How-To Price Freelance Projects Successfully
One of the biggest challenges for new freelancers is pricing.
Pricing projects isn’t easy. There are plenty of factors that come into play:
- How long will the project take?
- How clear are the client’s requirements?
- How well do you know the client?
- How likely are they to stay on course?
- How likely are you to get future work from them?
- How experienced are you on these types of projects?
- How valuable is the project to you?
- How valuable is the client to you?
- How busy are you with other work?
And then you also have to decide how to charge: hourly, fixed price or on retainer? Or a combination?
Estimate Project Lengths as Accurately as Possible
Estimating how long a project will take is the key to pricing it well. If you can’t estimate the length of a project you’ll never come up with a fair price, and more than likely you’ll end up losing.
You can consider an endless number of factors when estimating a project, including some of the questions I’ve listed above. For example, if you’ve done many similar types of projects, you’ll have a better idea of how long the new one will take. If you’ve worked with the client in the past, you know their tendencies and can anticipate pitfalls.
No matter what you do, always add a buffer.
It doesn’t matter if you’ve worked with the client before, know exactly what the client wants, and have done the same thing a thousand times before. Buffer it.
The size of the buffer you use is up for debate, but I’d generally increase your time estimate by 15-30%.
If you have to increase it much more than that because of concerns you have over the project (i.e. fuzzy guidelines, sketchy client, etc.) then reconsider the project completely because it could end up biting you in the rear.
Projects almost always take longer than you expect, so buffer your estimates each and every time.
Whether you choose to charge for that buffered time estimate is a different story, but generally, I would recommend that you do so. And clients should expect that to be the case.
Bad Clients
Such a thing exists. I’d wager that every freelancer has experienced a bad client or two. And the first warning signs will appear when you’re pricing projects for them.
The warning signs of a potentially bad client include:
- Wishy washy requirements.
- Poor communication skills.
- Unwillingness to follow early recommendations you have.
- Unwillingness to answer questions about the project’s budget.
- Always trying to undercut.
- Unwillingness to pay something upfront.
- Constantly promising bigger and better.
These indicators aren’t absolutes. But keep an eye out for them anyway. On the last two points, I’d add the following:
- Always get money upfront. Especially from new clients. Stick with a simple structure: 50% upfront, 50% upon completion of the project, or 33% upfront, 33% midway (agree on this point in the project before), and 33% at the end.
- Be wary when clients promise lots and lots of future work. I realize this sounds very pessimistic on my part. I am a huge fan of building long-term relationships with clients (one off clients aren’t the most rewarding or profitable!) But, if a client is “bribing” you to lower your price because they’ve got “tons of work in the pipeline” be very, very careful. Even if they do have a lot of upcoming work, once you’ve set a price for the first project it’s going to be hard to raise that price later on.
How Should You Charge: Hourly, Fixed Price or Other?
I’ve always been flexible on this, adjusting my pricing approach on a project-by-project basis. Generally, I prefer fixed price projects, and so do clients, because they have the clearest sense of what the cost will be. You can also buffer fixed price projects better, because you’re not asked to justify every hour in your estimate (nor should you have to.)
Fixed price projects also help you manage your own finances - you’ll have a clearer sense of what revenue is coming in and when.
Even with a fixed price project, you’ll need to base it off an hourly rate (even if you don’t reveal the hourly rate to the client.) So it helps to have a sense of what the going rate is in your industry.
I’m a big fan of retainer projects. Most retainer projects are monthly. They’re great because of the consistent revenue and the ability to build long-term, positive relationships with clients.
When Should You Negotiate Price?
Everything is negotiable. But you should know your own parameters and conditions for negotiation. When are you comfortable negotiating price, and why? Some things to consider:
- Your current and upcoming workload. The busier you are, the higher your prices should go. It’s really as simple as that. Having said that, even if you’re desperate for work, be wary of dropping your prices too far. You don’t want to look cheap, and you’ll have a hard time bringing those prices up, later on.
- Name recognition of the client. You may consider lowering your price because having the client on your client list is a real win. And truth be told, big companies negotiate just as hard as small companies on price, even if they have the budget — they also have the power. There is something to be said for name recognition, but don’t put too much weight on it.
