Small Business Advice Week: setting the right rate
It’s Small Business Advice week and IPSE is contributing to the discussion with a series of advice blogs for the small business community. Find out more on the official Small Business Advice Week site, or join the #SBAW conversation on Twitter.
Taking the plunge into self-employment can be daunting. Removing the security blanket of employment takes courage, but more and more professionals across the UK are making that leap and reaping the rewards. And if you’re thinking of joining them, there are a few things you need to get sorted right from the outset: one of the most important is your rate.
Throughout their careers, all freelancers have to consider and reconsider how much they should charge. It’s often a balancing act they finesse over time, and it’s not easy. Quote too high and you may lose a potential client; quote too low and potential clients may wonder why. And the risks of getting it wrong can be quite serious: your rate could even be the difference between failure and success in your freelancing career.
So, how do you ensure you get your rate right? Unfortunately, there isn’t a set answer, but considering these guidelines may help.
Do your research
Start by researching your sector: look at what other freelancers are charging for similar work, compare their portfolio with yours and consider the going rate in your area.
Many online freelancer forums have archived discussions about the rates for different sectors. But make sure to check the year the resources were posted, because rates can vary quite considerably over time. And remember, you don’t have to follow other people’s rates too closely: when it comes down to it, it’s about what works best in your situation.
Know what rate works best for you
When setting your rate, the big choice is between project-based and hourly/daily. Choosing an hourly or daily rate can help make sure you don’t sell yourself short. This is particularly important for freelancers working on subjective projects such as web design and copyrighting, where it can be difficult to gauge how long the work will take.
Using daily or hourly rates will also help you segment your earnings and plan ahead for your financial year – always a key concern for freelancers.
On the other hand, if you’re sure of getting your work finished quickly, a project-based rate can mean higher financial rewards overall. Be mindful though that if your client requests changes to a project and makes it overrun, it may affect your profits.
Things to consider
When establishing a pricing formula, try to distinguish between your wage and the profit you want to make as business. Try not to think of your profits as your wage, but as a business expense: then take your profits as a separate sum to be re-invested back into your business.
One of the most common mistakes freelancers make is quoting too low. Remember, your annual income has to cover not just everyday things like rent, travel and utilities, but also freelancer-specific extras such as work equipment, training, accountancy fees and organisational costs. As a freelancer, you also have to budget for sick leave, holidays and savings for later life.
Many early-career freelancers don’t just quote too low – they even consider working for free. In fact, 20% of freelancers surveyed by IPSE and Freelancer Club said that they undertook free work because they felt it was ‘standard practice’ in their industry. Never undervalue your talents: if your work has commercial value, you should be paid for it. And at IPSE, we have collaborated with the Freelancer Club to found the #NoFreeWork campaign, to draw attention to the epidemic of unpaid work and highlight not just the damage it does to various industries, but also its negative drag on freelancers’ rates.
So, in summary: if you’re taking the leap into self-employment, remember the added responsibilities you’re taking on. If you don’t take those into account when setting your rates, you could cause serious problems for yourself in the future. But survey the industry and get the balance right between competitiveness and your own costs, and you’ll be setting yourself up for a profitable and rewarding career as a freelancer.
Stuart Sanderson is IPSE’s press and PR intern. Stuart works for Hudson Contract Services and is currently studying at Manchester Metropolitan University.Finance