Dear Stack Yacker,
Welcome back to part 2 of my freelancing series. Today we’re going to talk all about charging for your services. Say you’ve got a prospective client that is asking for a proposal for a blogging website. Let’s assume the design and build out are pretty straightforward and there is nothing too technically challenging about it. You write up the scope, and a little blurb about why you are the right person for the job.. then you get to the pricing section of the proposal and find yourself staring blankly at the screen, your fingers unsure of the next key stroke.
Pricing is hard, but it doesn’t have to be. In fact it’s my favourite part of drafting proposals 🤑. Here are a few simple rules I follow to make it easier (and quicker) to do:
ALWAYS avoid hourly pricing
Unless you enjoy the feeling of someone breathing down your neck of course.
Aside from increasing your chances of the relationship being micro-managed, charging by the hour gives you zero incentive to work smart. The quicker you finish, the less money you make. I don’t believe there has to be a sacrifice – you shouldn’t be penalised for working efficiently.
“Can’t I just increase my rate then?”
You can, but the amount you’ll need to set to have it make sense might cost you winning the job. The client likely won’t think the way you are when they read the proposal for the first time, they’ll just see this insane hourly rate and move on to the next freelancer.
Price by the project
I prefer to keep things simple, and charging by the project is the best way to follow this practice. It’s easy for the client to reason about, you don’t need to worry about logging your hours, and you know exactly how much income you’ll earn at the end of the day.
“So how much should I charge?”
This is going to sound contradictory at first, but I calculate the total project cost based on my hourly rate.
“But.. but.. you said..”
Let me clarify – I do have an hourly rate, however I never talk about, nor show that to the client. It’s only ever used internally by me, and me only.
“What should my hourly rate be?”
Your hourly rate should purely be based off your experience. Don’t think you can come fresh out of bootcamp and charge $100 per hour, but also don’t undervalue yourself. Experience levels vary, so if you’re unsure, I suggest googling the yearly average salary for developers in your area at the level you think you’re at. Ex: “Mid-level Web Developer Salary Washington D.C”. At that point you can derive the hourly rate with some simple math.
From here it’s pretty straight forward, if you think a project will take you 40 hours to do, and your hourly rate is $60 per hour, then your base project price is $2,400. Notice the term base project price I’m using. This is not the estimated total I give to the client. There’s still a bit more processing on my end that needs to be done.
Now that I’ve got my base price calculated, I’ll then begin to evaluate external factors by asking myself questions like:
“How clear is the direction from the client?”
“Will I need to do a good share of consulting work?”
“Does this client seem like they might be difficult to work with?”
“How often do they want to have check-in meetings”?
All those questions help me evaluate how much additional time will I need to spend on the project that is not directly coding.
Any time spent with a client directly or indirectly, you should be getting paid for.
Which is also a big reason why I’ll never bill hourly. I can imagine my client scratching their head with a strange look on their face when they see a line item on their invoice for a 15 minute meeting. Just expect these will happen and bundle them into your price.
For this example, say you expect meeting to be pretty low, and the client seems pretty mellow and low-key. You estimate no more than 3 hours of meeting time. Now you have your external factor cost calculated at $180, bringing your new project total to $2,580.
But we’re not done yet!
The two guaranteed things in life are death and taxes. I don’t mind too much about the tax guarantee because it means I’m making money. But how do taxes play a role in our project price?
I’m a bit more aggressive than I need to be with the amount I put away for taxes (30%), so for this example let’s go with that rate which would bring our tax owed amount to $774. Subtract that from our total (2,580 - 774 = 1,806), which brings us to an $1,806 net profit. The next question I’d then ask myself is the $1,800 from all the work I’m about to put in worth it?
If yes, then that’s the total I’m sending to the client in the proposal, $2,580. If the answer is no, then I’ll focus on what I want to net from the project. Let’s say I want to take home a minimum of $2,000. I would then need to bump my base rate to around $3000. The 30% taxes on that would be $900, leaving me with $2,100 in net profit, and my proposal with a $3k price tag on it.
Again, pricing can be hard, but with a strategy you can make it much simpler and easy. Also, processes are meant to be changed and improved upon. What works for you this year may not work for you the following. As a freelancer you need to be adaptive, creative and be flexible enough to allow for change.
Thanks for reading 🙏🏻