Choosing a pricing model that fits your freelance business
If you’re a freelancer, you’ve probably noticed how professionals in the same field as you may charge a lot more for the same services, or a lot less. A quick browse through Upwork, for example, and you’ll quickly realize that freelance rates are extremely vague, especially when you’re just starting out. Some freelancers prefer charging a monthly retainer, while others find more value in charging per hour or per project!
So, what’s the deal with the freelance pricing rate models out there? Which one best suits your needs? Should you choose hourly rate or monthly retainer? How will you figure this out on your own?
How to adjust your freelance rate and get paid for your efforts
We have been there, and know how complicated all this sounds. This article is a quick comparison guide to help you understand the most popular freelance pricing rate models and decide which one reflects better what you’re actually worth.
Know your costs first
Before deciding which pricing model you are going to follow, you need to take into account the costs of running your business. This includes:
- Standard bills: Electricity (even if you work from home), internet/phone connection, mortgage, rent
- Office supplies: printing paper/inks, pens, clippers etc.
- Εquipment: computers, maintenance, software
- Various services: your hosting/domain costs, invoicing platform, social media spending, add-ons related to your profession, other subscriptions
Make a list of these expenses and you’ll get the amount you invest in your business, month in – month out. The monthly amount you’ll get is whereupon you’ll calculate your freelance rate baseline. This baseline essentially is your monthly expenses plus a safety cushion, for cases where you need to spend more for equipment or subscribe to a seminar.
Then, you get the baseline for your freelance rates and add a percentage for your profit, on top of that. But, this applies to a monthly retainer, as you can understand. So let’s break down the two, most popular freelance rates, hourly and monthly.
The majority of freelancers choose to get the average hourly rates of an employee in their industry and adjust it depending on their experience and the size of the client’s company. It’s important to take into account your value as a professional here and not be afraid to be a little more expensive than the majority.
Although above we stated how to calculate how much do you want to charge for your freelance work per hour, then you should compare online for other hourly rates. There is no average freelance hourly fee and the demand for your craft needs to be taken into consideration as well when calculating your freelance rates per hour! If you’re a copywriter, chances are there are hundreds of thousands out there doing the same thing, better than you, so keep your hourly rate within a reasonable range. This way, you will be able to offer quality work and earn a decent living at the same time. Moreover, there are different rates according to your field freelance graphic designer, social media manager, web developer or a blogger.
Clients are familiar with the concept of hourly rates and if you can easily prove the hours spent on a project, you are safe. There are plenty of time-tracking programs out there to choose from. Additionally, rates per hour are easy to negotiate and in the case where a project is highly time-sensitive, you can always pre-define a “rush” rate, higher than your normal hourly charge.
Freelance pricing per hour also enables you to be flexible when the client is a scope-creep. In simple words, whenever your customers demand a change in the project’s scope, they are going to pay you for the extra hours you’ll spend to adjust the outcome, or start from scratch. Anyhow, hourly rates are clear on what your time’s worth and will give you a very good estimate on how long it takes you to complete projects with similar scopes. This way, you’ll adjust them per case so you can organize your program and take up more clients at the same time.
One of the drawbacks of freelance rates per hour is that customers oftentimes need to know how much a project will cost them beforehand. Now, big companies that have big budgets don’t care if you bill them $4.500 or $4.200 for a job, but for small businesses, this is a critical change in terms of cash flow.
The next problem arises when you have your hourly rates on display (in Upwork, for example) so you can’t negotiate with them when a project is highly demanding and complex. Hourly rates are usually an estimation for the average project, so they become inflexible when you take your work to the next level.
Last but not least, freelance rates per hour penalize you if you’re fast. Being fast while not jeopardizing quality should be a well-paid attribute of yours, not the other way around! Plus, finishing a project quickly means that the customer paid less than they would have paid if they’ve chosen another professional, who is slower and less good than you. So, why earn less for an amazing website, that would’ve been easily charged for more and be happily paid by the client?
Make sure to draft a contract, clearly stating your freelance rates per hour and have the clients sign it, every time you take on a new one. This will be legally binding for both sides, should anything occur down the line.
Let’s now examine what is a monthly retainer payment model and what’s the purpose of choosing this type of fee. This model of freelance pricing is widely used by more experienced and established professionals. The freelance monthly retainer is a type of contract where the client pays you on a recurring basis (monthly), in advance. Work-related issues, scope, and timeline are decided later. Basically, your client pays you a fixed amount of money, regardless whether you actually work for them during the month or not.
Freelance monthly retainers can be really good for both sides but can go sideways for many reasons. Once again, there is no standard average monthly retainer fee, but after you agree upon it with your client, sign at least a basic retainer contract, where you state what projects are included on your retainer price. Keep it simple and the payment terms clear. In order to determine if the monthly retainer is suitable for you, take a look at the pros and cons of such agreements!
Monthly retainers are synonymous with steady pay; cash that will flow into your freelancing business no matter what. Provided that your clients are punctual and business is good, you got a certain income to cover bills and be on top of your obligations, even in months when your operating expenses are high or other projects don’t appear on the horizon.
You get to feel somewhat safe as an employee does, but you also remain your own boss.
Α really important advantage when working on a monthly retainer is that clients love them too. This is especially true for clients that honor their agreements and prefer to hire someone as a business partner rather than just another freelancer they can outsource their overhead to.
Also, clients that will propose to keep you on a monthly retainer proves they are satisfied with your performance and it’s highly likely that your collaboration will last. Plus, from their side of their story, they get to have someone they can trust and depend on.
While being on a retainer seems to be safe for both sides, it entails some disadvantages that you need to take into account before signing a contract. First, the retainer implies that you provide your services on demand or whenever the client needs you to do something (if you don’t want to lose their business).
When you decided to become a freelancer, not having someone to boss you around was the number one reason to do that; so you understand how things can be frustrating for you on a monthly retainer.
This leads to a bidirectional dependency; Your client heavily depends on you for their projects and you depend on them to get the monthly paycheck. So, you need to keep in mind that getting more clients is a priority because if you have one and something goes wrong, there goes your income! Which leads us to the next con…
Being on a retainer means dedicating a certain, if not all, amount of your time to that kind of clients, leaving less room for one-time projects. This means fewer opportunities for you and limited income.
Surely, both options have positive and negative sides. Most freelancers resort to the hourly rates because they haven’t figured out their pricing completely, which is not a good enough reason to choose it. Try to imagine yourself in each of these circumstances and decide which one suits best for your industry and personality. On the other hand, monthly retainers are somehow restricting and inflexible.
However, no matter what you choose, remember you are the boss and you can adjust or mix your pricing for better results. If you find out your pricing model isn’t working well for your income, examine alternatives to keep your business growing. Don’t forget, ιt could not be fixed, you can charge some services on retainer and some others on an hourly base, making sure you get paid based on the value of your work and time!