The Great Mystery Revealed: What Should I Charge My Clients? Part 1

Posted: April 21st, 2009

Image by Steven Depolo (Flickr)

Image by Steven Depolo (Flickr)

One ongoing question freelancers have, that never seems to really be answered fully, is what on earth should I charge for this project? Sure, there are many rate calculators available and, if we do a little research, can get a rough ballpark figure. Regardless, it still seems an inexact science and, truth is, it is to a degree. It is not just figuring out (or guessing) an hourly rate and using that. In fact, it goes way beyond that.

I’ll try to break this mystery once and for all but a general breakdown of the process should be understood first, which I’ll do for this post.

The Billable Hours

Your billable hours for the year can be simply broken down with the following:

Working a 40 hour week, 52 X 40 = 2080 total hours.

Minus two weeks of vacation, 2080 – 80 = 2000 remaining hours.

Minus 10% of time spent on administrative tasks (emailing, billing, estimates, etc), 2000 – 200 = 1800 remaining hours.

Your billable hours may vary but we’ll use the 1800 hour total as a rough estimate.

The Myth

It is a common misunderstanding that you need to figure out an hourly rate and multiply it by those 1800 hours to come up with a yearly income you desire. For instance, if you decide to charge $25/hour:

$25 X 1800 = $45,000 yearly income

There are two issues with this, though. The first is that you are not likely to work and bill those entire 1800 hours. A good chunk of that time will be spent searching for clients and promoting your freelance business, especially if you are new to freelancing.

The second issue is that due to that time spent searching for clients, you’ll never reach your yearly income goal unless you charge more per hour. By charging more per hour, you then run the risk of appearing too expensive and find it harder to obtain projects. So what is a freelancer to do?

Well, there is a way to counter these issues and earn the income you desire… something usually you have to learn the hard way as a freelancer. Understanding the proper method can go a long way in helping make your freelance career profitable.

The Technique

The secret of earning your desired income does not lie in your hourly rate. It is throwing your hourly rate out the door when coming up with an estimate for any client. The idea is to provide a competitive price on a project which is profitable for you, but something you can eventually improve upon and do in less time. Let me explain:

Let’s say you give an estimate on Project X at $500 and you win it. Also, we’ll say you estimated 20 hours to complete it. Isn’t it reasonable to say that the next time you win a similar project for $500, it will take maybe 15 or less hours to complete it since your gain experience and can possibly reuse parts of the first project?

How about the next similar project after that? Maybe it takes 10 hours. You see, the profitability lies in concentrating your services around those skills you are good at or are continually improving upon. As in the example, the fee you charge for the project may not rise, however, the time required for you to complete it decreases and your per hour income increases. This applies to you whether you are a writer, designer or programmer. The better you get at something, the faster you do it.

In a nutshell, this amounts to doing work you really know how to do well (or learn to do well) as much as you can.

This doesn’t mean that determining your hourly rate is not important. This is used in a way you probably haven’t thought of though. It is also true you may be required to provide an hourly rate in some job boards so I’ll touch upon that in the next post. In the next part of this series, I’ll explain the importance of the hourly rate and how it should be used.

More on the author, Johnny Spence
Johnny is the founder of The Freelance Rant and a freelance web programmer with 8 years in the business. Have a visit at his company Oscarrr!web or see what he's up to on Twitter.

2 Comments. Join In!

  • The baldchemist

    July 2nd, 2009 at 7:11 am

    It’s not about doing it quicker. Great media costs what it costs.
    You have also missed important posts such as new equipment. Software, new computors etc.
    I can also tell you that writing does not get quicker the more you do it and neither does dsigning. Simply because if you are any good you are always searching for new creations. Not doing the same stuff all the time.
    No, justify high costs with value added, get your business based on your skills not on being cheap.

  • Johnny

    July 2nd, 2009 at 11:34 am

    I appreciate your comments @baldchemist.

    While I agree that great designs take time and therefore cost more, we have to remember that there is a limit to what the client will pay for. There will always be those few clients who are willing to pay top dollar for high quality, original work. There are also those few designers out there who can command any price for their original work. Industry-wide, however, these are not the norm and the price of a work will always settle around an average market price, independant of the time put into it. So more time doesn’t translate into more money earned unless you are a top designer.

    You bring up an interesting dilemma, too, that faces a lot of designers. You can search for new creations and be original in each of your works, but this can take longer and that extra time can’t be passed on to the client since they likely are not willing to pay for it. Or you can do similar, but distinct, works from the past which saves time and increases your earnings per hour. You have to ask yourself is that extra time I spend on it worth the time I could be using to earn money on another project or, in other words, is originality worth sacrificing my income?

    One last thing… in the second part of this series, I mention the break-even rate which takes into account your expenses when determining your fees. Though software, computers, etc are not mentioned specifically, their costs can be factored in here as well.