Why is undercharging bad for everyone?
How to set your rates as a service-based business or freelancer
Undercharging is bad for everyone. Including you. There, I said it.
I get it. When you start off as a freelancer or service-based business, there are so many things to learn outside from the skill you're offering. How do you find clients? What process do you guide them through? How do you invoice them? What do you even charge?!
Although it might seem appropriate to aim for dirt cheap at first while you "gain exposure" (I hate that word), you're not doing anyone any favours by being the person who can always do it cheaper.
Why is undercharging bad?
If you go in low, it's hard to bounce back. Rate increases are normal, of course, but if you start off charging clients $X then one day tell them it's going to be double or triple, they're probably not going to be happy.
You need to make a living. Sure, one-off projects and a bit of extra cash might seem fun at first, but what about the long game? Set your rates strong from the get go with a living wage in mind.
Think of your community. Community is everything for digital creatives. Again, do you want to be the one who is low-balling your community?
Rates directly tie to quality of service. Think about it! You'll have to squeeze in more work to make a living wage, which means less time allocated per project.
What should you consider when calculating your rates?
So now you know it's bad. How do you go about actually setting your rates? It's a little different between industries, but here are a few things to consider.
Industry norms. You're going to need to do some research! What do other freelancers or service-based businesses charge for similar services? What is included in those rates?
In-house comparison. What would your salary be in a similar in-house position with a skill set like yours? Don't take this number as final, but use it to create a range for yourself. Remember that full-time employees don't need to pay business expenses or benefits like you have to now, so your billed hourly is going to be higher than that average.
Calculate your living expenses. What do you need to make in order to live comfortably in your city?
How much experience do you have? This includes full-time employee experience as well if your skills are transferable to your new offerings. Align yourself on the spectrum of new to seasoned.
Forget everything you know about hourly wages. What value do your services provide? What ROI can you confidently offer your clients? How fast you do your job shouldn't be a factor for anyone but you.
When is it time to raise your rates?
Employees typically receive merit or performance-based raises on a set schedule, like quarterly or annually. Self-employed professionals should have the same opportunity for growth as well.
I raise my rates in my business when I feel my offerings have grown to include more value. I also consider my experience and knowledge, my target clients’ budgets, and industry standards for the services I provide. Just as I methodically set my rates in the beginning, raises are equally as calculated.