One of the toughest things to do is price yourself appropriately. And, whether you are a full-time freelancer, a part-time service provider, or just someone with a day job looking to make some extra money on the side, you’re going to need to know what to charge.
N.B. This is not meant as advice for anyone in a product business. If you have an Etsy store, for instance, that’s going to be a different state of affairs. Today, we’re focusing on people who do hourly or project-based work – could be consulting, writing, web design, even legal document review or career coaching.
So let’s begin – here’s how to sell your services for the right price.
First, two basic math rules:
For this discussion, you’ll need to know a couple simple rules. Rule 1: Take a hypothetical salary, divide it by 2000, and that’s the basic hourly wage.
Salary: $50,000, Divided by 2000 = $25 an hour.
Rule 2: Take that same hypothetical salary, divide it by 500, and that’s the basic hourly consulting rate.
Salary: $50,000, Divided by 500 = $100 an hour.
What these numbers should tell you
The reasons we bring up both numbers? Well, it’s simple – and it’s complex.
Simply put, there’s a spread – a company hires you as an in-house lawyer and they’re the ones taking care of all those other expenses:
- Payroll taxes
- Benefits (assuming you get them)
- A place to work from (office)
- Equipment (a computer, desks, red staplers)
- And so on…
It’s complex because…well, if you manage this stuff on your own, or you’re doing side project work out of your home, you can manage those expenses, get some tax benefits, and don’t HAVE to charge the consulting rate – but you can find a good middle ground somewhere in between.
Another caveat: full capacity as a consultant
Let’s use the example above again – you’re working for “the man,” they land a huge contract, and they need you 40 hours a week at the client. You work an entire year, they pay you $50,000 – but they charge the client $200,000.
Before you yell that “the man” is taking advantage of you, realize that this is a hypothetical situation – it’s RARE to find full deployment like this these days. Even if you are “100% billable” – to borrow a phrase from Public Relations agencies – you’re going to have some breaks in the action.
And if you do work for yourself, you’re going to need to find those breaks – or make those breaks – to bring in more business.
The answer is somewhere in the middle
So let’s use another hypothetical: you have writing skills and you have a friend who is starting a business and they’ll need collateral material. What DO you charge?
You’ll need to understand the going rate – and, if it’s not a specialty business (you’re not agreeing to appraise a classic car collection or re-write a summary plan document, for instance), you should guess that there will be a lot of other suitors that could help out.
If an in-house writer or marketing person makes $50,000 a year, the wage would be $25 an hour, and an agency or consulting firm would charge $100 an hour.
That’s a nice range to start with – but what’s next?
It’s preferable, IMHO, to price anything like this on a Project Basis – not a flat hourly rate. Unless you’ve been given a desk, or carte blanche, and just want to wrap up as much time on this as possible. (It happens – but that’s rare, and not helpful for this discussion.)
So the writing project above…how long do you think it will take?
Great: add in some “pad” time. Why?
- Have you DONE something like this before?
- If not, do you know what is usual and customary – how long it SHOULD take?
- If you are a veteran, are you prepared for unforeseen circumstances?
- And, in any event, does the client want to review drafts? Do they plan on editing the final work? How often will they weigh in?
The blessing and the curse – there’s no rule of thumb for how much extra time to account for. The more experienced you are, the better you are at managing your time, and the more you can charge.
Pick a number in between the hourly WAGE and the hourly CONSULTING RATE…multiply by number of hours…and propose a PROJECT FEE.
Be prepared to negotiate, too: Know your floor. If you propose $1000 for the project, you must also have an idea of what the rock bottom is that you need to charge in order for it to be worth your while. Is that number $800? $750? $500?
Down the road, we’ll talk more about things like legal agreements, scope of work documents, and how to manage the back-and-forth. But, for now, use these quick tips to get ready to sell your services for the right price.