How To Tell When Your Rates Are Too Low
credit: stuartpilbrow on Flickr
A few months ago, I needed a designer to team up with on a project. I decided to work with a friend of a friend who had just graduated from art school and was desperately looking for work. She emailed me her rate and I about lost my mind.
She wanted $13 an hour — more than she’d ever earned at a job in her life — but she was willing to take less if I thought it was too high.
I’ve heard this story repeated time and time again, even from freelancers who have been in the game for a while. Most freelancers don’t have rates that painfully low, but odds are pretty good your rates are too low.
Signs Your Rates Are Too Low
There are plenty of situations that will tell you that your rates are too low. The best response to any of these situations is to raise your rates.
- Your clients accept your rates with no complaints whatsoever. If a client hasn’t at least said, ‘that’s a little higher than I was accepting’ when you send her an estimate, you’re in trouble. Most clients will want to at least try to negotiate downwards, no matter the price point, unless they find a freelancer who they think is a real steal.
- You haven’t raised your rates in over a year: Between the experience you’ve gotten and any increases in cost of living, it’s reasonable to raise your rates (at least for new clients) every year.
- Your rates aren’t in line with what other freelancers are charging. When I first started freelancing, I heard about another local freelancer who was charging triple what I was (I’m not going to give you the dollar amounts because I’m a little ashamed of what my starting rate was). She wasn’t particularly experienced or skilled compared to me, but she was getting what she asked for. You better believe I raised my rates immediately.
- Your budget is perfectly balanced: A perfectly balanced budget isn’t a good thing, at least for a freelancer. If just one missed payment from a client would throw your budget off entirely, you’re not bringing in enough money. A perfectly balanced budget (even if you’ve budgeted for savings and retirement) means that you still have room to stretch.
- You’re charging less than double what you could make hourly working for an employer: In most places, freelancers ought to be aiming for at least double what an employer would pay because that’s the real amount an employer earmarks for salary, taxes, benefits and generally the cost of having an employee.
There are, of course, more obvious signs — like you’re eating ramen for the third week in a row — but it’s the subtle signs that I particularly worry about. If you’re in a tough spot financially, raising your rates is probably an obvious move. But if you are getting by or you’re even comfortable, you might not think of raising your rates. But if your work, between skills and experience and general ability, is worth a higher rate, you should be getting it.
There’s Nothing Wrong With Charging More
I thought very hard about the title of this article — I considered ‘How to Tell if Your Rates Are Too Low’, but the fact is that there is a time in every freelancer’s career when your rates really are too low. Maybe you started out low because you weren’t confident in your skills, or maybe you didn’t raise your rates to keep up with demand. But we’ve all been at a point where we were effectively leaving money on the table.
It’s okay to have rates that make your clients have to decide if you’re worth it. More often than not — they will. While you may think that you’d never pay as much for your skills as you’re asking, you have a prejudiced point of view. For you, designing a website or writing an article or doing whatever other type of work you do is a simple matter. You’ve done it often enough to get it down to a science. But someone else, who doesn’t have your experience or your skills, would require triple or quadruple the amount of time to handle such a project (even assuming that they wouldn’t need to buy the right software or training). Be confident in your rates.
Photo credit: stuartpilbrow/Flickr
Leave a Comment
It’s a weird experience starting out, telling people what your rate is or what you’d charge for a project. The first thing I realized I had to change early in my freelance career was my inclination to give clients an “out”. The way I gave them an out was to tell them my price but quickly add in a comment about my prices being negotiable. That always opened the door for negotiation.
Now I just tell them my price, if it’s not going to work for them I let the client be the judge of that and leave it up to them to tell me that.
As for pricing in general, I realized last year that I was still undercharging despite a conscious effort to raise rates over time. A client actually came to be with a budget in mind and told me what they expected to spend before I even mentioned my rate. Their number was double what I would have charged.
Since then I’ve raised my rates again to better reflect the value my clients see in my work and the quality of work I’m doing.
