Freelancing: How to Set Your Rates

For freelancers, one of the biggest challenges in setting up and maintaining a business can be learning how to set your rates. Freelancers normally charge for their work by the hour or by a daily rate, but in either case it is important to strike the balance between profitability and competitiveness. Setting your rates too high will prevent new business from coming in. Setting rates too low will mean that you have no shortage of work, but that you won't be operating in a profitable manner.

It is worth remembering that there is no set equation for freelance rates. According to the market in which you operate, different factors will have the greatest impact on how much you can charge your customers. There are, however, some simple rules that can help determine how you set your rates.

Determining your business costs

As a freelancer, you will have overheads that must be covered by your rates of pay. These may include equipment, premises, tools and other professional services. You should establish the annual cost for these overheads, then apportion that over the number of working days/hours that you intend to complete each month. As a baseline, your rate must, therefore, at least cover these overheads for you to break even.

Establishing the competition

In a competitive market, it is supply and demand that will affect the rates of pay offered. If you operate in a very competitive space, you will need to be prepared to match the rates of your competitors, or undercut them if you want to aggressively attract new business. Research the rates being offered on freelance websites, by comparing the salaries offered on equivalent permanent roles, and by consulting professional recruiters. You must then decide what level of profit you want to target, in relation to the basic overheads that you must cover.

Identifying the opportunities to work

According to the nature of your expertise, the availability of work will have an impact on the rates you offer, to an extent. If you operate in a niche market, then it is likely that you will charge a higher rate, not only because your skills are more scarce, but also because there is a lower level of demand for what you do. If you identify skills or experience that you do not yet have, but for which there is a demand, then it could be worth investing in those skills so that you can meet the demand.

Beat the competition by offering more

One way to increase your rates in a competitive market is by offering your customers more than your competitors. You could achieve this through partnerships with other businesses, whereby you can secure discounts on associated products and services for your customers. Focusing on quality and delivering the very best products and services on the market can also help increase rates of pay, but this needs to be supported by strong testimonials from satisfied customers.

Regularly review and refine as required

Remember that freelancing rates in many markets are in a constant state of change. During an economic downturn, many freelancers find that they have to work for less. If you are working in the technology industry, for example, you may find that the demand for your services varies dramatically, at which time your rates will increase and decrease as required. You should look to increase your rates on an ongoing basis to cope with the pressures of inflation and other costs, but this may not always be possible.

For freelancers, it can be quite a shock being faced with the task of having to control the flow of income into your business. Working on a self-employed basis can certainly be exciting and empowering, but the risks of failing to make a profit are much higher and must be managed robustly by setting the right rates of pay.