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A foolproof formula for setting freelance web design rates

A foolproof formula for setting freelance web design rates

Setting your pricing can be a huge struggle for freelance web designers.

Finding the right balance—where your clients are eager to pay what you ask, your business turns a healthy and sustainable profit, and you still have the kind of flexibility that freelancing affords—isn’t easy.

For new freelancers, jumping from a salaried position into setting your own rates can be daunting. It’s difficult to know what your time is worth when you’re paid the same amount every two weeks. And setting your pricing based on your previous salary without accounting for extra expenses can quickly lead you into trouble.

Even experienced web designers find pricing difficult. Set your rates too low, and you’ll end up with poor-quality clients seeking ever-lower prices, and you’ll undervalue your expertise and experience in the field. Price too high, however, and you’ll find yourself outside most clients’ budgets, and you’ll have a difficult time retaining the clients you do land.

So how can you set freelance web design rates that are fair to clients and that keep your freelance business sustainable and profitable?

Some of it comes down to trial and error—but to give you a bit of a shortcut, here’s a foolproof formula for pricing your freelance web design services.

But before we jump into the numbers, though, it helps to recognize some common mistakes both new and experienced freelancers make when setting their pricing.

Three common freelance pricing mistakes

There are three basic mistakes freelance web designers make when setting their pricing:

Mistake #1: Not accounting for expenses and non-billable time

Many freelancers charge based solely on the time they think they’ll spend on the project. They’ll work out how long they think the project will take, multiply by their hourly rate, add a handful of hours as a buffer, and send the proposal over to the client.

But doing this will quickly leave your freelance business in a world of hurt since it doesn’t account for:

  • Downtime / lulls: You won’t always be booked 100% with client time—sometimes it’s just slow. This downtime needs to be factored into your rates.
  • Non-billable tasks: You need time for marketing, sales calls, writing proposals, meetings, and other tasks, none of which you’ll be paid for.
  • Insurance: Unless you’re on a plan from a spouse or partner, freelancers need to cover their own health insurance, which can add up fast.
  • Operating costs and overhead: Even though freelancing means you can run a lean and mean business, you’ll still have other expenses like software licenses, internet access, office supplies, computers, cell phone bills, web hosting, and more.
  • Taxes: Taxes can be higher for freelancers since they include self-employment taxes. Most freelancers should be setting aside 20-30% of gross earnings to go towards quarterly estimated tax payments.

Mistake #2: Not knowing the average freelancing rates for your market

New freelancers who have spent their careers working for someone else usually don’t have experience putting a price on their own time and services. And that’s perfectly understandable—after all, the only time you need to think about how much your time is worth is at your yearly review.

You’ve probably seen recommendations to take your desired salary and divide by 2,000 or the number of working hours in a year. Say you want to earn $100k each year: dividing by 2,080 hours gives you a rate of roughly $50 an hour. Done.

But beyond the fact that this simplified math doesn’t account for all your extra expenses, it also doesn’t reflect the rates that the market is willing to pay for someone with your skills and experience. If other web designers charge $150 an hour, you’re undervaluing your time compared to your peers, and you’ll likely end up with bottom-of-the-barrel clients who are looking for the cheapest services instead of the best.

Mistake #3: Not factoring in your time

Freelancing gives you the kind of flexibility and freedom you can’t find in a full-time position—but you need to set pricing that lets you actually take time off without feeling guilty or struggling to pay the bills.

Unlike with a salaried position, freelancing doesn’t come with paid time off, public holidays, sick days, or any other benefits. It’s easy to get sucked into feeling like you need to be working long hours every week to bring in as much revenue as possible, which can quickly lead to burn out.

Building a sustainable freelance business is about more than just money.

You need to make sure your pricing gives you the freedom you need to not be working all the time and still make enough to keep the business going.

Now, let’s put all these points together and come up with a formula for sustainable, profitable, and fair rates for your freelance website design work.

A foolproof formula for setting your freelance web design pricing

Whether you’re charging hourly, daily, or by the project, it’s always best to begin by working out the base hourly rate you need to make to earn enough to cover your expenses and bring in a healthy profit margin.

Your base rate is the minimum effective hourly rate you need to earn for your freelance business to be sustainable.

Every client project you take on needs to be bringing in that hourly rate at a minimum, or your business won’t be sustainable.

Let’s go through how to find your base rate.

Find your base freelance rate

Before we even consider money, think about how much time you want to spend on the business:

  • Are you running your web design business full-time or on the side?
  • How much free time do you want each week to spend with friends and family?
  • How many of those working hours do you want to spend on client work?

For our example, let’s say you’re running your business full-time, but you want to leave plenty of time to spend outside of work.

We’ll aim for only six hours a day (or 30 hours a week) of work, with a goal of spending 24 of those hours (80% or four days) on billable client work. This leaves you one day free each week for marketing and other administrative work.

