Too high, too low – the eternal question
How do you strike the balance between a reasonable day rate and one that is attractive enough for a client to employ you? This is one of those questions that both novice and experienced freelancers and contractors think about. Choosing the right rate is of course a very important decision: if the rate is too high, a client may choose another freelancer. On the other hand, if your rate is too low, you may lose a degree of credibility and the client may begin to question your suitability for the role.
Factors that influence your rate
Understandably, you shouldn’t just pluck a freelance rate out of the air. It should be a well thought-out decision that is influenced by many factors. Here are the most influential elements.
Ultimately, the aim is to compete on quality rather than on price but nonetheless here are some blindingly obvious factors that influence your day rate, many of which you cannot control but are nonetheless important to bear in mind.
- The Client: The size of the client is important. Let’s face it, multinationals usually pay more than start-ups. Therefore, add a weighting for client size.
- WFH?: When you work from home, you’ll pay extra for light and heat. If you work at the client’s office, you’ll have costs for commute, lunch and other miscellaneous items. Factor these in your calculations.
- Location: Companies in larger cities such as Dublin, Belfast and London often pay more than other places, to cover increased cost of living and commuting etc. Therefore you can build-in a higher rate for those places.
- Supply & Demand: When freelance competition is high, rate becomes an increasingly important factor for the client. A lower rate compared to your competitors can then work to your advantage. It’s vice versa when it comes to when freelance competition is low.
- Duration: You might want to consider a discounted rate for longer assignments which offer more certainty and more money in the long run. After all, you’ll also have to invest less time in looking for new customers during that period.
- Sector: The sector in which you are going work as a freelancer is an important factor to take into account. For example, banking will pay better than social services. Another interesting dimension to consider.
Now that we have discussed the various external factors that influence your daily rate, let’s talk about factors unique to you that will do the same.
- Your experience: Don’t be shy about coming forward. Highlight your experience or projects you are proud of. One way to do this is to maintain a full and up to date LinkedIn profile or to have a website for your personal brand e.g. seamusbloggsdesign.ie. If you look like you know what you are doing, the more desirable you are, the higher your rate. Value your experience not just time spent. OK, it might take you 10 minutes to do something but it took you 10 years to perfect that process. Charge for that.
- Be prepared to walk away: Set yourself a baseline rate that you are not prepared to work below. This helps you with negotiation and ensures that you do not take engagements that end up costing you money.
- Rushed Rates: If you’re genuinely in demand or if the client has a project that needs to be done yesterday, this is your opportunity to glean a bit more from your daily rate. Obviously, good clients are hard to come by and it’s important to be fair with them. However, such is the nature of supply and demand. Take the opportunity when it comes around.
- Your Career Level: You might be starting out or want to gain experience in a sector you never worked in before. To get the experience or a brand name on your cv, you might settle for a slightly lower rate to get in the door. Remember, if you start at a low rate, there’s nothing stopping you asking for a rate review once you deliver good work.
- How much do I actually need?: Start a spreadsheet, list all your monthly outgoings (food, rent, kids education, entertainment etc) and other things you should be providing for like pension and savings. Add it up and compare it with your current monthly income? Do you need to increase your rate?
- How many days will you work, realistically?: Let’s face it, you need time off. Or time to attend networking and training events. This will only help your health and productivity long term. You will want at least 20 days of holidays and to add in a buffer to account for other times you are not billable e.g. admin time, sales generation activity, sick days or unexpected absences.
- Get your tax affairs in order: There are advantages to being a freelancer in terms of some of the expenses you can claim back from the Revenue and so forth. Talk to someone like ContractingPlus to make sure you are in the most efficient tax structure for your activities as a freelancer e.g. a limited company vs umbrella company. Leave it to the experts, you don’t want to be chasing invoices and submitting tax returns yourself. Focus on winning and executing work.
- Check with other freelancers: If you have no idea at all about the current rates for your profession, you may want to ask your fellow freelancers. You can be sure that other freelancers have struggled with the same issues in the past and will be willing to help, if you ask nicely. In addition, you can also obtain additional information based on reports and salary comparisons that are available on the freelance market.
We hope you’ve enjoyed this article and feel free to give us feedback [email protected].
This article is based on one written by Stef Debbaut and originally appeared in https://www.jellow.be/blog/freelancers/tarief-bepalen