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Dear freelancers,
In this article, I’d like to give you some food for thought on how you can structure your prices as a freelancer and what you should consider when doing so. Your prices are a success factor as a freelancer. If you set them too low, your service will appear too cheap and not of high quality. In most people’s minds, there are fixed upper and lower price limits for a service. If you are too cheap, your service may be “worth nothing” in their eyes. If you are too expensive, many will criticize you because of the high prices. But the question here is also – do you want these customers who are not prepared to pay for your service?
What basis can you use for pricing – hourly rate or fixed fee per order?
There are numerous pricing models. I will discuss two of them below. The hourly rate and the fixed fee per order.
Hourly rate – advantages and disadvantages
What hourly rate do you see when you think about your work? If you see an amount under $30 in your mind’s eye, I would recommend that you work on your self-confidence or your service. Beyond $30, we can start to calculate realistically. You should always set aside 50% for tax payments. Regardless of whether you need that much for tax or not. It’s a much-needed safety buffer that you should set aside from every payment.
The advantage of an hourly rate is primarily the flexibility for you. If a project takes longer (e.g. due to special requests from the customer) and therefore requires more time, you can invoice the customer for this additional work more easily. Invoicing is also always transparent for the customer. They can see exactly what they are paying for and can track the progress of the service at the same time. At best, you keep them up to date with the progress.
The biggest disadvantage of the hourly rate is the uncertainty for the customer. It is difficult for them to budget how high the total costs of your service will be in the end. I would only recommend this billing method if you work regularly / several times a month for one customer.
Fixed fee per order – the better solution
The better option for pricing is the fixed fee per order. This is because the customer knows what he can expect at the end of the day and can better budget for it. This option also has advantages for you.
It is important that the scope of the service is specified in the contract. Otherwise disputes may arise.
You can also use a combination of a fixed fee and an hourly rate. By calculating a fixed fee based on the contractually agreed scope and an hourly rate for special requests from the customer. This makes budgeting easy for the client and you are covered if the scope of the project and/or the client’s requirements change from the contract. Transparency, predictability and flexibility for both sides are thus possible.
Pro tip – how do you create a mutual commitment for an order with a fixed fee?
If you work with a fixed fee, you can create commitment on both sides and at the same time planning security for you by agreeing that 50% of the amount will be paid by the customer at the start of the order and 50% after completion. This creates a firm commitment to the order on both sides and you have already covered fixed costs for the duration of the order (which always occur). The 50% at the end should be transferred to a separate account (reserve for tax payments). You can also justify the 50% advance payment very simply – you have fixed costs during the period of the assignment. For example, room rental, research costs, work materials or other expenses. These must be covered in order to successfully complete the assignment. Any client who is solvent and professional will understand this. You can’t use the other customers anyway, because you would usually end up running after your money after the job.
Thank you for your time!
Best regards
Tobias