Table of contents
This is the strategy most people already know. You bill projects based
on the amount of time it takes you to complete them. This tactic is efficient because
everyone understands trading time for money. However, for its simplicity, this approach
also has a few problems for the freelancer. Most notably, when you bill by the hour,
you’re penalized for efficiency. Think about it: When you complete a project quickly,
you’re adding additional value to the client while being compensated less for your work.
Other billing methods solve this issue.
Fixed fee pricing means quoting an exact price for a specific deliverable.
Instead of charging $50 per hour to design a website, you say that website designs
cost $5,000. With fixed-fee pricing, freelancers often still bid based on their time, but
never reveal that internal hourly fee to the client. It’s simply a way to standardize your
fees based on information you know: how much time it usually takes to design a
website, and how much you’d be happy earning during that time.
Value-based pricing is completely separate from hourly billing.
Rather than billing based on the value of your time, you price based on the value of the
project to your client. In fixed fee, you might charge $300 to write an email blast for
a client. With value-based pricing, you’d take into consideration the value of the email
you’re sending. Is this email expected to bring in $500,000 for the business? That’s an
important email that needs careful attention. Charging $300 doesn’t quite capture the
value you’re delivering. Maybe you charge $5,000 so it gets the care it deserves. Value based pricing is how designers have made a million dollars designing a single logo.
From the perspective of the business, paying top dollar is a hedge against bigger risks
like having to redesign a logo that’s stamped across millions of products and marketing
A retainer pricing model is useful for ongoing contracts. It isn’t opposed
to the other pricing models on this list but is instead a long-term version of each.
Retainers are used to price for ongoing work. Usually, they are structured by a set
number of hours or projects that the freelancer works on each month. As long as you’re
under a retainer contract, the freelancer will invoice for the same amount every month
or every other week, depending on their contract terms. For example, an SEO specialist
may charge $2,500 per month for keyword research and blog writing. The SEO expert
can choose to base their retainer on hours (e.g. ,“Up to 25 hours per month”) or fixed
fee (e.g. “Three SEO blog posts per month, plus ongoing keyword research”).
Price like a business, not an employee
The first rule of setting your rates as a freelancer is that you are not an employee.
Freelancers are business owners. Business owners don’t anchor their rates based on
what they’re earning working 40 hours per week. Here’s why:
- Business owners must cover business expenses
- Business owners don’t get compensated directly for every hour they work (no one is paying you for administration, accounting, etc.)
- Business owners carry the risk of running a business (more on this point in the next section)
- Business owners don’t have benefits like parental leave, vacation days, or healthcare — all of which should be accounted for in your rates
- Business owners must work to get the opportunity to work (e.g., time management, marketing for new business
Don’t ignore “risk” in your pricing
What do insurance companies and freelancers have in common? They both must
charge a premium for carrying the risk in the business relationship.
As you think about how much to charge, remember that the convenience you offer—
being an on-demand part-time expert—comes at its own cost. It’s risky running your
own business. And that risk should drive up your rates.
Obviously “risk” won’t be a line item on the invoices you send to clients. But risk should
trend your rates upward as you consider what to charge for your services.