I want to talk about how much you’re charging. I bet you could charge more. Life-changing amounts more.
Like most, I wanted to make more money. But first, I had to convince someone that I was worth a rate increase. It wasn’t my clients.
I had to convince myself.
If I told you about freelancers charging $20,000/week or $350/hour, what would you say? I know what I said: “Sure, they can get away with that, but I couldn’t because…”. It drove my wife crazy.
Why don’t you charge like they do? You’re doing basically the same thing, right?
The answer? I’m insecure. If you’re like me, you may have a bit of Impostor Syndrome. You can’t justify those rates to your clients. But more importantly, you can’t justify those rates to yourself.
So, you may have trouble raising your prices. We can fix that.
But instead of trying to find your maximum rate, let’s start with a very basic question:
What’s the minimum price you can justify?
I’m writing this because I wish someone had explained it to me when I started freelancing.
Warning: By the end of this article, you may have no reason to keep your rates where they are.
The big, crushing pricing failure
For 1.5 years, my process for picking a rate was:
- Pick a number between $50 and $80 per hour
- Send that number to a prospective client
- Cross fingers and hope for the best
That worked to keep me afloat, until a single (massive) pricing mistake made me question my entire career choice.
I was on the tail end of a project that took twice as long as expected. I had done this project fixed-bid, which meant my longer hours didn’t make me any more money.
It was nearly the end of my career. I started doubting everything.
I don’t know what I’m doing. Why in the heck don’t I take a regular job?
I had eaten through my savings, and the final payment of the project was barely enough to pay the bills. My back was against the wall.
I had been reading Pat McKenzie and Brennan Dunn. Their advice sounded lovely: Raise your rates, Andy. Charge more!
But I couldn’t. I had a mental block. Sure, others could charge that much, but I doubted my ability to finish a project – let alone charge more.
I started looking for “regular” jobs. The thought of working for someone else wasn’t ideal, but the salaries were more than I was making. But then it struck me – an absolute facepalming moment:
If I can make this much as a full-time employee, why am I not charging at least this much as a contractor?
My hand was forced
After realizing I was making less than a full-time job – while bearing the risk of being a freelancer – a huge weight came off my shoulders. I had to charge more.
So I raised my rates. I was nervous, but I stuck to my guns. After all: in my mind, there was no choice. It was illogical for me to continue at current rates.
It worked. I lost some clients, kept a few old ones, and got some new ones. The clients changed, but my business became a lot more stable. But enough about my rates.
Let’s talk about your rates
Can you charge more? I think so. But you may have some objections. Your objections may even be subconscious, but we need to destroy them before we can start figuring out how much you’d be crazy not to charge.
Objection 1: Maybe you’re not worth that much?
For some clients, you’re not worth that much. The little old lady who wants a website for her dog walking business? You’re too expensive for her, even at $15/hour.
But for the majority of businesses looking to hire a freelancer, you’re worth it. You have the ability to expand and optimize their business, and they wouldn’t be talking to you if that weren’t the case.
Objection 2: Nobody can afford that rate
When I was starting one of my (many, failed) software businesses, I was worried that my business name was too close to a similar product. I called up a local lawyer, who was happy to help me look into trademarks – for $250/hour.
Whoa, buddy! $250 was too rich for my blood – I decided to change the name to something less “conflicty” and skip the lawyer.
Now, I live in northern Idaho, where the cost of living is largely determined by how many potatoes you eat per year. Lawyers cost more in other places. They’re expensive. And they work all the time. Someone, somewhere is paying $250+/hour for their services.
And that’s the point: There are businesses, nonprofits and even individuals who can and will pay $250 and beyond for an hour of the right person’s time.
Internalize this: Businesses can afford you. Other people are charging more than you, and they’re not necessarily doing more than you. There are programmers/designers/writers out there charging rates that would make your head explode. If they can do it, what’s stopping you?
Objection 3: You want people to like you
I had a friend who said the most he’d ever charge anyone he “liked” is $75/hour. He set a price ceiling based on how much he enjoyed someone’s company.
Maybe I’m needy. I want everyone to like me, and I carry that into my negotiations. Rejection hurts. Even more so when you like the client personally.
But sometimes, clients say no. You cost too much for them right now. That feels crappy.
