Mistakes Freelancers Make When Setting Their Rates—and Ideas to Fix Them
When setting your freelance rate, especially for the first time, market trends, potential risks, and your desired profit are key things to consider. But the most significant factor—and hardest to define—is value.
Value is generally defined as “the importance, worth, or usefulness of something,” and setting the right rate is a challenge. How do you put a dollar value on the knowledge you’ve learned, the skills you’ve developed, and the services you offer to clients? Here’s a look at four mistakes freelancers commonly make when setting their rates and ideas to help you avoid or fix them.
What One Six-Figure Freelancer Learned Along the Way
Finding the right rate is a question every independent professional faces, and Danny Margulies is no exception; as a six-figure freelance copywriter and founder of Freelance to Win. “I didn’t even know copywriting was a thing,” he admitted. “I had a dull corporate job, and I didn’t fit well in a traditional environment. All I knew was that I wanted to do something different.”
Within two years, Margulies was earning more than $100,000 a year as a self-employed freelancer. What started with uncertainty and anxiety has led to his dream work: “Small businesses need every advantage they can get, and I’m passionate about helping them get ahead in the marketplace.”
Margulies’s success hasn’t come from aggressive pricing or working around the clock. Instead, his brand is driven by four key tenets.
“In the new economy, aiming for average is not enough to succeed.”
— Seth Godin, entrepreneur
When Calculating Your Rate, Get the Math Right
One thing Margulies noticed early on is that freelancers often undercharge for their work—and he has an idea why. “When people move to freelancing from a corporate job, they often use their salary as a benchmark: ‘I was making $X an hour, so that’s what I should charge,’” he said.
But as a freelancer, you have new expenses, such as your computer, office equipment, health insurance, and taxes. At the same time, to run your own business, there’s must-do admin you can’t bill for, such as marketing, writing proposals, and keeping your records up to date. You need to account for all of this in your rate.
Making sure your expenses are covered is a great place to start, and you should know how your competitors are positioning themselves. But Margulies says if you want to increase your profit without working incessantly, you need to think beyond price. “If you offer the same thing as everyone else, you can compete only on price,” he said. “To increase your rates, you need to be different and deliver more value than the average freelancer.”
Consistently Level Up Your Skills
Setting your freelance rate too low can start a vicious cycle. “You don’t have a high hourly rate, so you make up for it by doing as much billable work as possible—and then you don’t have a lot of extra time available,” Margulies said.
That extra time is critical if your goal is higher, value-driven pricing.
When you break that cycle, you can find time to build your skills. Margulies says he’s constantly taking new courses as well as reading industry-leading blogs and publications, so he’s always in the know. “Everyone can access Google. I look for courses that are more advanced than ones I can find with a Google search.”
This gives him knowledge he can use to help his clients improve their businesses. “As soon as I pick up new skills, paying for that knowledge becomes a no-brainer: Clients want to work with a professional who really understands their business goals and can deliver,” Margulies noted.
Yet many freelancers are too busy to make staying in the know a priority. In an interview with Business Insider, Shark Tank investor and businessman Mark Cuban described this as one of the most significant things he learned in his 20s.
“I remember going into customer meetings or talking to people in the industry and tossing out tidbits about software or hardware… All things I had read. I expected the ongoing response of: ‘Oh yeah, I read that too in such-and-such.’ That’s not what happened. They hadn’t read it then, and they still haven’t started reading it.
“Most people won’t put in the time to get a knowledge advantage.”
Margulies says you don’t have to invest a lot of money to improve your skills. There are plenty of free and affordable options, including massive open online courses (MOOCs), blogs, e-books, workshops, and other e-learning platforms.
Get Out of Your Own Way
According to Margulies, freelancers make two assumptions that ultimately get in the way of their own success:
- Everyone has the same knowledge. “If something will take three hours of work, a freelancer might bill for three hours of work—but that isn’t the work’s value,” Margulies said. “Clients hire you because they don’t have the time and/or knowledge to do the work themselves or in their office; what you can do in an afternoon might take them a week, or someone who lacks the right skill set could make a costly mistake.”
- “I wouldn’t pay that, so a client won’t either.” Everyone has his or her own money issues, but Margulies says you need to be careful about projecting your hesitations onto others. “Clients don’t see it the same way; your expertise isn’t an expense, it’s an investment.”
Asking for a rate increase can be intimidating; getting the timing and the approach right are both important. But if you focus on value—your unique knowledge and what it’s worth to your clients—Margulies says it “becomes less about the marketplace and more about you specifically.”
Delivering Value Doesn’t Mean Working for Free
Some freelancers offer to do free work, such as a trial project to show what they’re capable of. Margulies thinks that’s the wrong approach. “When you work on projects for free, that’s the value you give to the work you do,” he said. “That isn’t the message you want to send.”
Instead, aspire to become a trusted adviser. “From the moment you start reading a project description, think about what you can do to create value,” Margulies said. This means shifting your mind-set from selling your services to serving people better.
“You build trust by showing people that you genuinely care about the outcome of their business and the success of their project—the money is secondary,” said Margulies. “The amazing irony is that as soon as you adopt this mind-set, what Jay Abraham calls ‘the strategy of preeminence,’ you raise your professional value, monetary value, and long-term value. People want to work with people they trust.”
As a means of proving your increased value, find subtle ways to show your interest and expertise:
- Ask questions to clarify the value of the project. “Asking questions that show you care is a different thing than asking about project details,” Margulies said. Asking a potential client what a successful outcome looks like shifts the focus from closing the deal to showing that you already care.
- Don’t be shy about giving tips. There’s a fine line between giving away free advice and educating clients, but being helpful shows your expertise and that you care about their success—whether you work on the project or not. “I’m a copywriter, and sometimes I can tell by looking at a project description that the person has little experience with this type of work,” Margulies said. “I might send an email that says, ‘Here are a few pitfalls I often see business owners run into…’ It isn’t free work; it’s a quick tip that takes a few minutes to send.”
- Keep interviews short. Initial interviews are a normal part of the process, but Margulies advises limiting them to 15 minutes. The natural inclination for freelancers is to make themselves available to land a client, but sharing a lot of information in a long meeting sends the wrong message. “By keeping interviews short, you start to show your knowledge and that your time is valuable,” Margulies said. “It’s subconscious, but if you clear big chunks of time it starts to look like you aren’t very busy.”
Start by Rethinking Your Profile
Most professional profiles focus on the individual: “Here are my services, interests, and qualifications.” Margulies says that’s one of the first easy-to-make mistakes.
Instead, he suggests making your profile “outwardly focused” and all about the client. “Go through your profile and replace any references to ‘I’ with ‘you,’ then change the rest of your profile so it makes sense.”
Marketing yourself better and increasing your rates doesn’t have to be complicated, but it does take dedication. “Read the latest information, talk about it to clients, and focus on helping clients use that information to improve their businesses,” Margulies said.
As the managing editor of the Upwork blog, Amy Sept works with regular and guest writers to share information that helps freelancers and businesses navigate the future of work. She owns Nimbyist Communications and helps non-profits, startups, and small business owners get their content marketing on track.