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One subject that gives freelancers a lot of anxiety is how to price their services. We want to make a good living, but are afraid of driving the market away by charging too much. So, what's the right amount? Simply put, it's the area between charging too much and charging too little. Believe it or not, the bigger problem that freelancers face is that they charge too little. So, I'll talk about that first. There are few reasons freelancers charge too little. If you're coming from a salary position where you did similar work, you might figure out your hourly rate there and charge private clients a similar amount.
But that's way, way, way too low. First of all, you're not going to bill 40 hours a week. Second, you now have to cover expenses that your employer used to pay. One rule of thumb puts a typical freelance rate at two and a half times the hourly rate that freelancer would get with an employer. That's not always right, but the point is that your rates will be much higher per hour. A second reason you might charge too little is that you can't believe someone would pay that much. But if you had never been on the buying side of the equation, you probably don't have a sense of how expensive good labor is.
Talking to people in your professional network can help you figure out what the real market rates are. Or maybe you can believe someone would pay that much, but can't believe they would pay it to you. Assuming you have the skills that's just basic insecurity talking. It's hard to get a sense of ones own value. Again, talk with colleagues and other professionals to determine what your realistic value is. Some government bodies keep track of pay scales for various professions and that gives you another data point. In the U.S., that's done by the Bureau of Labor Statistics.
You can search for details on your profession in their Occupational Outlook Handbook at bls.gov/ooh. The problem with charging too little isn't just financial. If you undercharge, prospective clients will see the low figure and suspect that you're just not very good. And established clients who have gotten used to your low rate will get spoiled wasting your time just because they can afford it. Higher rates make them value your time more leading to better work relationships and more fulfilling work. Now let's talk about charging too much.
Basically, people buying your services have to justify the cost to themselves. It then comes down to a cost- benefit analysis for the buyer. The values are all pretty subjective and they are not always easy for the buyer to measure in dollars, but they do perform such an analysis even if it's only in the back of their mind. If your rate is substantially higher than the cost of doing things internally or with another freelancer or not doing them at all, then you're out of a job. If you've gone through this whole process, you now have a reasonable sense of what the market will bear.
But there's one other factor; you have to make enough money to keep your business healthy. As with many other parts of freelancing, setting rates requires an understanding of your own value. It involves research and a certain amount of difficult soul-searching, but it can lead you to being able to charge your true value confidently and successfully.
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