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Pricing and Positioning Your Rates Amongst Other Freelancers and Businesses

Setting Your Rates and How Much for Freelancers to Charge - The Ultimate Guide

When running a business, there will be many factors you will have to consider on a daily basis. One such concern which needs to be addressed from time to time relates to pricing and positioning amongst others. Since there are often a great deal of competitors on the consumer market in a variety of business fields, it is important to ensure that your prices and offerings are fair when compared with others yet still fair enough to yourself as a business owner. There are a few factors you should consider when contemplating pricing and positioning amongst others.

Price Your Services According to Your Level of Expertise

Price Your Freelance Services According to Your Level of Expertise

No matter what job field you are involved in it is always a good idea to price your services based on your level of expertise. Those who are more well versed in a particular area of business can get away with charging more for their services. Therefore, when pricing your services and determining your positioning amongst others be sure to consider your expertise level when doing so. Although your prices may be a bit higher than other businesses it may be due to your higher level of expertise in the field.

Make Your Prices Fair

Regardless of what other businesses in the local area are charging, you must ensure that the prices you choose are fair in nature. A business who charges a fair price is sure to rank higher amongst competitors in the eyes of local consumers. Choosing a fair price for services can be dependent on level of expertise, services offered and added benefits which you include with the total cost of your business offerings.

Consider the Size of Your Business

Consider the Size of Your Business - How Big is Your Business

When contemplating pricing and positioning amongst others, make sure that the size of your business is factored into the equation. For example, if you find that your rates differ from competitors in the area, this may be due to the fact that you are either a larger or a smaller business than your competitor is. Therefore, when considering pricing and positioning amongst others take note of how big the other businesses are with regard to customer base, number of employees and amount of business locations.

Determining how much to charge for your services is often one of the biggest challenges for a new freelancer.

If you charge too much you won’t get hired and if you charge too little you’ll starve. Take the time to read this article and you will figure out what you need to charge to thrive. If you are a new freelancer, you have probably searched the Internet trying to look for average rates of professionals in your field. Don’t even bother. I will let you in on a secret. now that the Internet is here, there aren’t any “average” rates because demographics are too widespread. The United States has banned competitors from discussing rates amongst each other based on Antitrust laws. This is why you are having such a hard time finding rate surveys, there aren’t any. Instead I will show you how to figure out what your rates should be by using a formula.

Start by figuring out what you want your annual salary to be.

Start by figuring out what you want your annual salary to be to figure out your freelance rates

To determine your salary, you might want to pay yourself what you earned as an employee or take a look at salary.com to find out what an average salary for your profession is.

For this formula, you will need to figure out what your overhead is.

Overhead is an expense that cannot be found billable to a client, it is just a cost incurred by running your business. Please fill out the following form. If you aren’t sure what your overhead is, then look back on last year’s credit card bills and checking account statements.

MONTHLY OVERHEAD:

Rent
Income Taxes (Use 45% of your annual salary)
Utilities
Office Supplies
Marketing
Postage and Shipping
Telephone
Accounting / Legal
Travel
Office Furniture
Dues & Memberships
Licenses
Health Plan / Medical Insurance
Disability Insurance
Retirement Savings
Multiply by 12 to get yearly Overhead

WHAT ABOUT NONPRODUCTIVE TIME??

There are duties that must be completed for each client that are not productive towards completion of the project. Figure out the actual work hours are spent on the following duties. You will need this total later, so keep the number handy.

Sales
Phone Calls
Meetings
Training
TOTAL

MAKE A PROFIT - HOW TO MAKE SURE YOU ARE CHARGING ENOUGH

Now you will need to figure out how much of a profit you wish to make. Profit is the amount that you make over expenses. I recommend 20% in order to make an acceptable profit margin. Profit is necessary for a successful business so make sure to count profit into your formula.

VARIABLES

There are always variables that you will need to take into consideration when figuring out what you will charge. You must take into consideration the following:

1. What does your competition charge?

2. What is your niche?

3. How many years experience do you have under your belt?

4. What skills do you have?

5. What clients do you want to attract?

6. Are you working online or local?

FORMULA 1

Follow these steps to figure out what your hourly rate should be.