Maybe if you came down just a teensy bit, they could afford you? Then you could be friends!
Stop. Stop it now!
Think back to the last time you thought about buying something beyond your budget. You thought “Hmmmm…not this time”, and walked away. You weren’t upset – you just decided not to buy. No hard feelings.
You’re a business. You have a price. You’ve (hopefully) given thought to that price. If someone can’t afford it, they really won’t be mad. Besides: If they are mad about your price, do you really want them as a client?
Let’s figure out your minimum rate
I floated along freelancing at market rates (who knows what that means) until I nearly went out of business, and then finally did a little bit of math.
You’re probably doing the math wrong. If you cover expenses (mortgage, groceries, and utilities) you can keep going…right?
Maybe for this month, but what about
- The inevitable slow period?
- The extra taxes or expenses you pay being self-employed?
- Next month?
Let’s answer the original question you asked yourself:
What’s the minimum price you can justify?
Remember, we’re not looking for ideal or maximum right now. We’re looking for the bare minimum you can justify charging. After all, you’re not so sure about this, right? Baby steps!
Here’s how we’ll calculate your Minimum Possible Rate:
Minimum Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000
Let’s break this down a little bit:
Do a survey of your industry. Try to find jobs you’re an excellent fit for – something you’d almost certainly get if you tried. Try to find job postings with salary ranges included. Get a feel for the “average”. Use tools like Glassdoor to get estimates for company salaries for similar positions. Assuming you’re working from home, finding remote job postings is an even better approximation.
All you’re looking for is a range – a gut feel for a salary you have a great chance at getting.
Why multiply by 1.25?
25% is an estimate of the monetary “extras” included in full-time employment. That includes 401k matching, health benefits, bonuses, and reduced taxes. So, we multiply our potential salary by 1.25 to adjust for these.
25% is an extremely low estimate. It’s probably more like 50-100%. But we’re looking for a baseline, not complete accuracy.
Why divide by 1000?
1000 is the approximate number of billable hours per year you can work as a consultant/freelancer. The equation is roughly:
50 weeks/year x 20 hours/week = 1000 hours/year
Why only 20 hours a week?
Because of all of the non-billable time you spend as a freelancer: Business development, education, invoicing, accounting, research, etc. You don’t get paid for that – but you wouldn’t have those costs if you were employed full-time.
If you think you can bill for more than 20 hours/week, just tweak the numbers.
Freedom. How do you value freedom? How do you put a price on being able to run errands in the middle of the day? On picking up your kids every day from school? On not having a boss or a commute?
You need to calculate Freedom Tax for yourself. What amount of money (annually) would you be willing to sacrifice to keep your independence?
For me, this is pretty high. If you don’t mind commutes, fixed hours, and company politics, then this may be lower. You make the call.
How much would I charge?
Let’s do the math for my situation. I’m a competent Ruby on Rails and WordPress programmer with an eye for business and some project management skills. A lead developer for a software company or a large agency isn’t out of reach.
Salary ranges from 70k – 120k for software developers at the moment. I’d feel very confident asking for $85k annual salary (and probably much more), but let’s establish our baseline.
What’s my Freedom Tax? How much money would I sacrifice annually to keep my independence? As I mentioned before, the answer is quite a bit. $18,000 is a good approximation.
Let’s use our equation from above:
Hourly Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000
Hourly Rate = (85,000 * 1.25 – 18,000) / 1000
Hourly Rate = (106,250 – 18,000) / 1000
Hourly Rate = 88,250 / 1000
Hourly Rate = $88.25
So, you charge $88.25, right?
No, my rate is higher; but what this number tells me is that I should really never take on work less than $88.25/hour under normal circumstances. If I’m working for less, I might as well take a full-time job and enjoy the stability it provides.
$88.25 is more than I was charging when I made my pricing failure, but it should’ve been the minimum. Crazy how a little math & planning changes things, huh?
Let’s get even simpler
You can follow some simple logic to convince yourself to up your rate.
- How much would a full-time employee cost for your client?
- You don’t have the security of a full-time employee.
- Are you charging *at least* as much as that employee?
- If not, you need to raise your rates.