Mike, great comment. Yes, it would be great if the client gives you a number first. Then you can go based off that.
Most beginners don’t know the market and will struggle until they do their research.
I am currently doing research.
Talk to freelancers about raising rates and they start thinking of all the negatives (losing clients, not getting enough work) instead of the positives (fewer clients, lesser work load, more earnings).
Charging less in the beginning is understandable even if it’s a bad business decision. An alternative could be to do pro-bono work for non-profits. Build your portfolio, get some killer testimonials and cultivate goodwill for your business. Then start charging at a competitive rates.
Peter Shallard wrote an excellent post about why doubling your rates will double your success over at http://petershallard.com/blog
I actually doubled my rate for a client, once I found out that she was paying me the same tariff as another freelancer, whose work was obviously inferior to mine. When I emailed her my new offer, I was expecting a negative answer or no answer at all. To much surprise, she accepted without blinking. She even said she would be happy to oblige
I guess it was my fault that I din’t ask the raise before…
I agree witn some things in the article, but it would have been good to include some advice about charging by the project.
When you’re starting (like me) it’s almost impossible to make an estimate based on hours because you just don’t have enough experience to know how many hours could the project take.
Most of the time I feel like I’m charging too little, maybe that’s another reason to raise my rates.
One of the positive effects of raising your rates is that it can help you get rid of problem clients. Or deter those who may become problem clients.
The key document to have is a fee schedule. This is a list of the various services that you offer, along with the fee ranges for them. Think of it as a restaurant menu of what you offer.
Then, whenever someone asks about your rates, just send them a copy of your fee schedule. It’s also a good idea to share your fee schedule with your current clients, especially the problem children. Don’t be surprised if one or two of the children take the hint and go away.
I came here to say exactly this. Every time you raise your prices the tyrekickers and ‘urgent immediate right now’ clients seem to fade away into the ether. Lovely.
Good post, hard thing though sometimes its a bit hard to figure out what other freelancers charge, some reason they are hesitate sometimes about revealing their rate.
Good stuff! I needed to read this, like, last week.
My previous employer hadn’t raised his rates in more than 7 years. It got to the point where he could barely afford to pay his employees because he wasn’t bringing in enough money, but still he wouldn’t raise his rates.
Amen! The first few times I raised my rates, I was convinced that my existing clients would get upset, but they never did. In fact, they hardly even seemed to think twice about it (even when the increases were somewhat significant). The fact is, even if a 25% increase inyour rates 25% was to lose you 25% of your work, you’re still making the same amount of money but working less for it (leaving time for marketing and new clients). So, why wouldn’t you do it?
Actually you wouldn’t be making the same.
Great article. I need to take this advice!
I’ve had a similar experience with a lady who wanted to charge $20.00/hour for Photoshop retouching.
However, since according to creativebusiness.com, we freelancers need to charge between 4 and 5 times what we hope to end up with (after deducting down time, overhead, software, hardware, etc.), I insisted on paying her $40.00/hour.
I just couldn’t live with the thought that she’d end up with $4-$5/hour at her @20.00/hour rate.
If only there were more clients like you. Most would say 20 is too high and then try to get them down. Good show.
That’s amazing, I’d do photoshop retouching for free unless I predicted it was 5+ hours, considering that it’s a no-brain task.
Whether you consider it a “no-brain task,” or not, is irrelevant. That is still YOUR time. Also it is YOUR skill that they are benefiting from. Chances are the client doesn’t know anything about how to use PhotoShop, they never took any classes, or spent the hours upon hours of time practicing and building your proficiency.
Also the client that is asking for this “no-brain task” isn’t contributing to the cost of your computer system, software, electricity, a place to put your desk, or the time you sit there waiting for your system to turn-on.
I charge to the nearest 15-minute increment, and that is plastered all over my contracts and invoices. So if the client only asks me to do one task that only takes 2-minutes, and they expect it ASAP, they get charged for 15-minutes, that is if they have no other tasks I am billing for within my invoice period…which they also know is the 1st and 3rd Monday of every month. That tells the client to get more organized and prepare a list.
