Knowing how much to charge is a really nuanced thing. Simply put it’s not easy and it depends massively on what type of job you do.
In this guide we’ll discuss some of the more popular options or methods available to you to help you work out what you need to charge, they are:
- Set Prices
- Time Based E.g. Hourly Rates
- Milestone Based
- Value based
However before we jump into the above options, first let's take a step back and first figure out how much you need.
Work out your expenses first
It’s all well and good coming up with a figure, but is that figure enough to cover your bills and expenses?
This very much depends on your circumstances and where you are in life. Let’s start out with some personas. We’re making some assumptions here, however we know that one size often doesn’t fit all, so feel free to adapt to your needs.
You’re young and live at home with your parents / family
- You likely have little outgoings
- You generally have lots of free time
- You’re likely new to your chosen profession or have limited experience
If you fall into this persona, then you generally have quite a large safety net to rely on if the going gets tough. With this in mind, you probably don’t need to charge much (although you still could) to make ends meet.
Also given the likely lack of experience in your field, this will also have limits on the type of clients you can attract. If you are just starting out, you likely have a limited portfolio / experience so you’ll probably have to take the lower paying jobs to start off with.
You own or rent a house / have a family
Much more at stake if you fall into this persona. You’ll need to take into account:
- Mortgage / rent payments
- Loan repayments
- Energy costs
- Utilities, Phone, Broadband etc
- Car repayments
- Savings / Investments
And anything else not accounted for in the above list. Now is also a good time to create a list / spreadsheet of your outgoings and total them all up for the month and year. This gives you a much clearer view of where you stand financially.
If you’re thinking about transitioning from your full time job then you’ll likely have a monthly salary you can base this off. For example if you make £$€2000 per month and this covers all your bills and expenses and you have money left over. Then you should aim to bring in a similar amount each month.
Think about your current lifestyle, do you want to maintain, improve or cut back on it? Use the above information to make an informed decision about how much you need per month / year in order to achieve your financial / lifestyle goals.
Before progressing onto the next step, make sure you have a figure in mind. The most important thing to remember is that it needs to be achievable. If you’ve set yourself an ambitious goal, be prepared to work hard to reach it!
How much do I charge my clients?
So now that you have a figure in mind, how do you go about achieving it? Again this all boils down to what you do. We like to class things as big ticket items and small ticket items.
Big ticket items
- Building an ecommerce website,
- A full brand update,
- Gas boiler installation.
- Block Pave a driveway
- Roof repairs
- Wedding photography
Basically anything which costs a lot of money to do. If you deal in “big ticket items” then you might only need 1 or 2 jobs to cover your costs and expenses.
Small ticket items
- Cakes and confectionary
- Arts and crafts
- T-shirts and custom prints
- Stationary and accessories
So things which don’t cost much. You’ll need to sell these things in greater volume in order to reach your income goals.
Now let’s move onto ways of charging for your services.
A Set Price
With a set price, you essentially take the risk. It's on you to figure out if what you charge will cover the time and resources needed to complete the job. If you have a well defined brief from the client and you’ve done similar jobs before a set price could be the right decision.
However on the flip side, a set price could come back to haunt you. If the job takes longer than expected, you essentially could be working for free. This is where experience comes into play and knowing potential pitfalls and common problems that arise. If you can factor these into the price, it should keep you on the right track.
Set prices work well with both small ticket items and big ticket items. Also the client gets price security. They know that for X amount of money, they will receive Y goods or services.
Time based e.g. hourly rate
Hourly rates work best when the scope of the job isn’t immediately clear or when the job in hand is too small to be considered for a fixed price. The client takes the risk with this pricing as they don’t know for sure what they might get billed for. You can help mitigate this by giving an estimate of how long the job will take, that way you can help reassure the client that it won’t run over budget.
Hourly based pricing also requires that you keep track of the time spent on your jobs. ClientWide offers a simple to use time tracking tool which lets you log your hours worked against a client / job. It also gives you a timeline and a running total so knowing what you’ve worked is easy.
You can also mix hourly rates with fixed prices. For example, a web developer might charge a fixed price for a website, but they can charge an hourly rate for any additional features needed after the website goes live.
Milestone based pricing
For larger jobs or projects, you and some clients might prefer a milestone based approach to payment. With this strategy you would agree to do some work and on completion, request payment. You can do this in blocks all the way up to total project completion. This is a good way to split up a big job into more manageable chunks.
This carries some risk for you as you might have to do a lot of work just to get paid a portion of the final price. To offset this, you could ask for the first payment upfront or a partial payment.
Value based pricing
Value based pricing is when you don’t have a fixed or hourly price, but base your costs off the perceived value of the work you are doing.
For example, you are a software developer building an e-commerce site for your client. You could just charge them a set price, but if you think about how much value this website will generate for the client. It’s likely to be much higher than what you are charging them. This is where negotiations come into play and you can explore a profit share with the client, such as 5% or 10% of monthly sales.
This can be very lucrative, however it can be very risky. You’ve no guarantee that the client will actually turn a profit, which leaves you out of pocket with nothing to show for it.
Deals like this should only be undertaken if you have full trust in the client, you should also draw up a contract and require a fallback clause to the effect of: If the service or product doesn’t generate X amount of value over Y period of time. The client owes you the fixed price you would have charged.
Never venture into a profit share without a contract!
Sometimes it makes sense to require a deposit or a down payment upfront. This is applicable to small and big ticket items. For example, you might require a 20% deposit of the final price in order to buy the materials needed to complete the job.
A deposit or down payment helps reduce the risk on your side, It also signals an intent to complete the transaction from both sides. The customer pays a deposit which gives you the motivation or required cash to start or complete the project, this also locks you in as you now need to complete the job to get paid the full amount.
In our experience, it's usually best to require some sort of deposit upfront as this helps to weed out problem clients who have no intention of paying or will only pay part of the price and try to argue that you didn’t fully deliver.
How much you require depends on the job, however it's not uncommon to see a 20/80, 30/70 or even 40/60 split.
If you favour the split to 50/50 or greater on your side, this could have a negative impact on your ability to convert.
We have a great guide on collecting payments as a freelancer too. Make sure to check it out.
Changing sides and thinking like a customer for now.
You don’t want to pay half or more of the cost upfront and not receive anything until it’s completed as this then carries the risk of the person potentially taking your money and giving you nothing in return. It needs to be a fine balance, which is usually a small deposit upfront as this is perceived as less risky from the client's point of view.
In this guide we’ve learned that we first need to calculate how much our expenses and chosen lifestyle currently costs us. From that you now have a figure in mind, from which you can choose from the following methods of charging:
- Set Prices
- Time Based E.g. Hourly Rates
- Milestone Based
- Value based
We also covered requiring a deposit upfront before starting any work in order to minimise any risks.