The very first thing you need to know about pricing is your minimum. This is the lowest amount you can charge per hour, per project, per week, or however you want to structure your business, in order to pay your bills and earn the kind of money you want to earn.
This sets a floor for your pricing conversations in the future. It’s important to have a clear idea of this figure, because it “anchors” your price negotiations. If a potential client’s budget is below this figure, you can instantly decline, rather than work through a complicated negotiation only to find yourself earning less than you need to live on.
To start, you’ll need to know the answer to this question:
How much money do you want to make?
You need to figure out how much money you want to make per year. This number is entirely up to you, but a good place to start is to try and figure out how much you would make doing the same work as an employee. Then, add a hefty percentage on top of that. This is to compensate for:
- The risk you’re taking by not agreeing to work with the same person every day.
- The costs you incur that you wouldn’t incur as an employee (a laptop, a desk, any equipment)
- Your profit! (Remember, you’re a business - you’re just both the owner and the one employee of that business)
Of course, you might value the flexibility of self-employment enough that you’re willing to make as much or less than you would as an employee. That is okay too! You can structure this however you want, but it’s important to work through the tradeoffs because this is what will inform your pricing decisions further down the track.
Divide your figure
Once you’ve arrived at an annual figure, start dividing it down into chunks. Your goal here is to find a monthly, weekly and daily rate. Remember to account for things like annual leave, public holidays, and seasonal fluctuations in your workload. For example, if you provide services to lots of corporations and government organisations, your summer will probably be reasonably slow - especially around Christmas. If you’re a wedding photographer, your summers will probably be very busy!
So allow for this, and come up with how much you need to make for each month of the year. Depending on the types of contracts you get, or the type of work you do, you may want to take this to an even more granular level - even down to the day!
But no matter how far down you choose to go, you now have something to work with.
An example
Let’s say you want to make $60,000 a year. That is an even $5,000 per month. Assuming no public holidays, you have around 20 working days per month. This means that if you don’t want to work weekends, you need to make $250 per day.
Of course, this might be an average figure. You might make nothing on Monday, then $500 on Tuesday. But you now know that, more or less, you need to have $250 of work committed to every day.
Now you have something to work with.
Look at the time available
One of the stark realities of freelancing is that you aren’t going to be productive 100% of the time. You might be working 40 hours (or more) per week, but not all of those hours are going to be spent working for clients on projects you can charge for. You’ll need to do admin like invoicing and expenses, you’ll need to do business development, you’ll need to prepare quotes for potential clients. All of this stuff takes time.
Be generous when you estimate how long all the non-billable work will take. This gives you more “headroom” in your time spent on client work - if you estimate you’ll spend half your time on non-client work and half your time on client work, but end up spending ¾ of your time on client work, you’ll end up making more than you’d budgeted for. That is much better than the alternative of underestimating how much time you’ll spend on non-client work.
Now you have a number
Now you have a number. Well, two numbers actually. One is how much you want to make per week. The other is how much time you have each week to make that money.
The next step is to find your target hourly rate:
This is your starting point for pricing. If you go with an hourly model, you now know how much to charge per hour. If you’re going to go with a packages model, then you know what to price your packages at - and how many you’ll need to do per week. And if you go with a fixed price model, you now know how to price a week’s worth of work.
Here’s a really important point about that number, though: it is a floor not a ceiling. The number you have arrived at sets a bare minimum you can charge; it is not a maximum. In fact, you shouldn’t be afraid to charge more than this figure. We’ll get into that in a lot more detail later on.