What is undercharging?
It might seem obvious, but how do you define it?
Freelancers are told not to undervalue their time, knowledge or the benefits they bring to their clients. So why do so many freelancers undercharge their services?
How do you define undercharging? If you achieve your earnings goal for a month or sign a client at your desired rate, is that enough?
I don’t think so.
In 2017–18, I earned 50% more than I had in the previous financial year. That felt great, but it came at a cost.
Though I’d increased my rates, I was working longer hours and taking on more projects. I experienced mini-burnouts throughout the year and didn’t enjoy the work as much as I used to.
I’d have to juggle several projects at once, which added further stress.
Despite earning a reasonable wage, I realised that I was undercharging. At the end of a 40+ hour week, I’d still have to find time for non-billable tasks (pitching for new work, working on/promoting my business, professional development and other general admin).
Non-billable tasks took place in evenings or frantically squeezed into a non-existent lunch break.
The idea of a side project or holiday was laughable.
Finding a balance
Fast forward to 2018–19 and it looks like I’ll have earned less than I did the year before. That could be seen as a backwards step, but when I consider the amount of non-billable work that I’ve done (writing articles, creating side projects, personal development), I feel like the balance is closer to what I need.
I’ve realised that my billable working week needs to be 50%, or a 20-hour week. In other words, I need to earn my basic wage from 20 hours of work—anything else is a bonus.
If I need to work more than 20 hours every week to pay my bills, I don’t have time for non-billable things that are crucial to staying in business. If it’s difficult to find the time to pitch for work, promote your business or improve your skills, your business is in trouble.
I increased my rates this year and I feel confident that I’m charging a reasonable fee—enough to cover non-billable tasks and to keep me in business.
I wrote about changing the way I work on my website.
Online calculators can help you to work out a rate based on these factors: how much you want to earn, the number of billable hours you want to work, time off for holidays/illness, etc.
These calculators didn’t work for me. I found most were aimed at day rates (which I don’t use) or didn’t cover all bases. There are other factors, too, like how much you can reasonably charge given your industry and experience.
Setting a rate is difficult, here are some things that helped me:
Talking to other freelancers
Speaking to colleagues, inside my industry and outside, helped me to realise I was undercharging. David Airey’s book “Work for Money, Design for Love”, talks about a similar experience with a client that suggested raising rates.
It’s worth reaching out to colleagues and having an open conversation about rates and pricing. You can share tips on strategies and it will help you find your pricing level.
Think about your schedule
Realising that I needed to price my work at 50% billable time was a game-changer for me. I no longer feel guilty about spending time improving my skills, writing articles for my blog or other non-billable tasks—all of which are things I should be doing.
Creating a buffer
Each job should have a buffer to cover unexpected issues or lean periods. I wasn’t sticking to this rule before.
Are you undercharging?
I can’t answer that. I didn’t think I was, but looking back I was offering clients an exceptionally good deal.
If you find yourself overworked and overwhelmed by the amount of work needed to live, it’s worth reconsidering your rate.