- Profile of the project. A high profile project that will generate a lot of buzz could be valuable, but make sure the project will be high profile amongst your targeted prospects. Otherwise, your return on investment (i.e. taking a lower price) will be minimal.
- The “fun” factor. No one wants to work on boring projects, but freelancers do it all the time to pay the bills. Some freelancers even call that work their “bread and butter.” Then a fun project comes along and they’re willing to slash their prices to do it. I must admit, out of all the reasons you might lower your price, this is one of the better ones.
- The “cause” factor. When a project has real meaning - a “higher cause” or purpose - you might decide to reduce your rates. After all, a little good karma never hurt anyone…
Ultimately, you have to decide how flexible you want to be with your pricing. Be careful about negotiating too much — if you drop your price 30% or more from the original estimate (without the project scope changing in parallel) it might look like you were trying to price gouge before, or you could end up losing money. You lose money on freelance projects when you book yourself too cheaply and can’t make more money on other projects and opportunities that come your way. If you do a project for 6 months and earn $5 you’re losing money, because you could have and should have been earning much more.
You are bang on every item on the list. The buffer however is the most critical item.
There is one very important tool that I insist on using, which is, minuting all discussions and conveying the same to the client. This keeps him/her informed of my understanding of the discussions and unless a quick response is received, I proceed on the basis of my understanding. This avoids unpleasantness and misunderstandings as the project proceeds. I strongly recommend this to any one who wants to freelance.
Ben, this is a great list with lots of good advice, especially for beginning freelancers like me.
Well done.
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Great post Ben. Love the line “The busier you are, the higher your prices should go.”
We only have so much time, and supply and demand should rule out…but like the idea of dropping the price for fun projects and karma.
@Download Music: That’s good advice — “document everything.”
Thank you for the other comments as well, always appreciated!
Although I see your point, when it comes to things like web-design management and commercialising your website please bear in mind that the average client knows —-all about computers. It is only after a year of building my own website with no knowledge whatsoever and mainly online learning that I am only beginning to understand what I need for my business. We are not all computer geeks!
Very good advice! I too tend to bid lower on projects I know I’ll enjoy, but that’s only if I think it will increase my chances of getting the job. Otherwise I’ll price it regularly, and get the best of both worlds.
I can’t even begin to count how many times I’ve been told that “Tons of future work is on the way”, then only gotten a few piddly jobs here and there.
@Viv: There’s no question lots of people aren’t web savvy, and although my focus is often on web-related stuff (since that’s what I do) I think it could apply to all sorts of jobs, consultants and freelancers.
@Dan: Thanks for stopping by and commenting, I appreciate it.
Nice article - some great tips in there. Cheers;)
Ben - You are correct in assuming these rules apply to other trades, they equate what I have learned about pricing flooring/stone work for my customers and clients. I think this would be a good article for any new business owner struggling with this issue.
Jason - Thanks for the comment from someone outside of the “web world” of industries — I appreciate it.
Some good lessons here, especially for those early to freelance work. The fixed price / retainer is especially important - charging by the hour can be a failed model because the better (quicker) you get, the cheaper you are, which doesn’t make sense.
I think you missed one big criteria, however -
“How valuable is the project to the client?”
If you are going to help the client make a lot more money (or make their life a lot easier), AND you can communicate that in your proposal, then you are still able to deliver great value while charging a higher price.
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You hit the nail on the head there Ben.
Try though to give the punter what he/she NEEDS rather than what they want,
Creating stuff that doesn’t reach objectives will not get you future work from anyone.
Getting into “dutch auctions” is killer and any punter that tells you they can get it cheaper down the road should be avoided irrespective of how much you need the business.
Sell your advantages-your skills- your differences. If you are giving like for like then you shouldn’t be in business. Take a look at http://www.thebaldchemist.com for some tips on copywriting, design,demographic tips,trends and importantly -how to pitch your punters.
Don’t worry, its all free- no buttons to press- no offers-no congratulations your the 99999999 winner bullshit. Just 30 years of dealing experience.Good luck to you all.The Baldchemist
[…] How-to Price Freelance Projects Successfully […]
Excellent work Ben, I used to freelance a lot in my early blogging months, as the income from my own blogs wasn’t sufficient. I never did any big projects, like series or stuff like that, I would usually be paid by article or by month (salary… that didn’t work out pretty well). Also like you’ve said earlier, bad clients are always a drag, I know I’ve had my share.
