Boost your freelance income: Expert tips for effective pricing
Freelancers globally seek effective tips to boost their income while grappling with the challenge of pricing their services. Whether you’re a seasoned freelancer refining your strategy or new to freelancing, these tips will aid effective pricing decisions.
Pricing methods for your next freelance project
Striking the right balance between fair compensation and client satisfaction is crucial. This quest leads to two main pricing approaches: time-based and value-based. The time-based method suits projects with evolving scopes and flexible needs, adapting compensation as work progresses. Conversely, the fixed or value-based approach is ideal for well-defined projects, providing clarity on costs upfront. Within these approaches lie various pricing models, demanding an understanding of client needs, market norms, and self-value.
Below, we have discussed the two broad methods you can use to price your project as a freelance professional, available pricing options, and the pros and cons of each method –
A. Time-based pricing
1. Hourly rate
Working at an hourly rate implies you charge the customer as per the number of hours you work for them. Hourly rates are a regularly utilised pricing option among specialists around the world. Hourly estimating is a decent technique for loosely defined projects where clients aren’t sure about what they need.
The benefits of using an hourly rate:
- Simplicity in pricing: Hourly rates offer a straightforward approach to pricing, avoiding the complexities of valuing an entire project
- Adaptability to changing scopes: Particularly suitable for projects with fluctuating scopes, hourly rates accommodate alterations in project requirements
- Flexible compensation: Hourly rates provide the advantage of adjusting charges if the project takes more time than initially anticipated, ensuring fair compensation for additional effort
The drawbacks of using an hourly rate:
- Incentive misalignment: The system may inadvertently encourage prolonging work to maximize earnings, potentially undermining the motivation for efficient and timely completion
- Experience limitation: With increasing expertise, there’s a risk of reaching a pricing ceiling, deterring potential clients due to rates that seem excessively high
- Capped earning potential: The finite number of billable hours restricts long-term earning potential. Eventually, there’s a plateau where further income growth becomes challenging using an hourly pricing model
2. Daily rate
When you set a daily rate, you are charging clients for each full day you work (This could be a traditional 9-5 or 8 hours of work based on the company policy). Daily rates are typically used while outsourcing for large multinational organisations regularly.
The benefits of using a daily rate:
- Simplicity in calculation: The daily rate offers an uncomplicated method for freelancers to compute and clients to foresee costs
- Potential for higher compensation: The lack of detailed hourly breakdowns often enables the possibility of charging a premium rate for services
- Enhanced cost estimation accuracy: Measuring projects on a daily basis rather than hourly leads to more precise and easily understandable cost estimates
The drawbacks of using a daily rate:
- Income cap: With a maximum of 365 billable days in a year, there exists an inherent limitation on earning potential
- Incentive misalignment: The structure can sometimes encourage extending project timelines unnecessarily. Yet, it’s ethically inappropriate to bill a full day’s rate for only a portion of work done
- Subject to variability: Projects based on a daily rate remain susceptible to time approximations. If the completion takes more days than expected, client satisfaction might be compromised
3. Monthly retainers
A monthly retainer agreement specifies a fixed amount that the client will pay to retain your availability, whether they need your services or not. A retainer fee is usually paid upfront.
The benefits of using a monthly retainer:
- Simplicity and predictability: A monthly retainer offers a straightforward and predictable arrangement that benefits both you and your client. Its easy renewability makes it an ideal mechanism for cultivating steady, long-term revenue streams within your freelance enterprise
- Elevated perceived value: Shifting to a retainer-based model can empower you to command higher rates. For clients, an investment of Rs. 80000/month might carry more perceived value compared to an hourly rate of Rs. 400
- Elimination of estimates: With a retainer, the need for constant estimations diminishes. Clients have the flexibility to commit to several months in advance, streamlining the planning process
The drawbacks of using a monthly retainer:
- Uncertain workloads: Some clients might hesitate to pay for sustained availability if they cannot accurately foresee their future workload. Many prefer to remunerate you solely for the active hours worked
- Opportunity cost of reserved availability: By earmarking your time for a retainer client, you might forego other lucrative paid opportunities, potentially limiting your overall earnings
- Limited earning potential: It’s important to acknowledge that due to the constraint of 12 billable months per year, there exists a ceiling on your potential earnings within a retainer arrangement
B. Value-based or Fixed rate pricing
Fixed-rate or value-based pricing is based on the value of the project to the client’s business, not the time it takes you to complete it. Fixed-rate pricing is best for experienced freelancers who charge very high hourly rates to reflect their actual market worth. It’s also ideal for small projects that occupy little of your time but have high value to the client.
The benefits of using fixed-rate pricing:
- Streamlined focus: By centering on the value delivered rather than tracking time, fixed-rate pricing simplifies the process, allowing you to concentrate fully on providing effective solutions
- Unlimited earning potential: The correlation between the value your solutions bring to businesses and your earnings is direct. As your solutions become more indispensable, your income naturally escalates
- Transparent budgeting: Clients gain clarity about project costs upfront, fostering a shared sense of assurance and confidence between you and the client
The drawbacks of using fixed-rate pricing:
- Complex pricing determination: Setting the right price requires estimating project duration accurately, adding a layer of complexity to the pricing process
- Navigating financial conversations: Engaging in discussions about sensitive financial details and employing persuasive techniques becomes essential, making pricing negotiations a nuanced task
- Scope creep management: In cases where projects extend beyond initial expectations or clients introduce additional requests, there’s a need to renegotiate rates or accept the agreed-upon price
While you settle on a pricing option, don’t forget to charge what you’re worth!
Deciding how to price a client project is a complex task. It’s crucial to understand the client’s needs and assess the pros and cons of the different pricing options. While each pricing method is excellent on its own, choosing one is subjective to the kind of project you would be working on. A project manager will have a different set of requirements than a java developer, which is why, once you understand the project, you will be able to choose the best pricing method. That doesn’t necessarily have to be the same for every project.
And while you settle on a pricing option, don’t forget to negotiate your freelancing rate (daily, hourly, or monthly) or fees (fixed price), adequate to compensate you fairly for the job at hand while helping you build repeated business with the client. You can also go through our insights on “How to negotiate prices as a freelancer” to make positive changes to your negotiation style and ensure you get your merited pay.