I offered to retouch a 300 photos for $200 for a company until he replied back and say, the price is reasonable but why should I choose you when a guy oversea is willing to do it for $30.
I was like, whatever!
To add to what Mario said, I’ve been doing freelance work on-off for a number of years (on an after hours basis) and, even with working in the industry full-time for over 4 years, I still can’t estimate how long a project will take to complete in terms of hours. I still prefer to quote for my freelance work per project, and if I find that there are further ideas I’d like to implement while working on a website, I let the client know about these within the process.
Great article, thanks!!
Another giveaway is when your client’s response to a quote is “oh wow, that’s so cheap!” That’s when it’s well and truly time to reassess your rate!
Being confident about your price is almost as important as what you are charging. Telling someone “oh, it’s $XX but only if that’s ok with you” makes them think you don’t believe in yourself. State your rate, and don’t lower it. You’ll get more respect that way. If a client has an issue with your price or it doesn’t fit into their budget, a better way to negotiate would be to give an extra payment plan (ie – instead of 1/2 up front and 1/2 at the end, do it in 1/3s so they can space out their payments)
And definitely give yourself at minimum a cost of living raise every year. I do about 10% each year and I’ve never had a client balk at it. Just be sure to give notice before hand…I give 30 days notice, generally on the day that I send their monthly invoice.
You give 30-days? Wow you must be doing very well to be able to afford your clients to linger around for 30-days without paying you. I’m net-7 days. End of story. If I rush to get their task and/or project done within 7-days, I only think it is fair to get paid within 7-days. After that they get a 15% late fee, and I stop returning their calls. The troublemakers get the hint quick and usually drift…without paying, but at least I didn’t accrue more unpaid hours during the 30-days for them to ditch me on.
Experience definitely has a value, and if you don’t take the rate for this value, you are loosing.
The Key, in my mind, is to be “matter of fact” (and confident) about pricing as well as using some basic “old school” sales technics. I can’t tell you how much business the “takeaway” (taught in sales seminars everywhere) can work in this business. Try saying to a client balking on price “you know Mr. Doe, maybe I’m just not the right guy/gal for you on this project. I’m an expert who does professional work at professional prices. This is what I do for a living.” I’ve even used a fast-food vs. fine dining analogy which can also be very effective.Nobody REALLY wants McDonalds when they can have Mortons. Fortunately most people understand that they get what they pay for. Trust me, the only ones you’ll lose are the ones you didn’t want anyway.
Good article. It’s scary to raise prices but it’s worth it in the end.
I fought the hourly rate thing for a long time. I tend to be more introverted, and it was always hard for me to spit out – oh, I charge $80/hr for web services. I felt uncomfortable, and that definitely sounded high to prospects. I read somewhere that people don’t like to spend money, but they love to buy things. So true.
Several years since my “beginnings” now, I have established some rules for myself. One of those is that I never talk to new clients about my hourly rate. If they ask, I tell them that I quote flat rates for new projects. I find that this instills confidence and elicits that love for buying things. Later, once they’re really happy with my services and we’ve established a relationship, I can mention the rate – and they don’t question it because I have established value.
My hourly rate comes into play when I talk about on-going maintenance and updates to existing projects. I give clients a choice of buying a block of “retainer hours” at a reduced price, or charging hourly.
I find that I can make a decent living if I charge flat rates for projects… but charging hourly means that I’m essentially selling my time for a rate. That makes me feel try to cut corners to save money for clients, and consequentially, I feel that I’m cheating myself.
I strongly recommend to new (and old) freelancers to charge by the project if you can. That makes raising your “invisible rates” more palatable, and probably will enable you to produce a better product for your clients. Focus on providing high value, and excellent service. Be highly responsive to your clients… and you’ll be on your way to a lucrative life as a freelancer.
