The freelancer’s guide to setting and negotiating rates

4 min read
Katie Perry
  •  Nov 28, 2017
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Did you recently go independent? AND CO is here to answer your burning questions about setting rates and getting paid.

There are upwards of 55 million freelancers in the US alone, and according to a recent study, most of them have gone independent within the last 3 years. Building your own career path is an empowering thing—that is, once you overcome the fear of the unknown.

As a novice freelancer, the financial uncertainties of stepping away from regular paychecks will be the most top of mind. Here are some common questions and answers get you started.

How do I set my rate?

This is often the first question new freelancers have upon going independent. If you’re leaving a full-time role, you might not know how to establish your freelance rate range. One of the biggest mistakes you can make at this point is fire off a Google search and go with that. There are several factors unique to your career that should absolutely be taken into consideration, including level of experience, market, and industry.

Related: How to price your freelance design work

Start here instead: Using a tool like Comparably, which crowdsources salary data, determine the full-time equivalent salary of the work you’re pricing. Be honest with yourself here: If you’re a writer, you might take on projects that require you to develop and execute on a book concept from start to finish (an “Editor” role); or, you might simply be finessing existing copy (a “Copy Editor” role).

Once you’ve identified the average salary based on title, industry, and market, multiply that number by ~1.3 (or more) to get your freelance equivalent salary. This extra bump takes into account added expenses that come with running an independent business, such as self-employment tax, coworking spaces, and other needs.

To back into an hourly rate, divide by 2,000 (the approximate number of hours you’ll work in a year with time off for vacation and illness). You might tweak your rate estimate from here, but at least you’ll have a solid start that’s rooted in data.

How do I approach the negotiation process?

One of the first things people will tell you about negotiating compensation is that you should avoid giving your number first. This is a solid piece of advice, but it’s often not realistic in the context of freelancing. Upon meeting a client and having a positive conversation, you’ll almost certainly be expected to provide an estimate scope and proposal.

So, now what?

Since you’ll often need to start the negotiation conversation by showing your number first, a solid tip is to present a rate that’s slightly higher than the one you ultimately wantTwitter Logo. That way, when a client presents a lower figure, you’ll be right on target—or at least very close to—the figure you wanted in the first place. (Check out even more negotiation tips here.)

What do I do if the client’s budget is lower than my market value?

Savvy clients will try to negotiate to a lower rate, but what if the number they agree to is much lower than your market value? You might be super passionate about a project and a client team, but if the financial side of the partnership isn’t a fit, you shouldn’t feel bad about walking away (gracefully) from a potential engagement.

As an independent business owner, it’s important to maximize your billable hours and receive a fair rate for your services. The financial health of your business depends on it.

“It’s OK to work for a lower #freelance rate so long as there is a tangible upside.”

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That said, there are times when it might make sense to agree to a lower freelance rate. For example, there could be an instance where your client can throw in a perk or added incentive that is enticing enough to justify the difference. I once met with a successful PR agency CEO who has built a robust business by working with startups and taking equity in exchange for lowering his retainer rates. If you’re a creative, perhaps an opportunity presents itself to work on a piece of portfolio-defining work. In this case, the accolades and awards might be worth it.

Related: The 7 principles of empowered freelancers

These decisions depend on you and what is going to move the needle for your career, or inspire you personally. If you have the financial flexibility to give a little bit, and can justify a marked upside, you might consider doing so—but keep in mind that once you set a rate, it can be difficult to negotiate it up later on.

I got a verbal agreement. What do I do next?

This is a critical moment! A common mistake among novice freelancers is to begin work without a signed contract. This can happen in cases where you know your client, either directly or through a common connection, or when the work has an immediate start window. If you remember nothing else from this article, remember this: Never begin a freelance project or kick off a retainer without a signed contract in handTwitter Logo. Just don’t do it.

Here’s why: According to the Freelancer’s Union, 70% of independent workers say they’ve been stiffed by a client in the past. That’s almost all of us.

How do clients get away with this? Usually, the case is that there was a miscommunication at the onset of the project, meaning terms weren’t properly defined and agreed upon before work began, leading to disagreements when it comes time to cut the check.

“Never, ever begin a freelance project without a signed contract in hand.”

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The good news is that you don’t need a lawyer to have a rock-solid freelance contract that clearly spells out, in black and white terms, the deliverables and success metrics of a specific engagement. AND CO recently teamed up with the Freelancer’s Union to create The Freelance Contract, a digital template that allows you to customize an SOW in just a few short minutes. It’s completely free for you to use here.

What can I do to make sure I get paid on time, every time?

If you have a counter-signed SOW and contract, you’re in a good place. This paperwork not only legitimizes your agreement, but it will hold clients more accountable to getting you paid—especially since it will contain specific information around when payments are due.

In fact, when setting your terms in the SOW, there are things you can do to streamline payments over the course of your partnership. If you’re on a retainer schedule, you might ask your client to agree to a recurring payment structure that auto-bills their credit card at a set time each month (you can set this up within AND CO, too). You might even be able to set up a payment structure that uses Stripe or PayPal.

What if a client is late with my payment?

Being a freelancer means being accountable for your own finances.Twitter Logo Although clients might owe you for completed work, it’s your job to invoice them in a timely manner and, if necessary, chase down the payment until you see the fruits of your hard-earned work in your bank account. If you’re going to be “type A” about one thing in your freelance career, make it this.

Of course, the reality is that clients have a lot going on, and you’re not their number one priority. Once you accept that, you can better approach how to handle tracking down money owed. If a client you trust is a few days late, a gentle nudge via email is generally sufficient to expedite the process. In that note, make it easy for them to get you paid: re-attach the invoice, bank information and/or payment terms, so that don’t need to go digging through their inbox to process your invoice. (By the way, this is another reason why recurring payments are so helpful for both freelancers and clients.)

“Wanna get paid on time, every time? Establish a recurring payment structure in your SOW.”

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If a few weeks have passed and your client has stopped responding, it might be time to get more serious. If you’re not able to get them on the phone or schedule a face-to-face meeting, send a demand letter to demonstrate your seriousness about getting paid. Don’t know where to start? Use this demand letter generator, which allows you to send a physical letter to your client for just $3.

AND CO’s demand letter generator allows you to pick a template based on how serious you want to sound in your outreach

Things are going well! How do I pitch my client an expanded scope?

Want to earn more money? Your best opportunity for increasing your income will come from your existing client pool versus finding new partners. If you’re scoped on a small- to medium-sized project for a client and enjoy working with them, find opportunities to sniff out needs that they might not have considered in your original scope. These conversations should always come after you’ve proven yourself as a viable resource.

“As a #freelancer, your best opp for increasing income will come from existing business.”

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When pitching expanded business, it’s important to keep in mind your clients’ needs. You might like working with someone and want to work with them more, but there needs to be a business case to do so. Be curious about your clients’ challenges and ask questions that will allow you to pitch yourself as an even bigger resource moving forward.

Another pro-tip: Don’t be afraid to ask. The worst that can happen is that your client declines the offer.

Want even more tips for growing your freelance business? Download AND CO’s free book, “Hacking Independence” for 40+ growth hacking tips for independents.  

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