1. Subtract nonproductive time from Annual Hours to get Billable Hours.

2. Add Salary and Overhead Together

3. Multiply Total By Profit Margin (10% - 20%)

4. Add Total (1) and Total (2) Together

5. Divide Total (3) by Billable Hours (the amount from #1)

For example, if the following is true:

1. Salary = $30,000

2. Annual Hours = 2,080

3. NonProductive Time = 500 hours

4. Profit Margin = 20%

5. Overhead = $15,000

Then this is how you figure out the freelancer’s hourly rate:1. 2,080 - 500 = 1,580

2. $30,000 + $15,000 = $45,000

3. $45,000 X 20% = $9,000

4. $45,000 + $9,000 = $54,000

5. $54,000 / 1,580 = $34 / hour

FORMULA 2

This formula is the easiest of them all. However, I don’t recommend this formula unless you are a very established professional. This isn’t the way to start out your freelance business, only very skilled freelancers can get away with this.

Ask yourself the following questions:

1. How much money do you want to make on this project?

2. How many hours do you want to work?

Now all you need to is Divide these two numbers. Its that simple, you now have your hourly rate.

FORMULA 3

Use the following formula if you are interested on how to set the rates for your entire business.

Add up all costs to run business on an annual basis (including profits) by annual hours (2,080). This will give to you your pay rate.

1. Salaries + Overhead = Annual Costs

2. Divide Annual Costs by Annual Hours

So For example, if the following is true:

1. Salaries = $60,000

2. Overhead = $50,000

3. Annual Hours = 2,080

Then this is how you figure out the hourly rate:

200,000 / 2,080 = $52

FORMULA 4 - PRICING BY ORDER FORM

This method is the order form method.

The reason I call it this is because you use an order form to add up all ingredients of the project. This would be how you figure out how much to charge for your work. I don’t recommend using this method unless you are only designing simple sites that all have the same basic ingredients. Otherwise, there are too many variables to use an order form. Here is an example of an order form:

Purchase Order # Customer # Company Name Domain Name Your Name Address State Zip Code Phone Number Fax Number Email Address
# of Photographs
# of Illustrations
# Custom-made Animation
# Forms
# Pages of Flash
# of Scripts (What Language)
Other
TOTAL

FORMULA 5 - ESTIMATION BY PROJECT

Most clients are going to want to hear how much the entire project is going to cost. Even if you have an hourly rate already, probably this isn’t going to be acceptable to your future clients. It takes practice but you are going to need to learn how to break projects into individual tasks in order to estimate how long the project is going to take. Make sure to find out what responsibilities the client expects you to take care of. If the client expects you to do everything, then take this into account. If this is the case break up the project into the following phases in your mind:

TASKS	# Hours
Administrative
Purchase Server / Domain
Storyboarding / Mockups
HTML / Programming
Create Prototype
Make Site Live
TOTAL

Now Visualize how many hours you feel each stage of your project is going to take. Add up all of these hours.

Multiply your hourly rate (figured out from one of the above formulas) by the total estimated number of hours for project (from above). This amount would be how much you bid on the project.

So For example, if the following is true:

1. Hourly Rate = $30

2. Total Estimated Project Hours = 50

Then this is how you figure out how much to bid on your freelance project:

$30 x 50 = $1,500

Make sure that your client is very clear on what the scope of the project is.

You should write a clear contract to make sure that the outline of the project is written down in clear terms, otherwise the client may take advantage of you.

The bottom line to your freelance business is that you want to make a good living. If your hourly rate seems too low then raise your rate till you feel comfortable with it.

If several clients are way too eager to hire you as a freelancer, rethinking your hourly rate might be a good idea. On the other hand, if clients are very interested in you at first and then stop communicating with you after they hear what your hourly rate is, then you need to lower your rates. In other words, feel customers out to see whether your fees are correct or not.

If you have determined that your fees are too high then you might need to lower your overhead in order to lower your fees. Try cutting some of your unnecessary expenses in order to make ends meet. When you make the change over to freelancing, sometimes there is a little suffering at first. Don’t worry; it doesn’t usually last long if you know how to save when times are good.

Good Luck.

Check out AllFreelance.com’s list of articles for freelancers to figure out their rates “¦ and also check out AllFreelanceWork’s list of articles for figuring out your rates.