Before you can get where you want to go, you have to know where you are.
Have you gotten stuck in a pricing detour? Let’s examine four of the most common ones.
Detour #1 — Multiply the hourly rate from your last 9-to-5 job.
After I was pushed forcibly out of the nine-to-five nest, making $40 an hour felt really ambitious, bordering on absurd. When my former boss agreed to pay me 266% more to do the same work, I was thrilled. No office drama was icing on the freelance cake!
Eleven months later, Rich, my CPA, taught me that this 266% “raise” wasn’t as generous as I thought. He asked if I had made quarterly estimated tax payments. (Er, what are those? Setting aside money each week or month for taxes had never crossed my mind.)
Rich went on to explain that employers in the United States pay half of their W-2 employees’ FICA tax, including social security and Medicare. Freelancers and other 1099 contractors must pay both halves, a privilege known as self-employment tax.
I drove away from Rich’s office feeling sick. For once in my life, I had planned and acted like an adult. Through months of hard work and hustle, I had finally scraped together an emergency fund. Now, in my mind’s eye, a towering Uncle Sam ground it to nothing under his heel.
For freelancers, earning isn’t the same as keeping. Lots of factors can widen the gap between our gross revenue and net income. If we’re going to treat freelancing as a business, not a hobby, we must consider monthly spending expenses, any business operating expenses, local and country-level taxes, and long-term financial goals.
$40 an hour looked like a lot of money to me, but that 266% multiple wasn’t going to get me ahead.
Will charging 2 or 3x what you made per hour at your last job put you in a strong financial position? The only way to know for sure is to go through the simple calculations I’ll share in a bit.
Remember: Earning isn’t the same as keeping.
Detour #2 — Take online advice at face value.
The Internet puts the best work of the world’s best thinkers at our fingertips while flooding us with misinformation. Writer, podcaster, and educator David Perell calls this the “Paradox of Abundance”:
“The average quality of information is getting worse and worse. But the best stuff is getting better and better. Markets of abundance are simultaneously bad for the median consumer but good for intelligent ones.”
This paradox creates a problem for freelancers. How do you differentiate between true experts and posers shilling bad advice? Can you rely on online rate calculators and industry pricing guides when your livelihood is at stake?
Snackable resources, including podcasts, posts, calculators, videos, and guides must rinse out the nuance for the sake of brevity and cost. They gloss over the many variables that make up each freelancer’s unique situation:
Your Finances, Goals, Cost of Living
Your Brand & Positioning
Your Packaging & Offers
Your Track Record, Confidence, Perceived Expertise
Client’s Goals & Sense of Urgency
Project Deliverables & Timeline
Client’s Personality & Preferences
Client’s Budget, Industry, Prior Experiences with Agencies and/or Freelancers,
Value of Client’s Problems and/or Opportunities
Smart pricing is personal. We live in Tennessee, a state with no income tax. However, if you live in California, 9% or more of your gross income will go to state income tax. If you live in Germany, taxes may eat up 50% or more of your gross earnings!
Smart pricing is dynamic. My wife and I welcomed our first child into the world in 2013. Whammy! Overnight, our financial needs changed, and my freelance prices needed to go up accordingly.
Smart pricing can’t be formulaic because the real, rough-and-tumble arena of freelancing isn’t formulaic. My advice is two-fold:
Don’t take shortcuts. There’s too much on the line. This is your money, present and future, we’re talking about. Taking the time to go through a methodical pricing process may literally be worth $10,000s or $100,000s.
Treat guides as inspiration, not truth. Perhaps the AWAI’s Pricing Guide for Web Copywriters starts a fire in your belly. You see you’re on the lower end of the pricing spectrum. You vow to change that.
Good! Stay tenacious, friend. And later, be prepared to depart from what everyone else is charging as soon as it benefits you.
Remember: Depart from arbitrary standards as soon as it benefits you.
Detour #3 — Copy freelance friends or competitors.
When I first started freelancing in April 2009, ignorance worked in my favor. Because I didn’t know what I should charge, I charged what I could. My earning grew with my confidence.
Before long, I was charging more than freelancers with more experience — again, because I didn’t know any better.
Several of my freelance friends had deep experience, undeniable talent, killer portfolios yet charged less than I did. Even after we compared notes, they kept charging less. They mistakenly believed that giving their clients a “good deal” would help them win new projects. Their low-ish rates put them within easy reach of difficult, price-conscious clients. They already had ample evidence.
Despite being dissatisfied with their earning, they always had an excuse for not raising their prices. What if I had believed what they said? What if I had copied them?
This line from Virgil’s The Aeneid fits: “Possunt quia posse videntur.”
“For they can conquer who believe they can.”
The opposite is equally true: Those who believe they can’t won’t even try. Too often, we let false beliefs about what is “realistic” stop us in our tracks. We settle for less before we might have reached for more.
The freelancer with the guts (or ignorance) to name a higher fee will sometimes get it. Each yes stacks on top of the others. Eventually, you may look around and realize, “Woah! I’ve built a high income.”
Those early years taught me to be careful whose advice I took, whom I copied. One freelancer’s low rates may be self-imposed. Another freelancer’s rates may be “high” yet not actually cover their needs.
Remember: Be careful of whom you copy.
Detour #4 — Believe that more experience means more value.
Freelancing is sometimes predictable. For example, a new prospect may use a lame pickup line I’ve heard before: “I could do it myself, but I don’t have the time.” Or, “I can refer you a bunch of new clients.” I’ve been around the block and recognize the pattern. A request for a discount will soon follow the pickup line: “Can you help me out on price?”
More often, freelancing is what British-American psychologist and professor Robin M. Hogarth calls a “wicked” domain¹—an unpredictable environment with inconsistent patterns:
The prospecting email that got you a 60% response rate stops working.
Your agency client adds a full-time role and stops hiring you.
Your biggest retainer client gets acquired, and the new parent company drops all of the vendors, including you.
Key principles and fundamentals will stay constant. The psychology that makes a good headline effective won’t change.
However, like a volcanic island, the marketing and creative landscape will. What worked yesterday may not work today. Trends, tricks, and tactics evolve. Do the freelancers with the most experience always have more skill, better creative decision-making, and superior results? Nope.
As much of the rubbish came from the experienced hands as young ones:
That dude may have written hundreds of blog posts, but that doesn’t mean they were good. Accumulated experience may be more hindrance than help. More time and reps can cause the wrong habits to calcify.
That gal may have created dozens of brand identities, but the free logo for a non-profit that a twenty-something whippersnapper created in art school may be better, more effective, than all of them.
The inverse is also true: Many senior freelancers and creatives haven’t lost their touch. They’ve only gotten better with age and experience.
In an unpredictable environment the connection between experience and skill is tenuous. That’s why you shouldn’t use your age, old or young, or experience, shallow or deep, to devalue your work.
You can and should charge based on the value you deliver.
Remember: Don’t let your lack of experience devalue your work.
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About the Author, Austin L. Church
Austin L. Church is a writer, brand consultant, and freelance coach. He started freelancing in 2009 after finishing his M.A. in Literature and getting laid off from a marketing agency. Freelancing led to mobile apps (Bright Newt), a tech startup (Closeup.fm), a children's book (Grabbling), and a branding studio (Balernum). Austin loves teaching freelancers and consultants how to stack up specific advantages for more income, free time, and fun. He and his wife live with their three children in Knoxville, Tennessee.