Going freelance is exciting and the thought of being your own boss and avoiding the 9 to 5 regime can be very appealing.
However, inexperience often leads new freelancers to make mistakes. While some of these will be minor, others can end up costing you both time and money. As a freelancer, it’s important to learn from your mistakes, as well as the mistakes of others.
Recently a relative of mine decided to become a freelancer, and it seemed useful to share some of the lessons that I learned when I was starting out. The first of these is setting your prices, something that can be quite confusing.
When you start freelancing it is hard to know what to charge. Set your rates too high or too low and you risk alienating potential clients.
Most new freelancers set their prices too low; they lack the experience and confidence to value their skills accurately. And if you undervalue your work, others are likely to do the same. So how do you decide on a fair price?
Firstly, know that you aren’t just selling your time; if you were then national minimum wage would be fine. You are selling your time and your expertise. All the time spent on training, education, learning software and sharpening your skills and creativity, is important. It is the reason people should hire you to design their logo or build their website, rather than get the kid-next-door-who’s-good-at-art to do it.
You have a business to run
Secondly, take into account the costs of running your freelance business. Many freelancers work from home, so will incur fewer costs than a dedicated design studio or office space. You will, however, have rent or mortgage costs, as well as heating, lighting, power, and phone/broadband costs to cover, and a percentage of these can be classed as business expenses. Check your local tax laws to find out how much you can allocate as a business expense.
You may need to invest in computer upgrades or specialist software. And office consumables such as printer ink, paper and recordable CDs may also be required. Costs such as these seem small but can quickly mount up.
Profit is king
Finally, remember that like all businesses, freelancers need to make a profit; it’s not enough to just break even. You will need to set this money aside for business development, marketing, training, and because it’s just plain good to have money in the bank. You will need to decide how much of a profit you want to aim for. Whatever the figure, you will need to keep this in mind when you set your budget.
Finding your hourly rate
How much do you want to earn per month from freelancing? Be sure to choose a realistic figure, as freelancing is not the way to get rich quick. This figure needs to cover all the expenses you have identified and allow for profit and a salary for yourself as you will have living expenses as well as business ones.
Decide how many hours per month you can spend on chargeable hours. If you plan on working 40 hour weeks, not all of those hours will be spent on client work. There will be time spent on finding new work, dealing with emails and phone calls and various other tasks, such as looking after your accounts. Also take into account that you will not be working 52 weeks a year; you will require time off for holidays and illness.
Now divide your target earnings by your target chargeable hours, and you have your hourly rate.
If you decide you want to earn £2000 per month and work for no more than 35 hours per week, or 7 hours per day, 5 days a week.
Of those 7 hours perhaps only 5 will be chargeable, giving 25 chargeable hours per week, or 100 hours per month.
£2000 divided by 100 gives you an hourly rate of £20.
This is, of course, a fairly simple overview of the process of setting your prices, and your circumstances may well require different considerations from those mentioned here. In the next instalment of these essential lessons for freelancers, I will look at using your hourly rate in preparing quotations for jobs.
You may also be interested in these articles:
- The Fast, Good and Cheap Pricing Method
- Nine Factors to Consider When Determining Your Price
- The Recessions and Project Pricing
- Pricing Guidelines, Tips and Strategies for Freelancers
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