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!
Over the course of March, we have covered the following:
- Key factors to consider when deciding pricing.
- How to use metrics such as annual expenses, annual profit, and annual salary to come up with fair project/hourly rates.
- The importance of negotiation for freelancers
- When to use hourly vs project fees.
- Negotiation tactics to communicate your worth with clients and clarify contract details.
The reason why we have put in the effort to compile these pointers and lay out this information for the average freelancer, is that we at Friz believe that the road to more freelancer-friendly financial solutions lies in collaboration between freelancers and greater transparency.
For example, the reason Friz has started its own credit line, and what makes us different from your traditional bank, is that we have carefully engineered our financial solutions around the financial realities of freelancers.
We found out that traditional banks often complicate the credit process for freelancers by asking for redundant documents and proofs upon proofs of their income sources.
Everything banks do not understand about the daily life of freelancers can be found in this article series. With the Financial Year of 2022 just beginning, freelancers should look to align themselves with their clients, budget, set goals, and aggressively pitch for contracts that will form the basis of their Q1 work schedule.
Today we will be revisiting the key points brought up in the last 3 weeks. As this article will be a summation of all the points discussed, feel free to share this article with all of your peers, and if you would like to read more, below are links to articles 1, 2, and 3 of the ULTIMATE guide to Calculating YOUR Rates.
Week 1: What to Consider?
Week 2: Calculating Your Own Fee
Week 3: Negotiating Your Own Fee
What to Consider
Regarding coming up with a final fee, in week one we covered the following factors that we felt were most relevant to a freelancer’s work schedule and lifestyle:
- Billable Time
As opposed to working in a company where one has a HR department handling payroll,
paid time off, interpersonal relationships and promotions, freelancers have to do all the following tasks themselves: payroll, scheduling, communication with client, uploading and collating done works as portfolio, collecting payment, invoicing, marketing and finding business.
While the adage “Treat yourself like you’re your own business” is true, treat yourself like you’re your own employee too, and price clients with a certain hidden “administrative fee”, covering the cost of your time finding the said job, managing the time schedule, corresponding and eventually collecting the pay.
In the initial article I said “Remember, You are worth what people think you’re worth.” Now, what I mean by this is to recognise where your value comes from; the client.
This is not to say that you should price according to their whim, but rather, if you feel like you deserve a higher rate due to your experience or specific skill set, you should try to persuade your clients, and make them see the added value you are bringing to the project.
Conversely, if the client is willing to pay, bill away I say.
Understand the difference between client types in terms of their project requirement, timeline, and the amount of support they can give you. Bill higher when you anticipate that a client’s lack of ability to support you will affect the total difficulty of the project. For example, a local startup may be easier for designers who are better at coming up with wild ideas, whereas a multinational corporation may be easier for designers good at following pre-existing brand guidelines.
How to calculate your own fee
In week two, we noticed that information about how to reference external metrics to design a final, reasonable fee was hard to find, so we collated what we knew from experience and narrowed it down to three simple metrics:
- Annual Salary
Annual salary simply means to take the equivalent full time position, adjust for your time commitment, and like we mentioned in week 1, remembering to pay yourself for administrative time and time off. We also discussed your position in your career path, and overcharging/undercharging accordingly.
- Annual Expenses
Similarly, remembering to pay yourself for things you might be giving up that you otherwise would have in your full-time position like medical, transport allowances, and a company card for business meetings. When you are your own business, personal and business expenditure can be difficult to separate, but know your goals, use apps like Seedly to track your expenses and plan carefully.
- Annual Profit
I also covered this in Week 1. This is the simplest to understand, but may still be challenging to really get right; takes practice. Start with the fact that an MNC or a Startup will only hire you if they are confident the value of your work is more than your paycheck, then discount that they can probably get more valuable contacts from their reputation and size. Lastly, you should arrive at a % that’s anywhere between 5 to 40%, and that’s the “surcharge” you should be applying to your raw (salary+administrative time) calculation
Negotiating Your Fee
Lastly, we delved deep into the difference between Negotiating and Bargaining. In short, you should always treat the negotiating table as a medium for communication, and not a battlefield. If you always view negotiations as strictly a way to get more money out of your client, people will catch on quick, and your long-term reputation will suffer as a result.
- Persuade, not Bargain
Money talks. I don’t mean that only with money can you get any talking done, but that money tells a story. You have to learn to tell that story with your designed pricing strategy. In short, these are 3 maxims:
Fees: Elucidate, not cover-up
Profit: Create value, not overcharge
Details: Clarify requirements/timeline, not strongarm clients into the conditions you want.
- Hourly Rate vs Project Fee
In our original article we covered a really comprehensive table of contrasting situations to use Hourly vs Project Rates, but as a summary:
|Hourly Rate||Project Rate|
|When you are not sure what’s going on||When the client is not sure what’s going on|
|Client is willing to pay for your time||Client is willing to pay for your work|
|If the project requires Time over Skill||If the project requires Skill over Time|
- Rules to Negotiating
Remember, if you treat fees and money as this elephant in the room, tensions will build and it creates an overall unhealthy atmosphere for negotiations to occur. If your’re only concerned about being paid, the client will see that and will want to hire someone more hollistically involved in the project.
- Make sure to come to the table well researched about the company, the industry and any specific project requirements.
- Be open, talk to your client about their project, budget and expected ROI for your work. Sometimes open communication will help you land the job and clarify what your client really might want. It might scale up or scale down the project requirements, but you will always end up with a more suitable job scope and pay rate.
- Lastly, be specific. Come up with fees that aren’t just like $1999 or $299. $2130 will always sound more genuine than $1999 or $2000. Giving clients the cost breakdown will also give them tools to tweak certain parts of the project. For exampls, If you feel like they can hire an additional sound mixer, mention that mixing sound isn’t really your expertise, and charge low for that and higher for everything else. If they recognise that, then they might request for that small fee to be removed and the work outsourced to an audio production studio, for example, which gains you equity!
That’s the run-down of what we’ve discussed in March 2022! Even after reading all of this, you might still feel like certain aspects of pricing and charging might be quite difficult to comprehend, and that freelancing is still wrought with so many uncertainties. What’s my relationship to my client; are they my boss or am I more like a partner? How do I make sure to be fair to myself? What can I do if my clients aren’t paying me on time?
Freelancing is hard. In fact, it is much harder than working a traditional job. But it’s taking control that gives us freedom, happiness, and a fair wage at the end of the day. Don’t worry, it’s normal to feel daunted. Here at Friz, we’re just looking to help you slowly work through those knots and come out ahead!
This month, we will be answering the question: How do I make sure I get paid? In the meantime, share this article with your friends and make sure to follow us on Facebook for more useful articles like this one!