And why undercharging is bad for everyone
“How much should I charge for freelance work?”
I get it. When you start off as a freelancer or service-based business, there are so many things to learn outside from the skill you’re offering. How do you find clients? What process do you guide them through? How do you invoice them? How do you even charge for freelance work?!
Although it might seem appropriate to aim for dirt cheap at first while you gain experience or to get exposure (I hate that word), you’re not doing anyone any favours by being the person who can always do it cheaper. Keep reading to learn why undercharging for freelance services is bad for everyone and how to set fair rates as a freelancer or service provider.
Why is undercharging bad as a freelancer?
I think you need the backstory to set the stage here. When I first started freelancing I was paid $25 to write 500 words. This was my first gig. Cool! Except it wasn’t that cool because this is INSANELY LOW. I would never recommend anyone work for such little pay. I learned the hard way, which is fine because that was a great lesson to cross off the list. I kept this freelance writing job for over a year before I realized that I would never scale with rates like this because after expenses and taxes, I made less than minimum wage. Uh oh.
When I started freelancing, it was before I knew people found clients on Instagram. I didn’t have a website. I didn’t have a community to ask questions. I didn’t know how to invoice for the work I had completed. I didn’t have contracts… The list goes on! I had absolutely no idea what I was doing and didn’t know who to ask for help. That’s why it took me so long to grow to a spot where my business is my full-time career, but since I took so many wrong turns I know a lot about what you should and shouldn’t do if you want to run a profitable online or freelance business. And that’s I’ve made it my mission now to help others who are new!
Undercharging isn’t just bad for us personally though. There are so many reasons why freelancers need to charge dollar amounts that are fair for both themselves and their clients. Here’s a few reasons…
If you go in low, it’s hard to bounce back. Rate increases are normal, of course, but if you start off charging clients $X then one day tell them it’s going to be double or triple, you’re going to have to justify the increase well. This is especially true if the actual service offer or package will remain the same. If you’re in this spot right now, lead with the value in terms of results you can provide.
The same is true for sales on services. You don’t want to discount your services often for two reasons:
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You might accidentally condition your audience to just wait for the next sale.
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You still have to do the same amount of work when you discount a service offer. A lower price tag should require less work (or lower value).
You need to make a living. Sure, one-off projects and a bit of extra cash might seem fun at first, but what about the long game? Didn’t you start freelancing so you could replace your 9 to 5 income? Find freedom? Lots of us fall into the trap of undercharging to gain experience, but I bet you have bills to pay. Everyone deserves to make a living wage, so set your rates strong from the beginning with that liveable wage in mind.
Think of your community. Community is so important for online business owners and freelancers. You don’t have to be friends with your competitors, but if you want others to respect you, you probably don’t want to be known as the one who low-balls everyone else in the community. Also, below-average rates devalue the industry as a whole because clients come to expect this. Nobody wins.
You will likely struggle with mindset. If you undervalue your work and others undervalue your work, where does that leave you? It’s likely that you won’t feel so great about yourself, that’s for sure! Especially not when you notice others charging way higher for similar freelance services.
Rates directly tie to quality of service. Think about it! You’ll have to squeeze in more work to make a living wage, which means less time allocated per project. With less time to spend on each project, the quality of your work will suffer. By charging more for freelance work, you grant yourself more time per project, which ensures you have enough space in your days to deliver exceptional client results (and avoid burnout).
Things to consider when deciding what to charge for freelance work…
Alright, I think I made it clear that undercharging is bad, but how do you go about actually setting rates for your freelance services? Unfortunately, this is difficult to explain in depth with a general blog post because there are so many nuances involved in setting rates. If you want to go into real detail, I encourage you to connect with me about 1:1 consulting. However, I want to give you something to start with, so here’s an overview of things to consider when deciding what to charge for freelance work.
First, you need to forget everything you know about hourly wages. When you freelance, you don’t need to stay stuck in this box of payment for time worked. Instead, start to think about the value you provide. What ROI can you confidently offer your clients? How quickly you complete tasks shouldn’t be a factor for anyone but you, unless you are something like a virtual assistant (see why this is nuanced?). I’ve found that working with package rates is a lot more beneficial for everyone. I dedicate as much time as needed to each client without having to fit within a specific window.
What is the industry average? You’re going to need to do some research! What do other freelancers or service-based businesses charge for similar services? What is included in those rates? A lot of this information is available with a quick Google search and there are plenty of communities that share growing lists of what people charge.
What would an in-house employee earn? What would your salary be in a similar in-house position with a skill set like yours? Don’t take this number as final, but use it to create a range for yourself. Remember that full-time employees don’t need to pay business expenses or benefits like you have to now, so your billed hourly is always going to be higher than that average.
Calculate your living expenses and personal goals. What do you need to make in order to live comfortably in your city? What kind of money do you need to make to achieve the lifestyle you want? Set a goal for yourself and work backwards from there. For example, if you want to make $100k in a year, you need to hit just over $8k each month. How many packages do you need to sell per month to reach that milestone?
How much experience do you have? This includes full-time employee experience as well if your skills are transferable to your new offerings. Align yourself on the spectrum of new to seasoned. Of course as you gain more experience, you should raise your rates. However, remind yourself of the point above that is to not price yourself too low in the beginning.
Remember the non-billable hours. What are non-billable hours? The time you spend on admin, professional development, marketing, etc. Anything that isn’t directly tied to a paying client is non-billable, but should be considered when setting your rates. If you forget about these hours, you’ll end up working overtime for no pay to keep up with all the extras.
How to charge for freelance work?
As a freelancer, you’re actually running a business, which means that you get to dictate the terms of payment a lot of the time. There’s a few ways you can charge for freelance work:
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Per word
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Per hour
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Per project
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Per day reservation
Other aspects to consider when setting freelancer rates:
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Payment schedules: 50/50 is popular, as well as 50/25/25, either on timelines or based on project milestones
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Retainer fees: Due monthly before work commences
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Pay in full: Often required for smaller projects, consultations, or freelancer day rates
I never charge per word or per hour anymore, although that’s where many people start. It’s not easy to scale and typically attracts low-paying clients, making it impossible to scale your freelance business. Now, I create packages for clients that include details of what’s included like: consultation hours, word counts if applicable, content deliverables, timelines, etc. It also includes information about what additional services will cost outside of the proposed scope.
Another popular way to charge for freelance work is using day rates. For a fee, clients can reserve you for an entire day to get through as many to-dos on their list as possible. I’m moving more into this space, especially as a way to assist past clients, and love it.
When should you raise rates as a freelancer?
Employees typically receive merit or performance-based raises on a set schedule, like quarterly or annually. Self-employed professionals should have the same opportunity for growth as well. A few good measures for knowing when it’s time to raise your rates are that you are booked out in advance or you have outgrown your current services.
For example, I raise my rates in my business when I feel my offerings have grown to include more value. I also consider my experience and knowledge, my target clients’ budgets, and industry standards for the services I provide. Just as I methodically set my rates in the beginning, raises are equally as calculated. As I can offer more value, I justifiably charge more. Through raising your rates, you may find that your target clients change slightly as well.
Want more help with setting your rates?
Like I said, I’ve made it my mission to help others figure out how to start and grow a sustainable freelance business. If you have any questions, please leave them in the comments below! If you want personalized, 1:1 support, contact me to start the conversation.