Plug your numbers into the equation above. Are you charging the bare minimum? If not, you now have enough justifications to charge more. I hope this helps if you’re feeling a little anxious about a rate increase.
I realize that the decision to stay/become a freelancer depends on a lot more than the money. Also, you can’t charge premium rates if you’re not doing a good job and finishing your work. Still, it doesn’t hurt to understand what you’re worth and how much you can make. Otherwise, you’re leaving money on the table.
Contact me on Twitter or Hacker News if you have any questions!
This Post Has 33 Comments
Grigoriy Kogan5 Dec 2014
Andy, great piece. I was nodding my head in agreement… All the way until the “How much would I charge?” part. Here’s something to consider for other freelancers reading this:
1. We all know what a pain it is to bill hourly. The way-off estimates, the tracking, the reporting… Why not bill on a daily/weekly/monthly rate? I know what you’re thinking: “But how will my client know how much work I’m doing?!” In the past year that I’ve been doing this, the ONLY people to ever ask me that were other freelancers, NOT clients/prospects. Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company.
2. Why tie your rates to your cost of living? (And number of vacation days, and tax rate, and other arbitrary multipliers/divisors…) Your rate should reflect the value you bring to a company. (Yes, figuring the value of your work for a company could be tricky, but that’s another matter…) Using your living expenses to calculate your rates makes as much sense as pricing milk by the size of the cow that produced it. Charging based on value will almost always get you more than charging based on your thrifty living expenses. (And if it doesn’t, then either you’re underestimating your work’s value or your clients are way too small.)
Jaki Levy8 Dec 2014
I think the point of doing this (figuring out your hourly rate) is to figure out what your break even point is – what your minimum hourly rate is. Even if you’re not billing hourly, you should be billing enough to be making this minimum amount per week (at least). And yes – it’s nice to “sell your value” – but many people (and clients) are still billing hourly – and prefer it that way for a multitude of reasons.
Preston5 Dec 2014
A well-written explanation and rationale…thanks!
Scott5 Dec 2014
You got it!
The part that resonated with me the most is the idea that:
Now the next question is: How to find those clients and gigs that are willing to pay that amount?
I actually haven’t looked much personally, because I have been blessed with gigs that are at my minimum rate with a high “freedom tax”. Its easy to be complacent when sun is shining.
Good thought and thanks for sharing.
Andy Adams5 Dec 2014
How to find those clients and gigs that are willing to pay that amount?
Great question. I’m actually still figuring it out :). Look for a future post and/or check out http://doubleyourfreelancing.com/leads/ as one approach.
Steve axelrod5 Dec 2014
Can you hook me up with one of those 20K per week jobs? 🙂 Great write up, thanks
Jonny5 Dec 2014
very inspiring article. thank you
Daniel K. Kim5 Dec 2014
Andy, your writings are very clear and helpful! Great to have come by your blog.
iago5 Dec 2014
Really nice to read 🙂
Pieter5 Dec 2014
Thanks for the great article. I’m very guilty of this. If you do have time to answer one question though, I’d really appreciate it. If you don’t, just ignore this
How do you get clients as a freelance programmer? I’m currently using elance, and while I find projects, they’re for such a small amount of money.
Sorry for asking a question you probably get all the time!
Andy Adams5 Dec 2014
Thanks Pieter, and don’t apologize! It’s the fundamental question of freelancing, and nobody really has an exact answer.
Personally, I stayed away from elance/freelancer.com/etc, where the competition is from around the globe and difficult to sort through. Try starting with quality job boards like Authentic Jobs or WeWorkRemotely (search for contract jobs – they come up occasionally). Don’t apply to everything. Focus a lot of energy on each application, and you’ll see results.
Basically, start by getting out of the “commodity programmer” race. That’s the first step. Good luck!
Jaki Levy8 Dec 2014
Another method of finding freelance programming work is to contact agencies and companies that provide client services – you will likely earn less hourly than if you billed and found those clients yourself, but you will have more steady work. It’s one strategy out of many. Find the marketing and outreach approach that aligns with your values and if it works, stick with it.
BJE5 Dec 2014
The problem here is glut. Unless you are are really specialized, there are a lot of talented people willing to work for cheap, not to mention people overseas. Lawyers are facing the same problem, but as a group they do a better job of holding the line on rates. Writers and web designers drop their rates readily.