Question: A project I’m working on was put on hold, and the client is not sure whether it will continue or not. Do I send them my invoice now (for partial time worked), or wait to find out what will happen to the project? If the latter, how long should I wait? It’s been two weeks.
Thanks!
@Jacob: I’m not sure you can charge more (openly anyway) by explaining that the project you’ll be helping on will make the client a lot of money. What if the project fails? Will you take a cut? Give some money back?
You -can- offer to take some payment in equity or performance bonuses if you’re a strong believer in the project, but I’m not sure it works to say, “Hey, this project is going to make you a LOT of money, so I’m charging more.”
What do others think?
@Jay: It depends. Did you negotiate something specific with the client?
My preference is to ALWAYS get paid as QUICKLY as possible. It seems like a reasonable step to call the client, explain your position (the project’s on hold, who knows when it will start) and that you’d like to be paid for the work done to-date. If the project starts up again, you can keep working on it, etc. etc. -> but you want to be paid.
My biggest fear in your situation is that the project dies, the client disappears and you’re screwed.
Ben–
There was no specific negotiation with the client except for an hourly pay and a deadline. I’ve been contacting the client from time to time, and the status remains the same: on hold indefinitely. I’m afraid that your biggest fear is in fact about to happen to me.
Thanks for your input.
Jay - I would invoice them ASAP and try to get what you can out of them.
Good luck!
@ Ben -
You certainly can charge more, although I would agree with you that performance bonuses are more likely. It depends on how strategic your support for the client is - if you’re just completing their well defined brief, it would be more difficult to vary from an hourly rate / fixed price.
However, if you work with the client to plan the project AND you spend the time building a business case with the client that shows how much profit they will make if the work is properly implemented, then you will be in a position to charge higher rates for more profitable clients. If your work helps make one client $20,000 and another client $50,000 - even if it’s takes you the same amount of time - then you’re delivering different amounts of value to the client and can charge accordingly.
This advice may apply more in other industries, but the general principle stands. And remember, a client that cares more about what you charge than they do about what you can do for them is not the sort of client you want.
I like you article. Could you write something from the client’s side? I’m currently in a horrible position where the development company did not finish my project because they mismanaged their money. I paid 50% upfront (I will never ever do that again. The money will go into an escrow account and be released when milestones are accomplished.) and an additional 15% two months in. Long story short, the owner is trying to bail, not show up to arbitration, and is pretty much unresponsive. Any suggestions?
@ceasor: Hhhm…that’s a good idea. I’ve been on the client side too and it’s tough.
Let me mull that over and see what I come up with.
Too make things more even, Additional perspectives from client angle would make this article more complete, because at any work, troubles do come from both side.
Understanding between both parties and willingness to cooperate in order to get a win-win solution is absolute.
J.C. Carvill
Email: support@cosmosing.com
URL: http://www.cosmosing.com/jeanclaudecarvill/index.php
Great review. I also do freelancing and it works great for me.
Great list. On the occasion that I find myself doing freelance work, I definitely try to follow a very similar set of rules for myself. The only place where I really deviate is that I will negotiate on price if they actually commit to the future work. Without commitment, though, there’s no discount. I also make it very clear that the discount applies only to that set of projects and I’ve never had a problem raising the price for single projects in the future.
@Stefanie: That’s good. You run the risk because a commitment isn’t really a commitment until the money is in the bank, but if it’s working for you then keep doing it. Even if you get burned once in awhile, being flexible certainly can work to your advantage.
[…] getting paid. Here’s another good one from Instigator blog (I miss your posts, Ben!) about how to set your rates for freelance work. While one would think that everyone has finally figured out decent rates for their skills and […]
[…] There are many things I’d like to talk about in this post, but I’ll keep it on point this time. There is however one point I’d like to make first - underselling yourself. Obviously, your work must be commensurate with your rates, but if you’re not charging what you’re worth, it’s a problem. Many times designers will undersell themselves because they’re trying to get work. In the beginning you may have to every once in a while, but it shouldn’t last long. Everyone does what they have to do to get by, just make sure that you’re doing it right. I’ve read countless articles about this very topic. Here’s a good one to get you started. Price Freelance Projets […]