It isn’t rare that a freelancer encounters this all-too-familiar internal conflict: how does one price one’s freelance services?
Admittedly, putting a price tag on your work -- whether it’s hourly or on a project basis -- can rouse up a lot of doubts about one’s professional worth.
To anyone who closely ties their work with their sense of self, assigning a monetary value to their livelihood puts into question how much one’s blood, sweat, and tears really cost.
Sometimes though, the problem is less crisis of self-worth, and more “I seriously just don’t know how to do this pricing thing”. This is especially true for beginner freelancers who are perhaps yet too sheepish to ask for a good price for their services.
This is why it’s important to know the rate of your bottom line by asking one very important question: What’s your Minimum Acceptable Rate?
Computing your Minimum Acceptable Rate
LeavingWorkBehind’s Tom Ewer gives awesome advice on how to calculate your freelancing rates: identify your Minimum Acceptable Rate, or MAR. This is the baseline of the project rates you’re willing to work for.
The formula is:
[(Personal Overheads + Business Overheads) / Hours Worked] + Tax = MAR
Personal overheads should cover your living expenses in a month or year, like paying for your food and house. Meanwhile, business overheads should cover the amount you spend to maintain your business in a month or year (your internet connection, electric bill, gadgets, etc.) Add those two overheads and divide the sum by the hours you project to work for the month or year. After you get the total, add taxes on top.
Say, you’re a digital nomad traveling across Southeast Asia, spending US$5,000 to pay for your rent, food, water, and groceries every month. That would be your personal overhead. For your business overhead, add an extra US$1,000 for your phone and other incidental expenses every month. That brings the total overhead amount to US$6,000.
Now divide that with the hours you project to work in a month. Let’s say you only plan on working six hours a day, five days a week. In one month that’s 120 hours. After computing, we’ll end up with US$50.
Assuming you get charged 12% for taxes, then your Minimum Acceptable Rate would be at US$56 per hour.
Is Charging Per Hour Wise? (Or, Why the Per-Project Basis May Be Better)
This should be taken on a case-by-case basis, depending on your work.
Tom advises against pricing per hour, saying it limits your earning potential, and clouds your client’s judgment.
He says: “Your competence and the speed at which you are able to do your work can have a huge impact on your bottom line. Don’t undercharge yourself by charging by the hour just because you happen to be good at what you do and can do it quickly and efficiently.”
Simply put, you can clock in as many hours to complete a task, but as a freelancer, you’re not being paid to warm your seat. You are being consulted for your expertise. Why should you be judged by how much time it takes to complete the project than how awesome you can deliver it with the quickest turnaround time?
Adds Jake Jorgovan in a CareerFoundryarticle: “Clients don’t care if it takes you 20 minutes or 20 hours to complete the project. Clients care that the work is done and it is done well.“
When (and Why) That Low-Paying Freelance Job May Be Worth Exploring
Admittedly, you will encounter a lot of freelance projects out there way outside your minimum acceptable rate. On Freelancer.com, you’d see projects that would interest you, but aren’t fit within your asking price.
That doesn’t mean you should reject them outright. The key here is that, do you stand to gain more than you will lose?
Some startups will offer you company stocks in exchange of a high salary. If you believe in what the company is doing, and you see potential growth in the future, it might be worth choosing this option and investing in the company long-term.
Remember: your priority is where you will grow the most. Whether that’s for the short-term or in the long run, money- or connection-wise, the important thing is that you move ahead and constantly improve as a freelance professional.
Now go ahead and check out which freelance projects are suited for you.