Work out how much time off you’d like

Next, think about vacation and sick time. How much time off do you want each year?

Let’s pretend you want to take six weeks off (30 days or 180 working hours) per year. This will cover public holidays, planned vacation time, and unexpected sick days.

Most freelancers rely on referrals for new clients, so there will inevitably be slow periods you need to account for in your pricing. For our example, we’ll assume you’ve got a pretty strong referral network, so we’ll only account for 10% of the year where you won’t be booked.

Now we can work out the total amount of time you will spend on billable client work:

  • 30 total working hours a week x 52 weeks a year = 1,560 potential working hours each year
  • 1,560 hours – 180 hours of vacation and sick time = 1,380 working hours each year
  • 1,380 hours x 0.80 billable hours = 1,104 billable hours each year
  • 1,104 hours x 0.90 (downtime) = 994 billable hours each year

That’s less than half of the full-time load of 2,080 hours, but it accounts for all the time you won’t be working. Now that we’ve got a handle on our time, let’s start working out how much we need to charge.

Start with your desired salary

We’ll use that as a basis for our calculations. Let’s say it’s $100k a year—a healthy full-time salary for any freelancer.

First, add up all your business expenses, starting with your $100k salary and adding things like web hosting, software subscriptions, internet access, cell phone bills, health insurance, office equipment, computers, marketing costs, taxes, and office rent. You can use a calculator like this one from BeeWits to make sure you account for everything.

  • Salary: $100,000
  • Expenses: $4,000
  • Insurance: $6,000
  • Taxes: 25% of $90,000 = $22,500
  • Total expenses: $132,500

To run a sustainable freelancing business, you need to build a healthy profit margin into your rates. Most freelance businesses should try to maintain a profit of 10-20%, so we’ll aim for a profit margin of 10% in our example.

  • $132,500 x 1.10 = $145,750

Now that you know how much gross revenue you need to earn and how much time you want to spend working each year, you can finally work out your base hourly rate.

  • $145,750 / 994 hours = $146 per hour (let’s round up to $150 for simplicity)
  • Or even better, a day rate of $900

This is triple the original rate of $50/hour! Now you can see why it’s so important to disconnect your freelance rates from your past salary.

Finally, we can work out how many hours go into the average web design project. Let’s say you spend 20 hours on each new site design—that means you should charge a minimum project fee of $3,000. Quoting a per-day rate or a project-based rate instead of an hourly fee makes projects feel more reasonable to clients, and moving away from hourly rates makes them less likely to try and nickel-and-dime you on your rate.

Tips for making your freelancing more lucrative

Remember, the rate we worked out above is only the minimum you need to be charging for your freelance business to be sustainable.

Here are a few ways you can increase the profitability of your freelance web design business:

  • Raise rates regularly. Every time you are booked out more than a few weeks in advance, try raising your rates by 25%. Raising your rates lets you earn more money without needing to work longer hours or bring on extra clients.
  • Never negotiate your rate. The best clients understand the value of what you’re providing and won’t try to nickel-and-dime you on your rate. You’ll be more respected by clients if you stand firm and ask for what you’re worth and if you price by value instead of by the hour. Leading to my next point…
  • Match your pricing strategy to the project. Well-defined, fixed-scope projects like website audits should be charged per project, whereas custom site redesigns or plugin development should be charged hourly (or preferably daily/weekly). Project-based pricing lets you charge based on the value you provide instead of the time spent working, which can help send your hourly rate through the roof.
  • Bring on subcontractors. While selling other peoples’ time instead of yours will lower your profit margins at first, it’ll free you up to take on more complex work or to spend more time on sales and marketing
  • Charge clients upfront, at least for a deposit. Every hour spent chasing invoices is an hour you can’t spend serving clients.
  • Upsell add-ons you can automate. Every web designer should be offering ongoing maintenance plans to clients on a retainer. GoDaddy Pro Sites lets you easily set up backups, monitoring, and more for clients’ WordPress sites, giving your clients ongoing peace of mind.

This is just the starting point. As you gain more experience, you’ll be able to raise your rates, and you’ll become more efficient with your work, letting you spend less time on each project and sending your effective hourly rate even higher. You’ll also be able to save more, take extra time off, and invest in paid marketing and contractors to grow your business even faster.

Pricing correctly will allow you to flourish

The difference between designing websites as a hobby and running a successful freelance business is sustainability—and creating a sustainable, profitable freelance business starts with setting your pricing correctly.

There’s nothing wrong with asking clients for what you’re worth. In fact, most clients will respect your suggestions and expertise more if you charge more instead of less. You’ll attract better clients who aren’t just looking for the cheapest option, you’ll make a sustainable income without skimping on expenses or time off, and you’ll be working the hours you want.

After all, isn’t that why you started freelancing in the first place?

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