Should you drop your freelance rates?
It’s probably the most common freelance question: Should I drop my rates to find more work?
You’re trying to get by as a freelancer and you are having trouble getting clients. You’ve been taught that you shouldn’t undervalue your skills and you made good money in your last job. On the other hand, you’ve only found 2 or 3 projects in the last few months. Self-doubt starts to creep in. Perhaps some clients at a low rate would be better than no clients at all. What’s the best way forward? Should you drop your rate below what you’re comfortable with?
Let’s get one thing out of the way first: There are lots of arguments for or against dropping rates or even working for free. I don’t want to go into these here because it’s an almost philosophical debate and what works for some people may not work for you. Many people will tell you to focus on marketing or to learn how to attract higher paying customers. This may sound like good advice but it is not particularly practical. If you knew how to attract higher paying customers, you wouldn’t be asking whether you should lower your rates in the first place! Yes, you need to learn those skills but how do you get by in the meantime?
Ask yourself instead: How much do I need to charge in order to survive? I will show you a simple way to calculate your absolute lowest rate, as a stepping stone towards building a successful freelancing future. This, essentially, is your ‘cost’ price. Provided you charge at or above this rate on average across the work you do, you can survive. Armed with this figure you will be stronger in negotiations and can let go of the emotional struggle of how much you ‘should’ charge.
Ready to get started? Grab a pen and a piece of paper and follow along. It shouldn’t take more than 30 minutes but could change the way you work forever.
To save time, download and use this spreadsheet instead.
- Calculate your total monthly living expenses. No need to make a big list, just take a look at your bank account. What’s the average you spent over the last 3 months?
- Calculate your monthly cost of being a freelancer. You’ll need to guess a bit if you’re just starting out, here’s a cheat sheet to get you started. Even if you could work from the floor of your garage using your dad’s old computer, try to be realistic and aim for a ‘normal’ working life.(Examples: Major software every 2 years, a new computer every 4 years, subscription to online accounts package, annual fees for accountantA note about accountants: Almost all accountants will see you for free. Find a local accountant and ask them about possible fees. Also, ask them about income tax brackets, you’ll need that information later!
- Add it all together to get your monthly expenses. If something is for a year, divide by 12 first.
- How much time will you spend per month on billable work? Remember that you’re going to spend time on finding new clients (or learning how to do so) and various admin duties. You might end up with 5 hours of paid work each day, so around 100 hours per month.
- Calculate your cost per hour. Divide your total monthly expenses by the number of hours you work. For example:Total monthly expenses: £2000
Total number of hours: 100
Cost per hour: £2000/100 = £20
Don’t forget about income tax! The basic rate in the UK is 20%. Maybe you already asked an accountant about it in step 2. Add it to your cost.
Lowest possible rate: £20 + 20% = £20 * 1.20 = £24/hour
Calculations finished, well done! Burn this number into your mind. This is the absolute lowest rate that you can charge, on average, while still being able to put food on your table. If you consistently charge below this rate, you are on a downward slope and there is only one possible outcome: doom and eventually empty bank accounts. Charge consistently above this rate and you’re in a good position for survival and a bright future.
What’s your take on charging and has this calculation had any results for you? Please share your experiences in the comments, I would love to know how you got on.