If you are a freelancer, then you know that more than half of your work has nothing to do with clients. You have to set up your website, prepare advertisements, make phone calls and design professional documents. The clients only come after you have established your business in your home, and even then, your work has not been completed. Since you have no employer other than yourself, you don’t start making money until you are contracted for projects.
When you set your price list, you will not only be thinking about the time and energy you will spend on a particular project, but also your overhead, business time and business expenses. These two factors don’t concern your clients, but since your sole source of income is via various projects, those costs translate into the prices for your work.
If you are just starting out in the freelance world, you have many tasks ahead of you. The first, of course, is setting your price list, and determing how many projects you can take on at once. If you simply jump into the business without a thought to other circumstances, you will either end up with too much work to complete, or no clients because your prices are too high or too low.
Should my prices reflect those of other businesses?
It is important to do research on the industry standard for your particular business. If you are a freelance photographer, how much are other photographers charging for their services, and how much do companies charge for the same thing? You can search your industry on the Internet and come up with a list of websites owned by other photographers. The price lists on those websites can give you a jumping-off point.
Just because you are starting out does not mean that your prices should be well below that of established businesses. You can make your prices a little less, but it should be in the same ballpark. If clients feel that you are charging too little, then they will wonder what they will receive in return for such a low price. If they are too high, they will wonder what amazing portfolio you have to back up those exorbitant costs. To avoid these questions, keep your prices in the middle of the industry standard.
What is overhead?
Overhead refers to your ongoing expenses that must be supported by your salary. Since you are a freelancer and not an employee, your home is your business, and should be treated as such. The following items constitute overhead:
-memberships & dues
-home, auto, & medical insurance
-postage & shipping
-office supplies (i.e. paper, pens, envelopes, etc.)
-office equipment (i.e. computer, printer, fax machine, etc.)
There are other things that can be construed as overhead, but you will have to examine your own personal situation in order to determine what will need to factor in.
What are business expenses?
Business expenses are the out-of-pocket funds that you must have in order to complete a specific project. This might mean mileage, travel expenses, special equipment, or the outsourcing of other professionals. In this case, the business expenses will reflect directly upon the bill for a particular client.
What is Business Time?
Business time refers to the time spent performing administrative duties that have nothing to do with your clients (as referenced at the top of this article). Business time can include the following:
– phone calls
– training other professionals
– constructing press kits
– constructing websites
These tasks are not billable hours, and therefore must be distributed among your customers as part of your base price. This is not unethical because you are simply charging your clients for the tasks that made your service possible. If you hadn’t spent time with those duties, then you wouldn’t have a business, and they would not be able to hire you.
How do I figure out pricing?
First of all, you have to determine whether you will be charging an hourly rate or per-project rate. Some clients prefer to receive one all-inclusive price, while others would rather pay by the hour. This is your decision entirely, but consider these factors:
– Does the time spent on a project reflect your ability to work at a particular speed?
– Are you able to adequately gauge how long it will take to complete a specific project?
If you are performing photography for a wedding, for instance, your time spent is determined by how long the wedding takes. Conversely, if you are designing a website, then your hours depend on how quickly you can complete the project. This should factor into your decision.
For an hourly wage, follow this formula (using a fabricated example):
Annual Salary (how much you want to earn each year after expenses)
Yearly Overhead (how much all of your overhead expenses cost per year; take all monthly expenses and multiply by 12)
Yearly Business Time (how many hours you expect to spend on administrative tasks throughout the year)
ex: 200 hours
Annual Hours (how many hours you expect to spend working this year)
ex: 40hrs/wk = 2080hrs/year
1. Subtract YBT from AH to come up with the Annual Billable Hours.
2. Add together AS with YO
3. Divide the total of (2) by the total of (1)
And you have your hourly rate!
1. AH – YBT = 1880
2. AS + YO = 43,000
3. 43,000/1880 = $48.00/hour
Now you have your hourly rate!
If you want to figure out how much to charge a client for a specific project (assuming the client wants one single price, rather than an hourly rate), simply multiply the number of estimated hours by your hourly rate.
Hourly Rate: $48.00/hour
Est. Time: 6 hours
TOTAL COST: $288.00