Ben,
So how could you totally banish hourly work from your life and start charging based on what your client is actually getting from your work?
How can you completely remove the focus from being on what you DO and put it more on what they get and how valuable that is for them?
Those are just some questions that came to mind after reading your comment.
Good luck!
I’m always afraid that they’ll just say “no thanks” either because they don’t know they can haggle, or don’t want to haggle.
Why would you set them up to haggle your prices? If they say “no thanks” and you are getting your rate from other people, than tell them good luck and best wishes.
My hourly is low-middle…very competitive compared to east and west coast prices. If someone in California balks at my hourly rate…I know most in Cali will charge triple, so I don’t worry about it. They’ll either come pack, or let their pride make the decision, and pay the higher rate with someone else.
Set your rate and stick by it. Know your worth and what you bring to the table. If someone only thinks your worth $5/hour after taxes than that is a red flag to the brain damage you will receive from this client.
i think its tough decision…n very thin line between losing clients n getting bigger clients…best is to keep it variable based on client profile
When I find out a client is price conscience, I try to explain that more functionality means more expense. And that if they have limited financing then we should look at a limited feature set. This gets them thinking that adding in features means adding in more cost. I prefer this to all or none project pricing.
Another technique I’ve used is add 5% to your proposal and then say that if you sign this week you’ll take 10% off. That way if they are on the fence you’ll have the project with only sacrificing 5%.
@Ortzinator – if you know you are priced fairly and accordingly, then you should never worry about “No Thanks”. Believe me if a potential client would say that to you, you don’t them as a customer. They had unrealistic expectations to begin with.
@Melissa – I’ve always thought about my skills getting more polished and expanded, therefor raising rates. But I’ve never considered cost of living. Interesting. I’ll definitely have to take that into consideration. Great Post!
Really good point here!
A huge part of showing value to a prospect is explaining what your service really includes. Someone might laugh at spending a grand on a line item that says “social media marketing”… but when you explain to them that “social media marketing” includes X, Y, Z and A, B, C… and that the service is shown to increase their business by 10%… you’ve just won the job.
The simple point is that we know the effort and value of our services, but often clients need to be educated before they see the value.
Happened to me literally yesterday. I sent my portfolio along with the price (per project) to the client and was afraid if I was not being too greedy. She replied that my “portfolio is great and my price is totally awesome!”.
Bummer.
I’ve always charged 1/2 upfront and 1/2 at the end, including 1 revision. Additional revisions pay an extra fee.
To me, clients who consider your fees to be too high and end up going somewhere else , are the ones who don’t value your skills and experience.
But when they think your rates are high and stay with you, it’s because they believe in your talent, and they’re convinced they will get value for their money.
Great article, thanks for sharing.
Ortzinator wrote: “I’m always afraid that they’ll just say “no thanks” either because they don’t know they can haggle, or don’t want to haggle.”
I’ve had clients say no thanks. And I’ve walked away. And more often than not, they’ve called me later to hire me at my rate. (And if they hadn’t? Well, I would have had more time to look for clients who will pay my rate.)
This post is very helpful….I’ve tried several times raising my rate but I always ended up being told by buyers that my rate is too high! But when I lower my rate, they would just decline my application….that’s very weird. Its been a year since I’ve been doing online jobs and still, receiving the same rate I had when I started.
@ghie – That’s the problem with “online jobs” assuming you’re talking about things like elance. There is so much competition on those sites, and relationships are not formed easily. I would encourage you to seek local work where you can have face-to-face meetings with your clients. It’s a virtual world, but I find that clients are more willing to spend money on someone they can meet with at a coffee shop. I’d be willing to bet that you would find much more lucrative work that way.
Ghie,
It’s not weird at all. They’re declining your app because they don’t perceive the value is right to warrant your fee. In terms of lowering your rate… doing something like that when asked can TOTALLY ruin your positioning with a client. And when they sense “weakness,” they tend to run away. If you lower it once, what’s to keep you from lowering it again… and again?
