Expertise is valuable. So is a fresh perspective. So is flexibility. I could go on. As a focused portfolio professional you bring all of that and more to your clients, so why shouldn’t you be charging a decent rate for your services?
However, determining what you’re worth isn’t easy, especially if you’ve only recently made the switch to self-employment. Chances are, your work is worth more than you realise. So how do you avoid undercharging for your services?
How to determine your rates
Did you know that 75% of freelancers who’ve made the switch from traditional employment now make the same or more than they did in their previous jobs? Clearly there is money to be made in portfolio careers – you just have to figure out how to properly value your services.
One of the most common mistakes portfolio professionals make when it comes to setting rates is assuming that they should be charging the same amount for all their clients. For most portfolio professionals, each project is distinct and requires different hours, resources and rates. So how can you be sure you’re setting your prices effectively?
Next time you’re quoting or pitching for a project, make sure go through the following phases before you settle on a proposed rate:
- Map out a market rate based on publicly available data
- Adjust that rate around the attractiveness of the project
- Structure your fees in a way that benefits both parties
Phase 1: Map Market Rates
When people move from a corporate job to independent work, they often miscalculate their worth. That’s often because they base their rates off their previous salary. As a freelancer or sole trader, you need to consider other expenses that factor into the work you’re doing—things like the cost of sales, marketing, pension, healthcare, your accountant and your home office.
That’s why rate mapping is so fundamental. It’s the act of determining all the different data points that factor into the full cost of a project.
Though it sounds like a potentially complicated process, it’s actually quite simple once you get a handle on things like industry rates and market values. Try to consider five separate data points:
- Decide what your minimum rate is — that’s the least amount of money you’d be willing to accept to cover all operating costs.
- Calculate what you would get paid per day/hour if this were a full-time job, i.e. take a typical annual base salary and divide by 230 working days. Then double it. The rule of thumb for companies is that the total cost of a permanent employee is twice their base salary, when you include the costs of hiring, training, mentoring, bonus, healthcare, pension, office, IT, paid vacation etc. So a thoughtful client won’t flinch at this rate.
- Find out what the client’s budget is (and if they’re flexible or steadfast on that budget). As long as their budget isn’t unrealistic, you may want to massage your rate to fit.
- Look at what other portfolio professionals are charging on freelance sites like UpWork. You can also ask your client about other quotes they’ve had for this project.
- Determine what your services are really worth to this client. Are you helping them save money or grow revenue? If you are, what is a fair percentage of that benefit that you could capture?
Once you have gathered as many of these data points as possible, triangulate to work out what you think is a ‘fair’ rate.
The market mapping stage is just the foundation. There are other factors that may lead you to increase or decrease your rate—things like length, scope, complexity and how it benefits your career. Is this a one or twelve-month job? Or is it a series of related projects that can be productised and grouped into one fixed rate?
In order to adjust your rate, you need to consider:
- Longevity — Most portfolio professionals drop their rate slightly for long-term projects, as predictability of cashflow has a value.
- Career Benefits — Will you develop new skills that will benefit your portfolio career? Can you get a referral or a case study, helping to win more work in future? Will this job improve your network or make your portfolio more valuable? If so, maybe you should consider charging less, because it helps you build up your professional portfolio. Conversely, don’t be afraid of pushing the price up if there aren’t any additional career benefits you’ll get through this work.
- Agreeability — If you absolutely love working with this client, then you might want to give them a discount. Similarly, if the work is in any way harder, more stressful or more inconvenient – e.g. working horrible hours, then push the prices up a bit.
- Riskiness — Are the deadlines really tight? Are the goals aggressive? Maybe the scope is too large. These are all things that you should be charging more for. Consider it a “convenience tax”. Urgency and accommodation should come at a premium.
By now you know how much you want to earn. Now you should think about how to structure your fees. Below are a few important questions you should ask yourself when it comes to rate structuring.
Do I want to charge an hourly rate or a day rate? Which makes more sense? Hourly rates are good for projects that have unpredictable time demands; day rates are better for more consistent engagements. If you’re likely to be working more than eight hours a day, then you might want to opt for the hourly rate.
Could I build in a success fee? Some people prefer to quote a lower rate, or even no payments for their time. Instead, they add in a success fee that is paid once a certain achievement or milestone has been reached. Sometimes there is a partial upfront payment too, as an act of goodwill from the client. Success fees are common for consultants, headhunters and contract work.
If this is a long-term commitment, should I ask for stock options? Freelancers and contractors are popular with startups because they are cost-effective and offer plenty of experience. So if you’ve landed a long-term gig for a growing business, consider asking for stock options as part of your wage. This won’t help you with this year’s bills, but could help your long term wealth creation.
It helps to think about all the things you want to get out of a particular project. Are you hoping to snag a case study? What about a referral? Don’t be afraid to ask for these as part of your conditions up front.
There are plenty of reasons why people believe they shouldn’t be charging more for their services. You may be saying to yourself:
- “I don’t have as much experience as everybody else.”
- “No one has heard of me or my business.”
- “I won’t get any work if I raise my prices.”
- “I can’t afford to lose a client because my prices are too high.”
- “I know I’m worth more, but clients might not agree”
That sort of fear can really get in your way. Don’t undervalue yourself. You made the conscious and courageous decision to go solo, so take control of your pricing and don’t let others dictate what your services are worth.
It’s all part of a larger learning curve that helps guide you in the right direction. More likely than not, you just haven’t built up the confidence you need to definitively say: I am worth this much because of the quality of work I deliver. Once you get used to saying that, figuring out pricing on a project-by-project basis will become much easier.
Still struggling with the thought of setting your rates? Well you’re in luck, because our Catapult Course has several modules designed to help you monetise your skills and figure out your worth. Sign up for our next cohort to discover how you could be earning more. Alternatively, just join our Community and ask a question.