How to charge
Methods of pricing #
There are lots of different ways to price work. There’s no right or wrong way to charge: each method has pros and cons.
The only thing that really matters is that your rates let you run your business profitably.
The most common methods of charging are:
Lots of freelancers start out charging by the hour when they’re unsure how long a project might take or don’t feel confident in charging by the project. But it’s by no-means just for new freelancers.
If a project has an unclear scope, deliverables or it’s impractical to quote a fixed fee, this might be a good method of charging long-term.
Common criticisms of hourly billing are that it:
- Limits the value of work (clients might not be willing to pay a very high hourly rate)
- Punishes efficiency
- Means freelancers only earn on hours worked
- Commotises work
But that doesn’t mean it’s not a useful or optimal method of billing in some circumstances. Freelancers need to make a minimum amount of money per-hour to stay in business whatever method of billing they use, so it’s worth figuring this out.
Day rates #
Day rates are commonly associated with contractors and freelancers who work in-house at agencies, publishers or other on-site businesses. It’s occasionally found in remote work, too.
It’s a variation of hourly billing as freelancers are effectively billing for their time.
In some sectors, it’s common for freelancers to be brought in for a block of time, e.g. 6 months, which can offer a degree of financial security for a fixed period.
Next to hourly, pricing by the project is probably one of the most common methods of charging, particularly in service sectors. Often this means working out a fee by looking at a project, estimating the number of hours needed and adding a buffer (anywhere between 20–50%).
It’s important to be clear about what is and is not in-scope when charging by the project. Make sure to detail this in your contract and consider highlighting frequently requested out-of-scope items upfront.
Offering packages is a variation of project pricing. It’s common to see packages offered in retainers, but some freelancers make a success out of framing their entire offering around this model.
An example might be charging a flat-fee to design and build 5-page website. Clients might be offered upsells like copywriting, a shop, extra pages, with a fee attached to each.
This is a great method of charging for freelancers who have a good handle on how long things take and have a repeatable process in place. It’s great to clients as the costs are clear, too.
Just like project pricing, it’s important to be clear on what is and isn’t included.
Value pricing #
Value-based pricing is where a project fee is based on the value delivered to the client, rather than time or materials.
For instance, if a company turns over £1 million per year through their website and a designer can improve their conversion rate by 20%, that would increase the company‘s turnover by £200,000 each year. The designer might then charge a portion of that value, perhaps 50% (£100,000), which might be worth significantly more than a project or hourly rate.
This topic is far more nuanced topic than this blunt example. But it’s an approach that works best for projects where the value can be clearly demonstrated.
For more on value pricing, check out Jonathan Stark’s Hourly Billing Is Nuts.
Commissions + Licensing #
In some sectors, such as graphic design/illustration, it’s common for work to be licensed to a client for a specific period or use.
For instance, a graphic designer might be commissioned to produce a poster for an advertising campaign. They may price this to include a fee for the original work plus a fee to use it for a set period (e.g. one year).
This is a nuanced area and one where I have zero real-life experience. If you need to bill this way, I would highly recommend Jessica Hische’s The Dark Art of Pricing. It breaks this topic down in an incredibly accessible manner, based on a wealth of experience and it’s reasonably priced.
Working for equity is a less common form of payment. It’s commonly proposed by cash-strapped startups that offer shares in their company in exchange for the services they need.
Whatever equity stake is agreed, it’s usually incredibly risky. There is no guarantee freelancers working under these arrangements will be returned the full monetary value of their work.
If it happens, it might take years.
Of course, there’s a possibility that freelancers may strike lucky and receive dividends/a buyout that far exceeds the value of their work. But they may receive nothing.
Working in this way is a bit of a lottery, so it’s not recommended unless you can afford to lose the time on the work.
The Freelance Pricing Guide
The Work Notes Freelance Pricing Guide has helped 400 freelancers set rates than work for them.