How about keeping your rates high and figuring out how to deliver enough value that makes their willingness to pay your fee a non issue?
Great post – and definitely tackles an issue that I struggle with! I made the mistake of pitching low at the beginning of my freelance venture because I wasn’t very experienced and felt I would be cheating clients if I charged what a long-time freelancer would charge. Now that I’ve been freelancing for more than a year, have a really good portfolio and lots of positive testimonials, my rates are gradually increasing for new clients (though going by the “charge double what you could make if employed” rule, I’m still underselling myself!), but I still haven’t worked up the courage to raise them for repeat clients. :S
One problem I’ve run into in my area is that most web designers and developers around here don’t last long. They go to school, learn the design and some development skills, but don’t learn business skills. They get out of school, charge a third of what I charge, and are nowhere to be found a year or two later.
From my observation, it seems that they are so used to minimum wage jobs that they think double the minimum wage while self employed is “making bank”. They learn they can’t make a living off of that and are uncomfortable with raising their rates because what they were already charging sounded in the clouds to them.
I remember when I used to get excited if my bi-weekly paycheck cleared $400 after taxes. At that time, I didn’t start worrying about my finances until my bank account dropped below $10 with a week left until payday. But that’s how most people who go into this without business skills are. They do a project for $1000, and it’s like “HOLY COW I’M ROLLING!” And then at the end of the year, they find out that $1000 was really only worth about $350 when it’s all said and done.
Great point. I tend to do just that, and it doesn’t help that I have a credit card – I constantly tend to spend before actually receiving money for a project, with all the problems which come with credit card debt…
Business skill, or just simple personal finance skills, are just as important as technical skills or creativity.
A sign I’ve bumped in to twice now (and I really thought I had raised quite a bit last time!) is a client going “I’ll add X if you can get it done by Saturday” or something like that. Guess it means I was hitting far below what they were expecting..
When you’re on your own out there selling your services, I think the whole idea of “rate setting” most often mirrors your own perception of your self worth.
But the reality of it is, what you charge has nothing to do with you.
All that matters is whether your client thinks the value is there to warrant the fee.
Everything else is just a story we make up to justify our decisions.
“I’m not going to charge a lot cause I’m just starting out…”
“I’m going to come in a little low cause I really need the business…”
“The client said cash is tight so I better keep my quote on the low side…”
Those are all stories. None of them are true.
So I say, charge as much as you can get. The worst your client can say is NO.
It might hurt your ego if they do say no, but it won’t kill you.
And what happens if they say, “Yes?”
To charge something like “the other guy” is charging is setting up a false barrier that will keep you from reaching your full potential.
You’re in business to make money. It should NOT be a secret and you should not make excuses for it.
So is there any reason you SHOULDN’T be the most expensive option out there?
If you can come up with one that is not influenced by your self-image, then I guess do whatever works for you.
But why not raise your rates (a lot) “just because” and see what happens…
If you fail, that doesn’t mean you have to lower your rates, that means you simply have to deliver more value.
So what happens if you raise your fees and your clients give you a hard time?
I guess some people would feel the pressure and settle on some type of “compromise…”
I’d suggest that’s just a clue that it’s time to find new clients. Ones who are gladly willing to pay what you ask simply because they believe the value they receive will be worth it.
Such a great article! I am definitely going to put your points and points raised by people commenting into practice. I definitely share the same fear of raising prices on projects with my current clients, but the cost of living increase makes sense.
Thanks for posting.
Most clients in my area are such cheap people! They think $10/hr is too generous for someone with a BFA in design and over 5 years experience!!
In order to scrape by my iphone-less, cable tv less, one car family lifestyle, with grant funded office & internet, I need to be charging anywhere from 32-35 an hour.
I tell clients I charge $16/hour and give them an invoice with twice the hours the project took me. Otherwise, clients will think I take home $32/hr as my wages. Billing $32/hr disguised as $16/hr, I earn $11/hr.