Pricing options for freelancers: a complete list
As a freelancer, you decide when, where, and how much you work. It’s theoretically possible to earn any amount you want. Our experience has taken us through the whole plethora of pricing options out there and we want to walk you through the most popular ones, to help you choose the most relevant for you.
Before we begin to dive deep, though, we just want to let you know that a pricing model probably isn’t forever. You need to be ready to rethink and change, based on the evolving circumstances of your freelance work and your needs.
We’ll be going over:
Hourly Pricing
Retainers
Value-based pricing
Project-based pricing
Hourly pricing
One of the most common pricing options for freelancers and one of the most criticized too, yet, it still finds a place on our guide.
"According to 2022 data from ZipRecruiter, average freelance hourly wages currently range between $19.95 to $38.46 across the United States."
Hourly pricing is easy, often accused of being very basic yet, on the up side, it’s fairly straightforward: you can charge a set rate for every hour of work.
"Bill.com’s survey questioned 1,400 US freelancers and contractors and also found that 45% have had clients not pay them on time."
Enough guessing! Here’s how to calculate your hourly rate
Pulling numbers out of a hat isn’t going to be the best solution so we’ll start by calculating your M.A.R. (minimum acceptable rate).
How much money do you need to make?
Do a little research on the going rate for freelance work, and think about rent or mortgage payment, utilities, food, transportation, and other bills that all fall under the category of expenses you need to consider when determining your M.A.R. (Minimum Acceptable Rate).
Let's say you’re a web designer. You’ve done your research and found that, since you’re a beginner, you should charge:
—> $40/hour
Now let’s estimate expenses:
—> rent: $550
—> utilities (including phone bill): $500
—> other bills: $50
—> food: $500
—> entertainment: $300
—> emergency savings: $300
Total expenses: $2200
How to calculate your income tax
As a rule of thumb, you can expect to pay 25%-30% of your earnings after your business expenses are deducted. Depending on where you live and work, your household expenses, like utilities, may be deductible if you work from home (an accountant can help you with that).
Assuming you don’t have an accountant and aren’t able to deduct anything, let’s make an example based on the worst-case scenario:
—> total expenses: $2200
Total Earnings - 30% = $2200 + extra
As a freelancer, you need to earn more than just enough money to cover expenses if you want to make a living. It may be that you need money for travel, office supplies, eating out at restaurants and concerts, or putting away money for a house or having children. Saving money for retirement is also a smart idea.
Know how much you want to work
Figure out how much you have to work during the year and subtract holidays/sick days from that. You might have to work on weekends sometimes, but they shouldn’t be included here. Besides, you're a person, and you need rest so factoring in these days is a necessity, not a luxury.
Let’s assume you want to work about 6 hours a day, 5 days a week, and take 8 weeks off during the year.
—> days of the year you’ll be working: 552 - 58 = 220
—> hours you’ll be working during the year: 220*6 = 1320
The M.A.R. is calculated by taking your total expenses and adding the salary you want to receive.
Let’s factor in the hourly rate you researched:
—> estimated earnings per year: 1320*$40= $52800
—> estimated earnings monthly before taxes: $52800/12= $4061
—> Let’s take away taxes: $4061-30%= $2842
We’re left with a salary that covers your expenses and gives you a little extra ( in our example about $600 every month).
Retainers
In the freelance world who has retainers is considered lucky because retainers mean their client has a longer lifetime value and the freelancers working with them have the perk of having more stability because they’re being offered a consistent amount of work.
How do retainers work in practice?
In most cases, retainers work on a weekly or monthly basis. For you, it's a great opportunity to plan ahead and schedule time efficiently.
You give your client the guarantee that you’ll work on their projects for a certain amount of time each week or month. Retainer fees are determined based on the number of hours each week or month you will work in exchange for a fixed fee.
"2022 data from And Co shows that around 70% of freelancers work on 2 to 4 projects at the same time."
To ask or not to ask for an upfront payment?
One of the big dilemmas around retainers is whether to ask for 50% upfront or not. Because as freelancers the risk of the client paying late and the risk of potentially not receiving any compensation if something goes wrong is on us, many charge up to 50% of their fee upfront before they begin a job.
When you start a job, ask for part of the payment upfront to ensure you don't have to wait around for payment. This way, both sides are ensuring that the project is underway, especially if it is a large one. Your commitment to the job will be clear to the client, and you will be able to get on with your work without waiting months for payment.
Value-based pricing
It’s as hard as it sounds: value-based pricing is an advanced pricing model based on how much value your work brings to clients.
It’s a great option if you work with clients that are willing to pay a higher price for high-quality work or if the project is complex, but it hides some challenges:
In order to be successful, you need to have a very good understanding of your client's business
To better understand your impact, you want to be perceived as a partner by your client, rather than as a hired hand. Achieving trust is a great way to have more insight and open conversations.
To come up with the right pricing, you need to take the time to gather all the information you need to identify the value you can bring to the client's business.
An example of value-based pricing
Suppose you’re a web designer and get asked to add a series of complex animations to a client’s website.
You crunch the numbers and work out that your work will increase their sales by $60,000.
You decide to charge $10,000, a fraction of what your client will earn from your work.
Despite the fact that in this case, you might charge more than you normally would for the same work by the hour or by project, the client might think it is an acceptable amount based on how much money they will make.
Yet, whether the client receives the full amount of projected new business or not, you must be prepared to charge them the price you have agreed upon.
Project-based pricing
Many consider this a twist on value-based pricing but it can be imagined in many different ways and for this reason, we’re dedicating project-based pricing its own section.
While the story exists in many different forms, the message is crystal clear: the value you provide is also a consequence of your skills, training, and experience.
Project-based pricing involves selling a deliverable and setting a fixed price to make it happen. You’re no longer selling your time here and, if the scope of the work is clear, this can be a perfect option for long-term projects.
How much to charge?
Here’s a real-life story from our founder Ben about his journey through his first project-based quote, to prove that even the best have struggled.
“I consulted all the online resources I could find and they mostly suggested approaching project price as a 2.0 version of hourly pricing. Then a friend told me “They might be insulted if your price is too low”. Ultimately, I realized my price needed to back up my confidence in my abilities. When I first learned about and scoped the project, I would have been happy to do it for a few thousand dollars. After doing some research, though, I quoted a $10,000 - $15,000 range and the client ended up paying $12000”
Determining how much to charge is the true challenge with project pricing.
You can probably relate to the doubts Ben had early on — you really want to work on the project, but if you price too high, then you risk not losing out on the opportunity.
Finding your Goldilocks zone in project-based pricing involves a lot of research — and sometimes online tools like instaprice can really save you time. Still, when calculating your project fee, don’t think about the number of hours and instead consider:
Experience - how experienced you are in delivering your service
Accuracy - how accurately you’re able to deliver services and how well you’ve drafted your contract
Pace - you may be able to finish the project faster than you expected but it could also take longer
Your clients don’t need to know how you came up with the price, they just need to be informed of how much the project will cost them.
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