George5 Dec 2014
I have been charging at least $200 an hour for software development since the 1980s. Basically, I just developed a clientele until I started getting more work than I could handle, then kept raising my rates until I reduced my workload to the level I wanted. The key, as mentioned, is to focus on value added. Another key was high reliability with immediate response when a problem developed, even in the middle of the night. I have worked on systems where downtime could cost my client $1000 a minute.
Alan Bleiweiss5 Dec 2014
Thank you for writing this article so others can grasp the potential in their own lives.
Everything you’ve said is something I lived.
My shift started when I was the employee, and the agency was charging $100 an hour where I did 90% of the work. Thats when I realized I needed to go out on my own.
Over the years I went from $15 an hour as an employee to my current rates – where the minimum is $200 – $250 an hour. On some projects, I earn upwards of $1,000 an hour nowadays and it really has been a life-changing process.
All started with understanding my own internal self-worth issues.
Andy Adams6 Dec 2014
Awesome, thank you so much for sharing. I still get nervous when I have to state my prices, but I’ve made big steps since I had the realizations in this article.
Akshay Joshi5 Dec 2014
Hi Andy, Thanks for such an awesome article. I have a question for you, how to do freelancing on hourly basis and how does it works. One more thing, what tools do you use to measure and track your hourly basis job.
Andy Adams6 Dec 2014
Thanks for the kind words!
I don’t actually do hourly contracting often any more, so I’m not a good person to ask. I do daily or weekly rates. When I was doing hourly, I wasn’t tracking very accurately. I don’t have any great suggestions for time tracking tools, unfortunately.
Jesse Francis29 Oct 2015
I use Grindstone 2 from Epiforge, best and easiest time tracking and billing tool I have every used. Been on it for about 6 years now. Oh, looks like I am late to this conversation.
JIm6 Dec 2014
Hi Andy – really good article this – you know what its like for us!
I’m terrible for not charging enough – I really need to put in place the suggestions you’ve made
Andy Adams6 Dec 2014
I’m glad I could help! I hope it makes a big difference for you.
Tom Harrison6 Dec 2014
I have been thinking a lot about the idea that a great engineer is 10x more productive than a regular one. I am a manager in an odd (employed) situation now. I had an open position but because we could not attract a sufficiently talented RoR developer for $120k I thought, what about a contractor?
We hired a guy I knew who is brilliant (not without all of the pain of corporate somebody-moved-the-cheeseism when I suggested this). The guy charges $150/hr so this is about 2x the rate we would have paid the mythical full time person.
So, our guy, Whom I’ll call Seth since that’s his name, has been working between 12 and 16 hours a week. Same amount or less than we would have spent on FTE. Accountants happy.
We had struggled with the project Seth has taken on. Three former employees made progress, but slowly and poorly, perhaps because they hated the company and quit. But they were also just “ok” developers, maybe 2x, but no way 10x.
Seth got set up and configured in the first week (9.5 hours) — this had taken three weeks for the last of the employees who worked on it, six weeks if I am being honest. In Seth’s second week, 12hrs he found and fixed about 10 bugs, got disparate systems working, had the main running and doing more than it had ever done. This coming week we will deploy this system that was on mothballs for months to production.
So despite the shock and awe our company felt at paying $150/hr in simple terms, he’s the cheapest, most effective, most manageable person on the team. I’ll bet in several weeks I can do math proving he’s worth $250/hr.
There are not many Seths out there. If you are one, then frack the machine: get paid what you’re worth.
Andy Adams6 Dec 2014
Tom, this is an incredibly awesome comment. I had a big shift in my own work habits once I went freelance.
When you’re salaried, you have the ability to drag your feet on projects and still get paid. It can even be subconscious.
But once I was paid to *finish* things, every hour I wasted was costly. So, I stopped goofing around, period. Get me the quickest, quality solution. No more hemming and hawing over programming ideologies, new technologies, or politics. Just get it done so I can get paid. And get it done well so I can get your referral later.
I’ve worked a job where programmers argued about efficiency improvements on projects that (essentially) never launched. I’m guilty of it myself. I now know how much money was spent trying to conserve bandwidth that was never used: a LOT.
Thank you for your comment. Readers, take note of the above!
