The Alchemist's Lair
Thoughts on writing, language, life as a freelancer,
and what comes to mind.
and what comes to mind.
Deciding on a pricing policy can be hard for freelancers, especially if you're just starting out. Defining your rates is a crucial step, which shouldn't be overlooked. This article from the Pricing policies for freelancers mini-series will hopefully help you through the process and make it a bit easier than it looks like.
In the first article of the series we talked about defining your target income. It shouldn't come as a surprise that your pricing policy - i.e. your rates - will play a crucial role in actually achieving that target income.
The most important aspect you need to take into account when defining your rates is the difference between billable and non-billable hours.
Briefly, billable hours include the time you spend working on a customer's project. Non-billable hours include the time you spend in activities other than "work on the project" which are connected to the customer's project (correspondence with the customer, providing a quotation, billing, answering follow-up questions etcetera), PLUS the time you spend on your business in general (marketing activities, CPD, paperwork, idle times etcetera).
If you want your business to be profitable, you have to make sure that your rates cover both billable and non-billable business costs and activities.
PROJECT RATE vs. HOURLY RATE
Should I charge by the hour or apply a fixed project rate for my services? This question is probably one of the most common amongst freelancers, in any field. Specific industries have their own set of practices - as an example, most freelance translators charge by source word for translation or proofreading projects. In the broader picture, however, freelancers mainly charge by the hour or by project. The decision is really up to you and you might also find that you can use project rates for some services and charge hourly rates for other services. It is true, however, that in most cases customers tend to prefer project rates over hourly rates.
Ed Gandia, freelance business writer and co-author of The Wealthy Freelancer, recently held a brilliant podcast on pricing policies for writing project where he also analysed the reasons why customers are more likely to accept fixed project rates. Some of the highlights included that clients need a fixed price they can fill in their budgets (so intuitive but so often overlooked!) and that hourly rates are more questionable than fixed project rates. As I went through the podcast, I realised those reasons are more or less the same in any freelance business, so I really encourage you to listen to the podcast if you want to know more about this.
If you want to have a closer look at defining hourly rates, you can also try the FreelanceSwitch hourly rate calculator. People at FreelanceSwitch created a free tool for freelancers which analyses your annual business and personal costs as well as your billable and non-billable hours to provide information on the hourly rate you would need to charge to achieve your target income.
DEFINING YOUR RATES: 3 IS THE KEY
"Defining your rates is a difficult matter
it isn't just one of your holiday games
You may think at first I'm as mad as a hatter
When I tell you, a freelancer must have THREE DIFFERENT RATES."
Regardless of the pricing policy you will adopt - whether a hourly rate or a fixed project rate - I suggest you to define your rates with a very simple scheme. Each service should have its own standard rate, premium rate and rock bottom rate.
In this scheme, the standard rate would be what you'd charge for a standard service (i.e. with no special requirements) with an average turnaround; the premium rate, on the other hand, is what you'd charge for an express service (i.e. short turnaround) or servicing with other special requirements (e.g. extensive research, availability for short term changes and additions etcetera).
The rock bottom rate does not represent a rate you would charge in specific occasions, but rather your minimum rate, i.e. the minimum price you can apply to a service. It is important to realize that even rock bottom rates have to be profitable, as there is no use in working at rates that do not support your minimum living standard.
Next week we'll talk about one of the most common rates-related dilemmas: To discount or not to discount?