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Freelancer’s guide to calculating your rates: Negotiating your fee

As part of our commitment to proving that freelancing can be breezy and knot-free, Friz is bringing you the Ultimate Guide to Calculating YOUR Rates in the month of March 2022! 

Photo by Daniel Thomas on Unsplash

We will be covering considerate factors to pricing, how to strategically use hourly versus project fee, and how to then get that price at the negotiating table. If you think any of your friends could use this advice as well, share this article with them before reading any further!

Negotiating your fee

Like I mentioned last week, negotiating your fee isn’t about trying to shark your client into giving you more for your work, and it isn’t always about reaching the end goal of asking them to pay more.

In fact, as humans we make deals and negotiations constantly in our lives, be it in our personal relationships or in work. A clever and well thought out negotiation doesn’t have to carry an aggressive connotation. Negotiating clearly can:

  • Give your client a clearer picture of the breakdown of costs involved.
  • Allow your client greater clarity of seeing what’s involved in the contract, and maybe even proposing a different working approach that may be mutually beneficial.
  • Bring your proposal and the work process a greater degree of professionality.
  • Help you get paid. (We’ll be covering all about this next month!)

It’s always far better to let clients realise how much value you are providing them. If they disagree with your assessment, negotiation can help you settle for a middle ground, or help you avoid a potentially toxic gig. 

Freelancing is just as much about billing and quoting as it is about the work you’re charging for. We at Friz aim to smooth out the actual invoicing and credit process so you can focus on clinching those contracts!

Biggest Question: Hourly Rate or Project Rate?

This question sounds straightforward, but surprisingly, it’s quite hard to find thorough answers about which is better for freelancers. Most other blogs focus on which option makes more money, but sometimes that’s not the only factor of consideration.

Anyway, here’s guidelines to help you make this choice early on, and remember, it’s not a binary choice! Like I mentioned in my article about factors related to calculating your rates, you can choose to charge Hourly for research before finalising the brief, then project rates after, or charge the project rates with add-ons tabulated hourly.

Choose Hourly Rate if:Choose Project Rate if:
If the expectations or timeline of the project are not clearly defined.
Similarly, if you don’t know when the project might end, your productivity and motivation in the long run will be better off with an hourly rate. An hourly rate also gives the client incentive to speed up the process.
The client is confused. 
If the client doesn’t understand the nature of your work and the value you add, you will most probably be underpaid in case of an hourly rate.
When securing your compensation for midstream project changes.
The above point and the project I mentioned in my article earlier this month focuses on a singular project taking an undefined amount of time, and which may not happen at all.

This point is about working with a client that might require your skills in multiple different projects. If you anticipate getting shifted into different projects with differing levels of completion and scope, use hourly rate since the additional projects just get covered on an hourly basis.
If you are fast or want to maximise your productivity
If you charge per hour, you’re incentivized to work at a ho-hum pace. As a freelancer, you shouldn’t be penalised because your skill level enables you to provide high value quickly.

If you charge per project, your income is only limited by how quickly you can finish the work. You’ll be incentivized to figure out faster ways to do things, and use that extra time to find more clients.

The client is more likely to accept your proposal of SGD 200 for a project (that you know will take you 2 hours) than they would be to accept a proposal for SGD 100/hour.
Client is quite liberal with money.

While you don’t want to always try to get clients to overpay, in cases where they are willing to, cherish these gigs since they can be cash cows, and make up a large part of your income which can give you chances to take on riskier gigs.
Client is on a strict budget, is risk-averse, or quite stingy.

Like we mentioned above, sometimes hourly rates look ridiculous and ugly to clients who are actively looking to justify every cent going to you. Project work can give you a strong case of take-it-or-leave-it.
You have an ongoing or long-term project:
Don’t waste your time and the client’s time by trying to divide the work into projects and drawing up multiple contracts. If you know the project will stretch on for a while, bill hourly so you can focus on getting the project requirements down. This will be closer to regular employment
You’re bidding for a short-term project, or multiple short-term projects with vastly different requirements.

For example, if you’re a writer and a client contacts you to proofread for one article, write two and design the cover for their recent e-newsletter, you should be using project rates since the skills requirement and market rate varies wildly between projects.
Your availability on the project varies wildly from week to week.Have serious financial commitments and want to predict your income in advance
You don’t really increase your fees You increase your fees pretty often 
When you mainly work for one or two clients with predictable workloads.

If you have a recurring client, you want to prioritise building that relationship, which can incentivise making the process of calculating how much to pay you easier.
When you charge different rates to different clients.

It becomes a big hassle to keep track of hours for multiple clients, and you don’t ever want to mess up badly by accidentally letting slip how much you might be charging your other clients, much less if those clients are their competitors!
The client knows the hourly rate and the market well.

An hourly rate is also very useful if you are considering outsourcing the work to someone else, since 
The client is confused.

If the client doesn’t understand the nature of your work and the value you add, you will most probably be underpaid in case of an hourly rate.

6 Steps to Negotiation:

  1. Network with other freelancers: Connecting to other freelancers and talking honestly with them about pricing, revision policies and other topics important to freelancers really allows freelancers to protect themselves. After all, there’s more than enough fish in the pond such that communication between freelancers shouldn’t lead to rise in competition. Consider doing this all through a blog, or by hosting/attending meetings held for freelancers.
  1. Understand your industry: Read industry related books, blogs, journals, etc (which include financial numbers like prices and fees). Understand where you fall in the industry, what the industry jargon is, and why certain things work the way they do. Most importantly, you must be able to reasonably answer these two questions:

    Which part of the puzzle do you solve? What value do you bring to a project or a client?
  1. Understand your client: Doing the same thing for a start-up and a fortune 500 company are 2 different things. The impact you will be making, the number of people your work will be exposed to, the quality of work expected will be totally different. Research the company before rushing to close a deal!
  1. Interview your client and negotiate: Setting up an online meeting with the client and intensively questioning about the company’s goal, their finances and the expectations from the project is the best thing you can do in the early stages of negotiation. Once you clearly know the company, your expected contribution and the amount of money the company spends on things, you are in a better position to negotiate your own fees.
  1. Treat yourself like a business: When you begin negotiating with your client, you are no longer Joe, but Joe designs LLC. The fees will not go towards fulfilling your personal requirements. Like I mentioned in the previous article, in a 9-5 job, you’re only earning about ½ of what your work is worth, so make sure to find extra equity to invest back into your business, and be disciplined and draw a fixed salary for that for your personal expenses.
  1. Talk about money and present your calculated fee:
    A fee of SGD 1170 sounds more genuine and calculated than SGD 1000. Talk about your client’s budget and their vision of how collaboration with you will look like this once and into the future. If given new information from the client, judge and if needed, adjust your calculations accordingly. Make sure your client feels like you have purposefully come up with a number.

Conclusion:

Now we have some idea of what to bring to the negotiating table, next week we will present some case studies to illustrate how you can use what we have discussed in the ULTIMATE guide to calculating freelancing rates in practice. 
What do you think? If there are any considerations you feel like we have missed, or you’d like to share your billing experience, let us know on our social media platforms, or by leaving a comment below!

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