Ask LH: How Should I Set My Rates?

Hi Lifehacker, I am a major geek and love fixing friends' laptops and phones and designing stuff for them. I've been asked to design a website for a company; I'm only a novice with HTML. How much should I charge to build them a website, considering it's my first time professionally? Thanks, Budding Builder

Currency picture from Shutterstock

Dear BB,

Setting rates is something everyone who works for themselves struggles with. There are two things you need to consider to start with.

  • What's a reasonable market rate?
  • What do you need to survive?

With the reasonable market rate, you want to ensure that the charges you propose don't exclude you from the market. If everyone else charges $60 per hour and you come in at $120 per hour, you'll need to justify the difference. Most prospective clients won't simply accept "I'm twice as good as the other guys" as a reason without some evidence.

If this is your first job as a contractor or freelancer, then you're likely to be pitching work at the lower end of the rate scale until you get a reputation and build a portfolio of good work and references that will provide evidence that you deliver great work.

Calculating a rate that you need to live from is simply a matter of mathematics. Let's say your goal is to earn $80,000 per year.

There are 52 weeks in the year but assuming you want to take some holidays then you might only really have 48 weeks available for work. If you allow for sick days (if you were employed full time you're entitled to 10 working days) and public holidays (we'll say that's another five days) that gives you 45 working weeks.

If you're self-employed, there's another slab of time that you need to allow for - administration time. Preparing a BAS, sending and following up on invoices, chasing new clients and answering calls and email will eat into your work time. Conservatively, you should subtract another 10 per cent from your available time.

That leaves you with about 40 weeks (I've rounded that to make the maths a little easier). So, your target rate is $2000 per week or $400 per day.

Depending on the nature of your business and how it's set up, you'll need to add a bunch of things to your rate to cover office space, the cost of your computer and software, insurance, taxes and other operating expenses. In my case (I'm a freelance writer and consultant) I need about another $300 per week to cover expenses. These need to be added to your preferred rate.

Getting back to the job, you've been asked to design a website. How long do you think that will take? Once you know that, you can simply multiply the number of days or hours you'll need with your rate. If it will take four days, then something like $1600 will cover your salary.

Is that a reasonable rate based on what you know of the market?

I recently quoted for a writing job for a new client. I knew how long the work would take as I've done similar tasks before and have a good handle on the type of work. I looked at the total time it would take and multiplied it by my rate. However, I knew that it would come out above the client's expectations. In my case, I adjusted it as I knew that there were ways to get this job done faster than usual as they were setting up all the interviews and providing lots of the background research material.

So, I was able to meet my financial needs and hit the client's target.

Setting rates is part art and part science. You need to start with an understanding of how much you need to earn and what the market or client sees as reasonable. You then finesse your quote to meet both needs.

Good luck.

Cheers Lifehacker

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Comments

    protip - Make sure you create some kind of contract stating that they will pay once the work is complete yada yada with the potential client before doing the work,
    First time I ever did freelance web design work I got screwed over hard, since it was my first I was pretty happy and I drove 1hour to meet the Client who wanted a website for his Law firm we agreed on the price and everything. 4 days later I had completed his website, tried to contact him several times about the completion only for him to reject or ignore my calls in the end I found that he had someone else design the site for him (went to the proposed domain name for his law firm and there was already a website made by someone else)

    4 days wasted.
    People are dicks.

    Be careful

    Last edited 07/05/13 11:54 am

      I second this!

      Make a contract where they pay 50% of the estimated cost upfront and 50% after completion but before delivery. I got screwed over like this too and I find this is the best way to get a solid commitment from people..

      You can avoid (or at least mitigate) that by requiring partial upfront payment. I have a lot of freelance friends and that's the one piece of advice they all agree on - never do work for anyone who isn't a trusted client without some payment upfront.

      Great tip. I might delve into this a little more tomorrow in another post.

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