can be difficult to go to long-time clients and let them know you’re upping your rate.

Charing by Project

The good: There’s little negotiating with a flat rate, which can make things easier. You can post your menu publicly. Want a logo? Website with copy? Your client can just skim through a list of prices and know exactly what they’d pay for an end product, making them feel more in control.

Per-project rates are great for small projects. You’re likely to work very productively and possibly earn a higher hourly rate at the same time if you finish quickly. 

The not so good: This method doesn’t leave much wiggle room if you work on a project from h-e-double-hockey-sticks. Or, if you have a client with a goldfish brain when it comes to what they want, you could end up going overtime (and possibly lose money).

If you do a project rate, it’s a smart idea to include a set number of revisions or adjustments in the agreement.  Then you can charge an hourly rate after they’ve used up their revision credits.

In case your mind’s still not made up…

Learn the norms for your industry. From there you can adjust your fee depending on your skill level, experience, or how in demand you are.

Get a mentor. Remember that dude Rob you used to work with? Hit him up for coffee and pick his brain. A lot of established people enjoy helping someone who is just starting out.

Always, always, always ask your client’s budget.  It’s no fun spending hours getting a quote ready only to find out they can’t afford it. Before you put the time in, ask for a ballpark budget upfront so you’ll have an idea if it’s worth it to get started. 

Do your homework on your client. Is this new site you’re building going to get 10,000 visitors a day? Or 100? The more visitors, the more valuable the project is.

You have the power. Don’t be shy to ask for what you want.  If your client seems shocked by your ask, educate them on why you’re charging the rate. It might seem uncomfortable at first, but you’ll get more and more used to talking about money with clients as you go. 

When you’re just starting out as a freelancer, it’s hard to figure out what to charge your clients. You’ll want to come up with an amount that pays your expenses, compensates you for your time, and gives you a fair profit.

Just starting out?

When you’re doing your own thing, there’s a ton to figure out when you’re getting started. As overwhelming as it can be, let us help take one thing off the hefty list.

Pogo Insurance specializes in small business insurance for freelancers, independent contractors, and other self-employed people. If you’re looking for a quick and easy option, consider grabbing a free insurance quote from us. We shop prices for you, so you don’t have to. Simply fill out a three minute form, and we’ll take care of the rest.