Part 1 of this article discussed the pros and cons of working for yourself. Part 2 continues by discussing one of the most challenging areas of freelancing—how to set your rate—and gives some examples to work with.
You have two primary ways of charging your clients: by project and by hour. They each have their pros and cons and I actually suggest a combination of the two.
Your Hourly Rate
Your hourly rate is going to depend on a lot of factors. The easiest way to determine your rate is to identify someone who’s doing the same job you want to do and ask them how much they charge. To be more thorough, you should consider many factors.
Factors for Setting Your Freelancing Rate
- What rate do full-time writers with your skills and experience make per hour? Use your own full-time salary as the base or check the STC salary reports and do the math. This will be your base amount that you need to build on to factor in all the other costs.
- What freelancing rate is the market supporting right now?
- Geographic location and industry are definitely factors. For example, if you live/work in Toronto, Vancouver, Los Angeles, San Francisco, New York City, or other high-cost areas, you need to make more money per hour than everyone else. Or you need to move.
- Do you have unique skills that set you apart and put you in demand?
- Factor in the cost of health insurance, buying your own equipment/software, vacation, sick leave, and liability insurance if you buy it.
- Consider your budget: How much do you need to net every month or every year?
On one side, you should be figuring out how much you can charge. On the other side, you need to figure out how much you need to charge to be successful in freelancing. Hopefully, they equal the same thing.
I take my total here and look at the factors considered and decide if this jives with my budget. Will this amount (after taxes) keep food on the table and pay the mortgage? It gets more complicated than that and requires some thought and spreadsheet work, but what I have here is a “drop dead” rate of $47.40/hour. If I’m not making at least this much per hour, then I’m doing someone a favor or I’d better be getting something else out of the deal (like free marketing or free software). Then I consider whether the market will support at least this much and if I have anything that sets me apart and will let me charge more (or you can factor that into your base amount instead, up to you).
Results: The market will support my rate and my unique skills will actually set me apart and let me make a decent profit.
Your Project Rate
Some companies prefer a rate for the entire project rather than an hourly rate (they seem to think you may take longer to deliver if you’re working on an hourly basis). In my experience, only inexperienced companies try to pin you down with a project rate: it constrains everything on too many levels. Often, when you get into the middle of a project, the scope changes for any number of reasons. Paying you hourly lets them increase or decrease your involvement on the project. A change in scope with a flat project rate means re-negotiating a contract. Your project rate is going to be based on your hourly rate with a good dose of guesstimating thrown in. A low project rate can sink you (you end up “giving” the company free work, which no one can afford to do), so it’s really, really important that you spend some sweat equity getting this rate right.
Key to determining a good freelancing project rate is understanding the scope of your work and then making sure that scope is clearly defined in a SOW (Statement of Work) or a contract. Some factors you need to consider: What deliverables are they expecting? What source content are you working with? How many reviewers are involved? Have you performed this work before? Are you comfortable with the tools, requirements, and subject matter? Is the project well defined? How many meetings will you be expected to attend? What risks are involved? Every scrap of information should be used to inform your estimate. Take that estimate, multiply by your hourly rate and the number of work hours you’ll be putting in, and then add 30% for a margin of error. Make your margin of error 50% if you/no one has ever done this work before and you have no idea how it’s going to be done (there are projects out there like that). Now, give that number to the company and watch them faint.
The Best Way To Charge: Hourly Rate with a Project Estimate
After they have fainted, that’s the time when you say “Look, why don’t you pay me hourly? That project rate is my best professional estimate on the amount of work that this project entails. If I’ve overestimated, I’ll only charge you for the hours I’ve worked, not that flat rate. If I’ve underestimated, I’ll warn you halfway through the project that it looks like my estimate was wrong (because of scope creep or whatever) and we can discuss.” Your hourly rate plus a project estimate makes them feel like they’re in control of how much they’re paying you. In some ways, they are in control, but you’ll also get paid for every single hour you work. If they cut the project short because too much money is going to you (unlikely), then at least you won’t be working for $0/hour. It’s still important to have that estimate right, but you won’t go bankrupt if it’s not quite right and it allows both parties to be flexible and decrease or increase your work.
Your portfolio is an important way to showcase your skills. As a freelance writer, you will definitely be asked for one. As a consultant, you will likely not be asked for one. Instead they’ll prefer recommendations from other clients instead or they will check your LinkedIn profile for your recommendations. For information about building your portfolio, see:
- Building an NDA Compliant Portfolio
- Presenting Your Professional Portfolio in the Digital Age
- Developing an Annotated Portfolio
The Leap to Freelancing is Not a One-way Trip
If you decide that freelancing is just not working out for you, it’s not the end of the world. You can always go back to working a full-time job. You might also find that the work you do for a particular client is so great that you want to move into their company full time (and get your benefits back! Paid vacation, yes!). Freelancing is a bit like jumping off a cliff. You never know if you can fly until you try it. Good luck!