As a freelancer, raising your rates is an important part of your business strategy. Since you are your own boss, it’s unlikely that a client is going to offer you a raise because you don’t technically work for them. In order to get paid more this year, you will need to inform clients that you are raising your rates. The beginning of the year is the perfect time to send your rate increase emails!
As a freelancer, you should take the following things into consideration when thinking about rates:
- You pay your own taxes
- You receive no traditional benefits from clients (e.g. 401K contribution, paid time off)
- You may be paying your own insurance
Even as a young freelancer, you also need to think about savings and retirement.
Know Your Worth
Sometimes freelancing can become a race to the bottom, but it doesn’t have to be. There will always be someone willing to work for a lower rate. You can’t win the lowball game, you aren’t Walmart. I’m sure you’ve heard the saying “fast, cheap or good – pick two”. Cheap and good are the least likely to go together.
If you know that you offer high-quality work then demand high-quality rates. If you undervalue yourself, no one is going to tell you so, they’ll just take advantage of your “good rates.” You need to feel secure in what you’re asking for. You don’t want to work for the client that tries to negotiate a lower rate because they’ve already placed a lesser value on your work then you think it’s worth.
Think about how much you’d like or need your annual salary to be. You can use this infographic to figure out your hourly rate. To find it, you need to divide your adjusted annual salary by billable hours per year.
It’s a good rule of thumb to increase your rates at least 5-10% per year to cover a cost of living increase. This could take a $20 per hour fee to a $24 two years later. It’s a subtle enough increase that your client is unlikely to decline it, but it will add up over time.
Raise Rates for Current Clients
There are a few options for raising rates for your current clients. The first option is to raise the rate at the work anniversary. Once you’ve hit one year together, you can let them know that your rate will increase from $X per hour to $Y per hour in 30 days.
The other option is to do a sweeping rate increase on the first day of each year. This increase does not take into account when you started working with the client. Even if you started working with them in November, they would be subject to your rate increase on January 1. Freelancers that choose this route often send out emails at the beginning of December informing clients of the upcoming change.
Raise Rates for New Clients
I would also suggest raising your rate for each new client you acquire.
When I started gaining clients I was accepting offers around $20. After a year, I wouldn’t accept anything under $25. Now, I’m not accepting anything under $35 and shooting for the $40+ range when pitching new clients.
I do this for two reasons:
- My skills increase each year
- My time becomes more valuable each year
My skills increase as I become more of an expert in my services. I pick up new methods and tools that increase my productivity and improve my offerings. I’m not the same quality of VA or social media marketer that I was two years ago. Therefore, I demand more.
My time becomes more valuable each year because of my increased skills and mentality. If I can earn $35 an hour, I’m not going to find it rewarding, exciting or useful to accept $20 per hour on a new project. My mental state will not be grateful and appreciative of my client. Instead, I will feel that I’m missing out on at least $15 for each hour I spend working with said client. I wouldn’t accept a client at that rate because I know that my heart would not be in the work. I would rather pass along the opportunity to someone at an earlier stage in their freelancing career who would appreciate it.
Phase Out Your Lowest Paying Clients
If you’ve already pitched a rate increase and a client can’t meet your new rates, you may want to phase them out.
There may be clients that you are willing to work with at a reduced rate. I work with a few charitable organizations at lower-than-normal rate. I work with them because I feel that I am doing some good in the community. Eventually, it may not make sense for me to do this because I only have so much time in the day, but for now, it works.
Raising your rates can be scary, but it’s an absolute necessity in the freelancer’s world. One of the best things about being a freelancer is that you have more control of your earning potential than in a traditional job. So, feel the fear and raise your rates anyway.