Bonnie9 Dec 2014
Just wanted to say thanks for this article. I really appreciate the simple equation you came up with. Using it, right now I’m charging a little less than what it tells me is the minimum. I’ve been considering raising prices next year. I’ll think about that some more.
Someone else might have already said this, but, it’s also good to remember that potential clients see you as more valuable when you charge more. If you charge $15/hour, they might assume your work is junk, while if you charge $100/hour, they might assume your work must be great.
Also, based on my personal experience, those folks who expect you to work dirt-cheap *always* turn out to be the worst clients, with neverending complaints and demands for discounts.
Plus, if clients ever ask why a freelancer charges so much, it might even be useful for them to read this explanation. I actually had written a similar blog post a while ago but took it down for fear of pissing people off 🙂
Kevin Kipkemboi12 Aug 2015
The only thing I’ve come to realize, after applying the formula to my charging rates, is the sharp decline of clients that would send me an invitation.
Although sites like Elance and Upwork have a bad rep, I can’t deny the fact that they helped me in my early days of freelancing. But after updating my hourly rate, 9 times out of 10, a client would question my rate with replies i.e. “is that hourly rate correct?”, or “Your work is excellent. But I can’t afford your proposed rate”.
I guess the plus side to this is that I’m still getting recognized and complimented on my work. But woe is me. I suppose this is the proper time for me to move away from the bidding sites and on to better places.
Thanks for the enlightening article Andy.
Somogyi Cosmin10 Dec 2014
Thank you a lot for this article. I now realise how low i’m going with the charges. Tx again
Michael Kimsal18 Dec 2014
The point on lawyers charging $250/hr isn’t just that they’re valuable – they’re a rather protected form of labor, similar to medicine. You can’t just hang out your shingle and start lawyering – you have to be approved and registered in specific locations. Same with medicine. Not so with programming/development.
Many lawyers do work for free, but I’ve never yet seen lawyers submitting bids to try to do work at $40/hr, and lowering their prices to ‘get more work’. Because there’s a rather limited supply in many geographical areas, and I can’t just outsource my legal representation to India.
Ben Hayes19 Dec 2014
Your minimum rate calculation makes a lot of sense.
But I think your talk of $350/hr or $20K per week is completely misleading. I guarantee that if I set my rate at $4000 per day I’m going to get a lot of jaws dropping but absolutely no work at all 😉
In my experience your minimum rate calculation leads to figures that are comparable to the average ‘market rates’ for serious professionals. But multiplying that rate by 5 or 10 times is completely unrealistic. I believe there is a clear economic reason for this. Your minimum rate makes sense *because* it is based on an appropriate salary for a full-time salaried worker (with sensible modifications applied to account for the different circumstances of being a freelancer). The advantage to a company of a freelancer is that they have a lot of flexibility and can just use them when there is a need but avoid the continuing overheads. If the cost of a freelancer suddenly went up 10-fold, then companies would change strategy. If that happened, they could afford to hire an extra full-time worker all year round, and it would still be cheaper than hiring a freelancer for the odd month when it was required.
Andy Adams19 Dec 2014
The $350 & $20k numbers were mentioned to give a bit of context: Yes, there are actually people who charge that much. I’m not one of them, but I do wonder how I can get there. The first step was what I outlined as “minimum” rates.
However, there are individuals charging that much and more. It’s not impossible, but it involves a totally different process than most freelancers take. See the HN comments for a starting point. There are much better teachers for that process than me!
Archie Makuwa9 Jan 2015
I think I love you already Andy #nolie #brotherlylove… Great article dude!!!
Critical Eye2 Mar 2015
Great discussion! A Semantic Life offered a great Spreadsheet to compare employee salary vs. contractor rates. It breaks out the items provided to employees, so you don’t have to use the 25% rule of thumb. For example the pay for 10 holidays and 10 vacation days can easily up the value of a salary by 7%.
Till B.5 Apr 2016
I’m glad I read your article – and actually also all the comments. I still tend to cross fingers way too often. So true: basically one ‘bad’ project can ruin your… I don’t even want to go there… 😉
Andy Inman6 Feb 2018
Great article, and IMO among the best on the web on this topic. Three+ years on, has anything changed?