Whether you’re new to freelancing or a seasoned veteran, you can’t argue with the flexibility and work-life balance that freelancing affords. However, freelancing also has a more uncomfortable side that requires a delicate yet hard-lined approach: negotiating freelance rates. Negotiating your pay is one of the hurdles you must clear to reach your salary aspirations while maintaining or expanding your client base. Avoid a war of attrition while earning what you’re worth with these top tips for remote freelance contractors.
1. Don’t Fall Into the Low-Paying Platform Scheme
Determining your worth is one of the most difficult problems faced by new freelancers and contractors. In many instances, freelancers will accept jobs below market rates to build a portfolio or gain freelance work experience. Online freelancing platforms such as Fiverr and Upwork allow freelancers to bid on jobs, but oftentimes, the potential client sends low-ball offers to cut costs. Don’t fall into this trap.
While these platforms can help you build a portfolio and the opportunity to earn more money over time, they fall short in terms of negotiating a livable wage. You’re essentially at the mercy of the bidder/client and after the platform takes their cut, you might be better off taking a low-responsibility part-time job and honing your craft unpaid at your leisure. Remember that you have intrinsic worth and experience that makes you valuable to someone. The difficult part is finding the client that’s willing to pay you what you’re worth.
2. Use the Minimum Acceptable Rate
One of the most foolproof ways to determine your freelance rate is by using a formula called the minimum acceptable rate (MAR). To figure your minimum acceptable rate, use the following equation:
MAR = ((Personal/Living Expenses + Business Expenses) / (Hours Worked))
Once you’ve figured your MAR, add in your taxes. For the purpose of discussion, call this the Minimum Acceptable Rate with Taxes or MART.
MART = MAR * (1 + applicable tax rate)
To illustrate the use of MAR and MART, here’s an example. Assume your living expenses (food, clothing, shelter) are $40,000 per year and your business expenses (internet, phone, office supplies) are $10,000 annually. You want to take one month off a year and you plan to work 40 hours a week. This means you’ll work for 48 weeks at 40 hours a week. Based on this information, your MAR is:
MAR = (($40,000 + $10,000) / (48*40))
MAR = (($50,000) / (1,920)) = $26.04
Add in your estimated tax rate by adding your federal and state income tax rates to the federal self-employment tax rate of 15.3%. In most instances, this is somewhere around 30% after deducting various business expenses. Thus,
MART = $26.04 * (1 + .30) = $33.85
In this example, $33.85 per hour is the minimum acceptable rate to cover all your living and business expenses. The downside of this formula is that it doesn’t leave much room for holiday accounts, Christmas gifts, or savings. As a result, you should tweak your living expenses to a number that factors in your lifestyle, savings, and retirement goals.
3. Charge by the Project If Possible
Another major pitfall of freelancers is negotiating freelance rates based on hourly rates rather than by the project. If you negotiate freelance rates solely by the hour, you’re creating an income ceiling. No matter how much you work, your hourly rate will always be the one you negotiated at the start of the project. You’ll also have issues on when to charge your client. Do you bill them for your 30-minute lunch or the 10-minute drive to pick up the kids from school? This scenario creates an ethical problem you’ll want to avoid.
The solution to this problem is to charge by the project. Not only does this act as a motivator to complete the project ahead of time with fewer hours, but it also heightens your earning potential. For example, you may be able to complete a project at $100 in one hour when the client believes it will take two hours. At your rate, you’ll make $100 dollars per hour, while the client’s intended rate or budget is $50 per hour. If you negotiate using an hourly rate, you’ve effectively cut your pay in half.
New freelancers may find that determining a project rate is an arduous task, but it’s not as difficult as you may think. Simply use your MAR or what you deem a reasonable hourly rate and use this to devise a project rate. If you want to make $100 per hour and you expect a project to take six hours, negotiate a rate of $600 for the project without mentioning an hourly rate. Your client will never know how long it takes you to finish the project. Instead of feeling ripped off by an hourly rate, the client only has to worry about the value of the finished work.
4. Price Yourself High…But Not Too High
The financial objective of any freelance operation is to maximize your income—hopefully, more than you’d make as an employee. Therefore, quoting a price higher than the actual rate you wish to receive is beneficial. In some instances, negotiating freelance rates at a higher rate may result in more money than you intended—a win-win situation.
That said, quoting a price that’s too high can push away potential clients. To reduce the chance of a rate negotiation that prices you out of the project, use a percentage-based approach. Take your normal rate and add somewhere between 10% to 20%. Using this rate will leave you with some room for negotiation without the client deeming your offer fiscally out of the realm of possibility.
