Project Rate or Hourly Rate: 5 Tips for Freelancers on How to Know What to Charge
Easily one of the most challenging aspects of being a freelancer is setting your rate. If time and energy are a freelancer’s most valuable—and finite—assets, then how you bid for work can mean the difference between a month of brown bag lunches or steak dinners. Do you go hourly or project rate? A la carte or all-inclusive? Retainer or short-to-long term contract? Maybe some kind of hybrid agreement? Will one client’s dream contract be another’s nightmare? Is what you’re proposing an accurate valuation of what you’re offering?
Brooke Watt, founder and CEO of creative consultancy December Watt, and Kendra Eash, co-founder and creative director of And/Or Studio in Brooklyn, offer five of their best tips for navigating the often choppy waters of freelancing and financing.
1. Understand how you work best.
Most freelancers become freelancers because something about a traditional work environment became dissatisfying. As a freelancer, you have choices; you get to decide what types of clients and work best suit your skillset and interests.
Are you someone who likes to be on-site or do you prefer to work remotely? Do you like to dive into months-long projects or take on several smaller, short-lead assignments? Do you prefer tactical work or more strategic work?
2. Find out their budget.
“If you don’t ask that question in the first meeting—what is your budget?—then what are you doing? You’re wasting your time,” advises Watt. “You really don’t know how to put a proposal together, you don’t know how to sell yourself, you don’t know if you’re offering too much or too little. If you don’t [ask], you’re going in blindly, crossing your fingers and hoping that it works with this imaginary number that you don’t know.”
Watt adds that there are eloquent and delicate ways to have this conversation, but it is a conversation that must take place. Once a number or range is established, then you can begin to tailor your services to meet their needs and budget.
3. Know your value.
Do your research. Preferably before you deliver a proposal, not after. Reach out to others in your field or search online to find out competitive rates. How does what you do and your experience stack up against theirs?
“[As a freelancer,] you have typically reached a point in your career where you have achieved a certain level of mastery,” says Watt. “You add so much value by being able to come into these companies and inject exactly what they need at the exact right time to help them grow, and then back away.”
Watt recalls having to shake off feeling like she needed to charge newbie rates during her first year of consulting. “I had thirteen years of corporate experience behind me. I wasn’t new or inexperienced.”
4. Crunch the numbers.
“Spreadsheets, spreadsheets, spreadsheets.” Sobering and unsexy words from Eash, who has sat on both the corporate and entrepreneur sides of the creative world, but words at the heart of any long-term success. Never forget you are running a business. You are the business. You have bills to pay and a future to prepare for. “We were losing a lot of money on jobs,” recalls Eash, “because we weren’t factoring in all those extra costs [of running a business,] like marketing, overhead, and rent.”
One of the more straightforward ways of backing into your hourly rate (which you can then use to move towards a project or retainer rate) is to take your last traditional annual salary (subtract holidays and vacation days; you’re trying to establish how many days you actually worked in a year) and then convert that into an hourly rate. From there, add between 20 and 30 percent to account for things like health insurance, 401k, and taxes.
Watt advises having at least six months of revenue in your pipeline. “When you’re coming from a calm, secure, confident place, it makes [client] negotiation that much easier. When there is any kind of fear or necessity attached to it, it makes it a lot more complicated.”
5. Get help.
For Eash, the turning point for And/Or Studio, which was initially just she and Kelli Miller, her wife and business partner, was bringing on an executive producer to handle projects and budgets. “Hire the people you need to do what you need to get done,” she advises.
Eash says she and Miller were “okay” trying to do it all but that it took up hours of their time “and we hated it.” So, if numbers aren’t your thing, hire a bookkeeper. Don’t let administrative tasks become your downfall, especially financial ones. Someone with a little distance from your work is also going to be able to help you make better business decisions. Pipeline a little thin? Maybe take on an extra project, adjust your rate for a new client, or forego the project that would have been “cool” to work on but not financially worth it.
Much of the joy of being a freelancer comes from the independence it brings—professional, physical, psychological. But if you’re always stressed about where your next job is going to come from that joy will dry up faster than you can type “past due.”
Figure out what you need to earn to be comfortable, do the math, back into a rate that feels appropriate for you, and then use that as a jumping off point for negotiations—hourly, project, retainer, or otherwise. And lean on other freelancers . Independents gotta stick together, after all.