It’s that time again; the time when you break out a shiny new calendar, look back at the year that is winding down, and ask yourself the freelancer’s perennial question, “Should I raise my rates this year?”
The Freelancer’s Conundrum
When you are trying to establish your freelance business and attract new clients, you may fall into the trap of charging less than what your services are actually worth in an attempt to get a toehold in your niche. While that is understandable, it can be a recipe for freelance disaster. Seth Godin observes:
“Someone else is always willing to go a penny lower than you are, and to compete, your choices get ever more limited. The problem with the race to the bottom is that you might win. Even worse, you might come in second.”
Undervaluing your work affects your bottom line badly and creates a huge source of stress. Freelancers Union points out:
“Most people do better work when they feel that they’re properly compensated. In fact, research says feeling underpaid is the leading cause of work stress! You may actually do better work because you raised your rates.”
Fortunately, if you originally undervalued your worth to clients, that does not mean that you have to keep doing so. Rates are, after all, not set in stone.
Your inner naysayer might be whispering, “If I raise my rates, I will lose clients.” This is by far the most common misconception about increasing rates that freelancers hold. The reality is that your clients do not exist in a bubble. By and large, they understand that in the natural course of events, rates go up for services rendered over time. If they do not understand this, perhaps it is a good thing to lose their patronage.
Why the New Year is Perfect for New Rates
Like many things in life, changing your rates successfully requires good timing. The New Year is a perfect time to raise your rates. Why?
- The New Year is a natural time to rethink all your business goals and objectives, including remuneration.
- Clients are more likely to accept changes in rates at the beginning of the year, as it is also the beginning of the fiscal year for many of them.
- Every year that passes, you increase your experience and skill level as a freelancer, which should be reflected in your pricing model.
- Clients with whom you have built a relationship for more than a calendar year are likely to continue using your services even if you raise your rates modestly.
How to Set Your Freelance Rates Appropriately
Once you decide to raise your rates, you can rely on several factors to help you to price your services appropriately. The first thing to remember is that pricing is fluid. For freelancers, the going rate for a project is determined by multiple factors such as skill level required, experience, value to the client, geographic location, and more.
Do not neglect to also factor in the rate of inflation in your area. Freelancers who forget about inflation find their profit margins dwindling year over year. At some point, working for the same rates over time leads to significant financial loss.
The Guardian reports: “The Association of Independent Professionals and the Self-Employed (IPSE) recommends taking your equivalent earnings as an employee and adding a third, which accounts for the added costs that arise as a freelancer.”
The Freelancers Union gives the following guidelines to help you set your rates:
- Even if you do not plan to charge an hourly rate per se, determine how much time it actually takes you to complete a project on average. For your own purposes, set an hourly rate that you will use as a baseline when giving clients a project rate. In general, you can determine a ballpark hourly rate by adding annual profit, annual expenses, and annual salary, then dividing by billable hours.
- Account for any supplies and other expenses, including overhead, that will be incurred in the completion of the project.
- Build in a specific target profit range for each project.