Thank you, Brianne, for requesting this topic! (Yes, THE Brianne2K! Subscribe to Making The Brand at the end of this!) Next week, we’ll be back to marketing (or whatever you want to talk about).
The job market is rough, and a lot of people are turning to freelance as a solution, but don’t get it twisted – freelancing is not a quick fix or a “side hustle.” Not only are you doing the job you’re a subject matter expert, but you are now managing your finances, invoicing, pitching, execution, clients, projects, and more. 🥵
SO you’re ready to freelance or need a gut check on your pricing. 👏 You can research “industry rates” until you’re blue in the face or fingers, but you’re going to find a wide variety of numbers and opinions that aren’t necessarily helpful.
Grab a piece of paper – we’re going to work through this together!
I will take you through all the options and what I’ve experienced over 16 years, not just how to calculate numbers. Because every time I have this conversation with someone getting into freelancing, it’s not a black-and-white answer and you know I’m here to help.
FINANCIAL GOALS
I’m not going to get into the weeds with taxes and financials, but know that you will typically be 1099, meaning you are responsible for paying your own taxes out of your checks.
15.3% self-employment tax includes Social Security and Medicaid taxes that businesses pay and employees have taken out of their paychecks automatically. You are now the employee and the employer.
NOTE: For this exercise, we are assuming you are going to be a full-time freelancer – even if you’re not, it will still be relevant.
- How much money, after taxes, do you need/want to make in a year? This should include healthcare, business expenses, retirement, continued learning, software, technology, etc. $200,000
- Calculate the total amount needed before taxes. I put away 20% to be safe and to sometimes have surprise cash at the end of the year when I do my taxes - it’s a mental game. 😉 Divide your desired post-tax income by one minus the tax rate (in this case, 1-0.20 is .80) $200,000/.80 (20%)=$250,000 or $200,000/.84 (15%) = $238,095
You know you need to make $250,000 before taxes. That comes to $120/hr if you work 40 hours a week for 52 weeks and have no days off – I certainly hope that’s not your freelance plan. Freelance for freedom!
Personally, I know what I need per month and approach it that way since most of my contracts and payment terms are monthly. For this example, it would be $20,833/mo.
TWO FACTORS FOR PRICING
• 5 ways to bill: hourly, daily, weekly, monthly, project
• The client’s budget
I will go over both but know they go hand in hand. Freelance work means different things to different people. Sometimes, you’re on call, sometimes you’re just like an employee (without benefits).
For example, I have 16 years of experience as a social media strategist/manager who works with clients long-term, and I’ve billed all 5 ways. Blake is a videographer and typically works on a project or monthly basis.
“How much do you charge?” “What’s your hourly rate?” both of us respond “it depends.” Because it does depend! No two clients are the same; no two projects are the same. Some clients need weekly meetings, some daily, some never.
THE DISCOVERY CALL
Before you scope a project, you need to know what the statement of work will be. This goes back to you running your business and managing all aspects – your pricing should come with a pitch or, at minimum, a statement of work outlining everything that will be executed.
Ideally, the potential client will give you their budget upfront. Sometimes, they have no idea (but everyone has an idea of a range, at least). In my pitch, I will give good, better, and best pricing options. If the client is firm on the dollar amount, that makes it easier.
For this example, and it’s the method I use the most, I assume the client is paying monthly or per project. I’ll explain each of the 5 ways to bill after this.
If you know their budget:
• Write down the budget
• Line item every deliverable (including meetings, reporting, etc that may arise)
• Estimate the time it will take for each deliverable (for me, every month)
• Add the number of hours it’s going to take you and multiply that by your desired hourly
Keep in mind what you already know about the working world – you know how much you’ve made at previous jobs. If you’ve worked at an agency, you know how much they charge their clients – sometimes, I’ll scope a job, and it comes out to an agency range, and I realize I need to reel myself in and lower the price because I am one person, not an agency. Not to say I don’t deserve that price, but it’s hard to convince most.
You could be on the dot; you could be thousands higher, but you want the work, so you are going to have to match their budget without overworking yourself.
Go back to them and say for your budget, I can do XYZ (the deliverables and time it will take). This is why I include good/better/best pricing because I want the work, but I’m not going to overwork myself to match their budget if it’s too low. You're in control of your income and time, don't screw yourself over.
For example, this proposal is for a potential client with 3 small brands. I’ve changed all the numbers and estimates (so don’t even think about copying them). 😉 You don’t need to show them how long it takes you to do each thing and I don't recommend you do - they'll nitpick it. This is just to help you understand the big picture.
They say they have 5k a month and want all of the things listed– well, after taxes and all of my time, 5k isn’t worth it, but look, if you invest (hot tip: call it an investment, not pricing or cost) $2k more then you get what you want and need. The best option is always the North Star – rarely does a client (freelance or agency) go with the largest investment, but now they’ve seen it and know what they want to aspire to have. There is a strategy in pitching and pricing.
If you don’t know their budget, I urge you to try to get a range out of them, they may not have an exact dollar amount, but they certainly know if they can afford $2k or $8k a month.
If you’re feeling pushback, you can simply let them know that you are really interested in working with them and want to create a proposal that makes sense for both of you. You can even say you don’t want to waste anyone’s time. It's true; I don't want to spend hours on the perfect proposal only to find out they have a $500 budget - thanks for wasting my time. Trust me – they have a budget in mind.
If they still won’t budge, create your pitch with good/better/best pricing and cross your fingers. I always aim for the “better” tier to be the most ideal, even if I know their budget and I can work within it. If their budget is too low, I want to show them what the ideal cost would be to accomplish everything they need. Sometimes, they magically find more money. Sometimes you end up building a road map with them and take on the project little by little, which is fine! You are in control of your business, your time, and who you work with, so make the most of it.
