The first time I raised my rate as a freelancer, it did not go over very well.
I had been working with my client--one of my first--for about six months, and my work for them had increased threefold in that time. I was now doing everything from copywriting, to web design, to CRM strategy. I was also living in a converted pantry. It seemed about time for a raise.
Turns out, my client wasn’t thrilled that I was adjusting my rate so soon after the start of our project. After some uncomfortable conversations, we compromised at a nominal rate increase and didn’t speak about it again for two years.
Looking back, I can see that the real problem was not increasing my rate, but that I had set it too low to begin with. I had purposefully undervalued my services because I wanted to close with a new client. My argument for increasing my rate was weak because I didn’t know how to articulate my value in the first place.
Setting your price for services--and increasing them for long-term clients--is one of the trickiest parts of being an entrepreneur, freelancer or otherwise. The scrappiness mantra often deludes us into thinking we need to undersell the competition. The bigger issue is that we’re simply not sure what our time is worth, or what value we’re bringing to the table.
How much should I charge? Whether you're setting rates for the first time or reassessing your prices, here are three questions you can ask yourself to quantify the value of your time and services.
1. How much do I need to make?
This is a good place to start for both freelancers and small business entrepreneurs. For freelancers, you’re basically estimating your salary. That’s your yearly living expenses plus the amount you’d like to put away in savings.
For small business owners, the math is a little more complicated, as you’ll need to factor in the costs of your business (wages, rent, overhead, etc.).
Divide that figure by the number of hours for which you expect to bill. For a one-person show, this is typically going to be about 1000 hours (20 hours a week, 50 weeks a year), since you can expect to bill for about 50% of the hours you actually work. The rest of your time will probably be spent on business administration, finding new clients, etc.
The figure you land on shouldn’t necessarily be the price you set, but it’s a good jumping off point for the lowest rate you might consider.
2. How much time or money am I generating my customers and/or clients?
Another way to ask this is, what is my value?
If the service or product you provide saves people time or money, the answer is pretty straightforward. Imagine you’re an accountant who gets your clients an average refund of $1200. You’re also saving them about fifteen hours of work (based on net income, the average value of an hour to a middle class American couple is about $40). The value of your service, then, is about $1800.
Let’s say your typical job takes about five hours. Does that mean you--accountant extraordinaire--should charge $360/hour? Probably not, because then you’re not actually saving your clients anything. Instead, look at that number as a very high ceiling. Your rate should fall somewhere between what you absolutely need (#1) and what you provide (#2).
Other business services might provide a less obvious kind of value (paddleboard rentals, anyone?). Still, if you’re creative, you should be able to figure out how you impact your client’s bottom line.
3. What is my competition charging?
Once you know what you need to make and the value of your work, you can adjust your price based on what your competition is charging.
If you’re running a brick-and-mortar business, this might be as simple as googling the competitors in your area. If you work online, you’ll have to do more research. Fortunately, a lot of niche markets have their own sites. For freelancers, try Fiverr.com. For stay-at-home moms, there’s Hiremymom.com (weird name, useful platform).
Even if you’re not a freelancer, you might be able to compare your services to one. This article has a list of the top freelancer sites (some specialized by industry). There’s also LinkedIn.
Compare your level of expertise, educational and work experience, and overall quality of your work with people in the price range you’ve established.
Having a price you can be confident in won’t just give you peace of mind; it’s hugely important for closing deals and making sales. If you’re not sure what you should actually be charging, how can you convince a client or customer that you’re not ripping them off?
Of course, closing sales doesn't just require you to have a comfortable number. You need to be able to communicate your value. As you do your due diligence on your competition and the value of your services, be thinking about what makes you unique, your value propositions, and differentiators.
I’ve followed these steps myself. Before I decided to increase my rate again, I did a thorough evaluation of my experience, market, and the value of my work. I was able to explain value of my time and services, and when I did inform my client of the rate change, it was a much smoother process.