5. Talk to Other Freelancers
If you’re completely uncertain about negotiating freelance rates, use your network of fellow freelancers to ascertain a reasonable amount. Groups on social media platforms such as Facebook and Reddit readily share a wealth of knowledge about price rates and pricing mechanisms. Many of these individuals have years of experience in the industry and can provide sound advice about how to price your next project.
While social media groups provide important pricing information, make sure you check out their portfolio or website to ensure they’re legitimate freelancers. Some freelancers may exaggerate their earnings to impress their colleagues, so always remain vigilant before accepting information from a person you don’t know.
6. Draft a Contract
The best clients always pay on time. But extracting payment from other companies—even reputable ones—can be burdensome. In these scenarios, an airtight contract can alleviate the headache of chasing payments while adhering to your negotiated rates. While larger contracts may require the assistance of a lawyer, smaller contracts don’t have to be complicated. A document such as a statement of work is often all you need to ensure you get paid on time if you deliver a product to the expectations of your client.
7. Position Yourself as an Investment
Many business people are experts with numbers. They consistently tweak figures to determine a budget, produce revenue, and minimize expenses. At first glance, your clients may deem your services as a cost of doing business or an expense. Your objective is to position yourself as an investment rather than a sunk cost.
While you may find it onerous to convince a client that you’re an investment rather than a cost, the answer lies in your results. If you’re adding value or content to a company that increases customer reach and leads to sales, your work is an investment. This is a superb advantage when negotiating freelance rates. Veteran freelancers can point to their prior results to lead the investment conversation; new freelancers don’t have this luxury. As a result, beginner freelancers will have to become their own biggest advocate and fan. Knowing your worth and what you can bring to the client should highlight your pitch for the best results.
8. Put the Negotiation on the Client
Both new and experienced freelancers can benefit from asking the client what their budget is for a particular project. This valuable question gives you instant insight into the scope of the project while revealing what the client is willing to pay for your services.
A major benefit of asking this question when negotiating freelance rates is that it saves you time. If the client’s budget doesn’t come close to your expectations, you can terminate the conversation and thank the client for their time. But if the client has a monetary figure that fits with your pricing model, you have invaluable information for starting your negotiations. Although veteran freelancers may have set rates, freelancers just starting out should use this method to maximize their profits and perceived worth.
9. Don’t Short-Change Yourself
Both experienced and inexperienced freelancers want to land a gig with a reputable company to increase their value as a freelancer and expand their client base. However, getting the job shouldn’t require you to accept a contract that’s below your expectations or MAR. Even if the client is a big name in the industry, accepting a contract that doesn’t pay your bills, results in financial hardship in the long-term, or spawns feelings of anxiety or resentment isn’t worth the hassle. Stay true to your pricing expectations and don’t short-change yourself, regardless of who the client is.
10. Consider Discounts for Long-Term Gigs
Some freelancers offer discounts to long-term business relationships as a way to lure potential clients. As part of negotiating freelance rates, this may prove beneficial for some, but the results lie in the wording of your work contract. Some freelance contracts have clauses that allow either party to terminate the contract at any time. Other contracts have a set start date and end date.
In either case, the devil is in the details. Discounts for long-term clients might be a solid choice for contracts with set dates. However, you’ll find little upside to providing discounts on contracts with early termination clauses. Always read their contract or draft one that provides the right details before you consider discounts for long-term gigs.
11. When Negotiating Freelance Rates Is Detrimental
At some point, you may find that negotiating freelance rates is actually detrimental to your business. However, you should realize that this is often due to the frugal practices or thriftiness of your client. Some clients have enough experience that asking for a 5% or 10% discount on a project is worth their time. Many freelancers will cave to these demands, so the client always has an upside just by asking a quick question. Other clients are intent on nickel-and-diming you at every turn.
The good news is that the client that asks for a small discount is often willing to pay your original rate. They have nothing to lose from asking. Maintaining your original quote will show your skills in negotiating freelance rates and some business-savvy of your own.
On the flip side, nickel-and-dime clients are most likely to give you headaches. These individuals are far less likely to treat you as a professional. If you get an uneasy vibe, are asked for additional work outside of contractual obligations, or have to make changes at the 11th hour, run away from these clients with reckless abandon.
Negotiating freelance rates is an integral part of becoming a profitable, self-sufficient freelancer. Armed with these tips, you can become a shrewd negotiator that maximizes their earning power and potential.
Are you a contractor needing to negotiate your rates? Which one of these tips was your favorite? Connect with Virtual Vocations on Facebook, Twitter, and LinkedIn to tell us what you think. We’d love to hear from you!
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