Interested in a pitching, statement of work, and contract workshop? Click here to get on the list.
5 WAYS TO CHARGE FOR FREELANCE SERVICES
It's good to be familiar with all of these ways because you may be able to choose how you bill, but often a company or agency will only accept one way. When asked how I like to bill, I tell them I'm flexible and will go with what their business is comfortable with but that I prefer a monthly retainer.
HOURLY
You charge the client a dollar amount for each hour of work you complete. You are trading time for money. Hourly rates are standard among freelancers, but I avoid hourly. I only bill hourly when I’m contracted with an agency because they have to track billable hours for their clients.
When figuring out your hourly rate (mine changes per client), scroll up and go through the pitching exercise to make sure it makes sense for you and the client.
Hourly pricing scenarios:
• Sticker shock. Clients hesitate and don’t respect a higher hourly rate than they had in their mind (or higher than they get paid), but they don’t always realize their employees have taxes, healthcare, etc, taken out, and you pay that yourself.
They offer $50/hr. They don’t realize you’re only getting $37.50 after taxes.
You ask for $75/hr, which is $56.25 after taxes.
• Social media management is hard to track by the hour especially if you are doing community management. You’re not going to track 30 seconds here, 9 minutes there. You can tell them that, too.
• Clients don’t have endless budgets; they’re not going to say, “Ok, go off and do your job, however long it takes, and we’ll pay the bill.” Trust me. Tracking your time isn’t fun, and they're not going to pay you for any amount of time it takes.
• Issues can quickly arise for both of you if a project takes longer than expected. You’re going to be the one who gets screwed over.
DAILY
I have never done a day rate because that’s not how social works, but Blake does have a day rate that includes 6-8 hours of work (filming). Sometimes it’s for a larger project that needs multiple days of filming over months, so he bills by the day instead of waiting months to get paid.
WEEKLY
Having a weekly rate is similar to billing hourly. If you’re doing the exact same thing every week and know the client isn’t going to scope creep and you have a good relationship, it may make sense, but I don’t think it’s something you should start with.
I used to freelance (a loose term since I often worked more than FT employees) at an agency, and the hourly added up to be a lot $$$ every week. They paid me for my work, but they didn’t like how much they paid me. (That’s their fault for not hiring/delegating correctly). So, they tried to be sly and offer me a weekly rate “so you don’t have to track your hours,” which equated to less than 50% of what they were already paying me monthly. Do the same amount of work for 50% less? Hell no.
Absolutely do not take a flat fee from an agency or a client unless you know your time will not be taken advantage of.
Say you pitch $2,000 weekly for something that will take about 10 hours. You’re probably worth that but know that they’re going to break that rate down hourly and match it with the deliverables, and it will have to be a number they can stomach.
Even though freelancers are not the same as full-time employees, that’s the way most businesses are used to thinking about money, so that’s why I’m being very transparent – you have to fight!
The downside to a weekly rate is if you’re working on a project and it’s not an ongoing thing; if you need more time to finish a project, a client isn’t going to pay for an additional week, especially if you only need a couple of days
MONTHLY
This is my preferred method. In my pitch, statement of work and contract, I line item every deliverable and expectation. All of those things come to $X per month. I don’t track my time (unless I feel like the client is taking advantage; I’ll keep track on the side if I need to bring it up in the future).
You need to have a working relationship set in stone. You do not want a situation where they pay you $x monthly, and you’re on call – that’s incredibly hard to plan for.
Most call it a monthly retainer, but my deliverables are set in stone, so they’re paying me a fixed price vs retaining my availability. I’m not on call like a lawyer.
Pros:
• Clients focus on tasks completed vs hours worked. You pay for my expertise and experience, not the time it takes.
• Predictable income
• You can provide various services
• You can charge a higher rate. $5k/month sounds easier to digest than $150/hr
• Discounts can be offered
Cons:
• Some clients have trust/micro-managing issues and only want to pay for the time worked
• Typically paid once a month, at the end of the month
• Payment terms – some companies have Net-30 or Net 45 terms which means you could be waiting to get paid for a long time. I will never put myself in that situation. My payment terms and dates are in my contract and the client and/or their accounting department confirms and signs before I start working.
PROJECT
I rarely use a project fee because what I do isn’t a project. If a company only hires me to do an audit or strategy, I will calculate how much time that will take, add some buffer room, and come up with that number, similar to a retainer.
Back to Blake, the videographer, this is what he typically uses. In his head, he knows it will take x hours to film and x hours to edit, which comes to $x project fee.
50% payable up front and 50% payable on delivery. Absolutely do not wait for the project to be finished to be compensated.
To put it simply (hah), if the SOW is loosely defined and has ongoing needs – bill by the time it takes. If the SOW is clearly defined – a fixed price is best.
Regardless of your billing strategy, keep the conversation focused on the value you’re providing and the investment (you and your service) they’re making in their business.
If you’re interested in a workshop or future guides on pitching new business, contracts, and statements of work – click here.
I'm always here to help, reply, or DM me anywhere - I figured all of this out on my own, but it doesn't mean you have to, and I think by now we all know I'm going to be very honest and transparent with you. Want me to review your pitch, pricing, or SOW? I'm happy to do it.
But wait, there's more. 👇 I created a guide to finding freelance work, and below that are the lovely Mindy and Brianne - both marketers who have built their own businesses and are two of my favorite people and two people you can and should continue to learn from!
See you next week! Have a topic request - please let me know!
Chelsea
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How to Find and Negotiate Freelance Work
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