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Setting prices

From: Freelancing Fundamentals

Video: Setting prices

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.

Setting prices

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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Freelancing Fundamentals

42 video lessons · 24796 viewers

Tom Geller
Author

 
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  1. 10m 50s
    1. Welcome
      1m 53s
    2. What is freelancing?
      2m 53s
    3. How freelancing and employment differ
      2m 33s
    4. Preparing your mindset
      3m 31s
  2. 9m 24s
    1. Defining career goals
      2m 48s
    2. Sharpening your market focus
      3m 18s
    3. Transitioning to freelancing
      3m 18s
  3. 16m 11s
    1. Preparing your portfolio
      3m 11s
    2. Estimating costs
      3m 10s
    3. Funding your startup
      2m 42s
    4. Establishing your workspace
      3m 35s
    5. Building your professional network
      3m 33s
  4. 8m 51s
    1. Getting licenses, permits, and insurance
      2m 15s
    2. Creating contracts
      4m 23s
    3. Finding professional service vendors
      2m 13s
  5. 12m 54s
    1. Setting prices
      3m 13s
    2. Establishing payment systems
      1m 36s
    3. Invoicing and getting paid
      3m 50s
    4. Keeping the books
      2m 32s
    5. Managing taxes
      1m 43s
  6. 14m 41s
    1. Announcing your availability
      3m 16s
    2. Finding work through agencies
      2m 2s
    3. Onboarding clients
      2m 59s
    4. Avoiding scams
      3m 25s
    5. Choosing assignments
      2m 59s
  7. 11m 27s
    1. Interacting with clients
      2m 11s
    2. Delivering quality work
      2m 28s
    3. Getting referrals and recommendations
      2m 34s
    4. Losing and firing clients
      4m 14s
  8. 10m 48s
    1. Deconstructing big jobs
      3m 34s
    2. Adopting time-management tools
      2m 35s
    3. Creating schedules
      2m 30s
    4. Turning off the clock for "me time"
      2m 9s
  9. 20m 6s
    1. Staying motivated
      3m 3s
    2. Increasing your rates
      2m 52s
    3. Marketing beyond your professional network
      2m 56s
    4. Growing through hires and partnerships
      3m 30s
    5. Building passive income
      3m 48s
    6. Changing focus
      3m 57s
  10. 4m 52s
    1. Case study: Publishing a book
      2m 47s
    2. Next steps
      2m 5s
  11. 12m 42s
    1. Freelancing Q&A
      12m 42s

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