If you abandoned your 9-to-5, it may feel a little overwhelming to try and rack up the right number of clients to fill the gaping hole left by your non-recurring paycheck. Knowing what the prices might be can be confusing, but we've got you covered.
It's easier than you think. You need to calculate what you need to earn each month to maintain your standard of living. If you leave your job because the pay isn't enough, then your freelancing rates shouldn't be at the same rate. You need to push it higher.
Count all your expenses, plus any new expenses that may come with your new role. Think about changing your taxes, adding insurance, paying for your own health insurance.
Once you have a monthly figure in mind, it's time to break it down into weekly, daily, and hourly rates. Take a deep breath if it feels too high, it probably isn't.
2. Your level of experience
This is where things might get a little tricky as experience is a huge bonus. Clients want to know that you are familiar with their project, their needs, their process, their system, whatever. They don't want to feel like they have to coach you. So your pricing strategy has to be on point.
If you start at freelance writing industry, it would be hard to charge $100 an hour. In fact, going to a client at that rate and showing nothing for it might elicit giggles and they will likely shadow your emails.
3. Client's willingness to pay
This one is a little tight and one you should watch carefully. If you only deal with cheap clients, you will never get the rates you deserve, newbie or not.
Think of a $2 per hour bid on a bidding site where you need to explore for hours, plus compete against other freelancers, before creating a project. Don't. You are worth more than that. Even as a beginner, you shouldn't work for anything under $20 in most industries with a high percentage of freelancers.
On the other hand, if you're constantly running into roadblocks and even the larger agencies can't afford your rates, you may be overpriced. Request a counter quote if the client rejects your rate, and see if it's something you can work on. Just make sure you're not undercutting yourself for cheap clients.
4. Your hate number
What's the lowest rate you want to get before you start hating the project? $30 an hour? $20 an hour? Maybe even $10? That figure is your lowest rate and shouldn't come into play. It doesn't matter how good the client or the project is. Why, you may ask?
Imagine working for a company that offers everything you like. Endless coffee in the coffee shop, football in the conference room on Sundays. But the pay keeps you on the edge of your seat. One flat tire or a medical emergency that your insurance doesn't cover and you're in a hole.
One more emergency and you find yourself applying for a personal loan. You can barely pay the bills, you don't have enough money to join your friends for dinner. How long before all those wonderful benefits start curdling in your stomach?
Now let's get back to that lowest rate. You need to upgrade it. Even double. As a freelancer, there are few things worse than living on the margins of your income. It's hard to make good financial decisions when you're constantly in the hole. And the holes are your hate numbers and lower.
Take for example a friend of Ramit's who is considering cutting down on the busy consulting side of things because $25/hour and endless hassles with clients just aren't worth it. With Ramit's help, he lands new clients at double the rate and suddenly $50/hour seems worth the effort. It's just that the new client isn't as perfect as the first.
The lesson here is that even if you make money, you will come to a point where the effort and rewards have to be reasonable. If not, then it's time to raise those rates, or else, you guessed it. Hatred.
5. Your goal salary
His rough figure is not a good idea. You need to know the salary you want to earn and the billable hours you can and are willing to work per day. More importantly, you want to know how many hours you're willing to toil at your desk to meet that paycheck.
For example, if you have a monthly income goal of $10,000 and you want to work 40 hours a week, you must make at least $62.50 per hour.
If you are a parent working from home, is 40 hours a week realistic? Do you need to cut back to 20 or 30 hours? More importantly, can you adjust your rates higher if you do? These are all questions you need to answer when deciding on your goal salary.
6. Your competition
Ramit tells about two freelancers who are doing a great job. Both are great, but one charges twice as much as the other. When it came time to renegotiate, Ramit opted for freelancers at lower rates. There is no reason to keep anything else, because the quality of the work is the same.
When you look at your rate settings, it's good to know what others in your industry are charging. A few dollars here and there isn't worth the chop, but when you see rates that are no longer competitive, you're putting yourself in the danger zone.
Ask around on social media boards or befriend full-time freelancers to get a sense of hours worked, monthly earnings, and whether their years of experience affect their prices. Browse blog posts and industry best practices to build your own rate sheet.
7. Do people buy what you sell
It doesn't matter what rates you charge, how much time you spend on marketing, or even whether you're the cheapest. If you put out a product that no one is buying, you're wasting time.
The reverse can also be disastrous for a decent fare. If people are buying and too many are selling, you'll probably find yourself in a price war in no time. Think bidding sites like Upwork and Freelancer. Many freelancers have made substantial careers from freelancing solely on these sites.
But move parameters to the lower end of the market. Suddenly you're competing with hundreds of other freelancers who can offer your services for less than you wanted. In fact, it's not uncommon to have to pay a higher bid or be placed in a queue just to get noticed. And then get paid $4 for an hour's work.
You have to stand out from the crowd and even if you enter a saturated industry, you can still turn your back on yourself.