6 Pricing Strategies for Freelancers (and When You Should Use Each)

Hi, I'm Matt Olpinski

I teach thousands of freelancers how to get more clients, raise their rates, and create a better life for themselves.

Updated: March 2, 2019

As a freelancer, you get to decide how to bill your clients. There are many ways to charge clients for your work and there’s no right or wrong answer.

There’s no rule that says you can only use one billing strategy either. In fact, not every billing strategy makes sense for every client or every project.

👉  If the scope of work is loosely defined and the client has ongoing needs, a time-based billing strategy makes the most sense.

👉  If the scope of work and timeline are very clearly defined, a fixed-price or value-based billing strategy makes the most sense.

You can use one billing method per client, or you can use a different billing method for each project. That might mean you’re charging a single client hourly for one project and a fixed price for another.

That makes answering the question, “how much do you charge?” or “what’s your rate?” a bit more complex. However, it also gives you an opportunity to show the client that you have their best interests in mind and want to bill them using the most appropriate method for each specific project.

Here are the 6 most common billing strategies freelancers use to charge their clients for a project:

  • Hourly Rates
  • Daily Rates
  • Weekly Rates
  • Monthly Retainers
  • Fixed-Fee Projects
  • Value-Based Projects

There are numerous factors that can help you determine which billing strategy will work for a specific project. Let’s define these strategies in more detail and identify the pros and cons of each.

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Hourly Rate

👉  A rate (dollar amount) that you charge the client for each hour of work you complete. You’re trading time for money.

Hourly rates are by far the most commonly used billing strategy among freelancers worldwide.

Pros:
  • Clients are most familiar and comfortable with this billing method.
  • Great for loosely defined projects where the scope is likely to change.
  • The longer you take to complete the work, the more you get paid.
  • Easy to compete with high-priced freelancers early on in your career.
Cons:
  • Limited earning potential. There are only so many billable hours in a week, month, or year. Eventually, you’ll hit a ceiling and will find it difficult to earn more using this method.
  • You’re incentivized to take as long as possible and get penalized for fast, efficient work.
  • You’ll need to track your hours during the project so you know how much to charge.
  • Scheduling problems can quickly arise for both parties if a project takes longer than expected.
  • Hourly billing is based on an estimate, but clients often treat that estimate like a price tag. If the project takes longer than you estimated, the client won’t be happy about paying more. If the project takes less time than expected the client may feel as if they overpaid.

Real-World Example:

A client needs a new website designed. The client agrees to pay your rate of $100 per hour. You estimate it will take 4 weeks to complete at 20 hours per week for a total of $8,000.

The client treats that $8,000 as a price tag, not an estimate.

If the project takes 5 weeks, the project will cost $10,000 and you’ll need to charge the client $2,000 more than they agreed to.

If the project takes 3 weeks for a total of $6,000, the client may not be happy that they paid $8,000 even though the work was completed ahead of schedule.

Daily Rates

👉  A daily rate is when you charge a client for each full day you work. It’s often assumed that 6-8 hours of work will be completed in that day, so you’re still billing for time.

Daily rates are commonly used when sub-contracting for a large and established company on an ongoing basis.

Pros:
  • Clients are more likely focus on tasks being completed than hours spent working.
  • It’s simple to calculate and predictable for the client.
  • You may be able to charge a higher rate because the exact hours worked aren’t typically disclosed.
  • Estimates are easier to create and tend to be more accurate when you can measure by the day instead of by the hour.
  • Differentiates you from the competition.
Cons:
  • Limited earning potential. Maximum 365 billable days each year.
  • You’re incentivized to take as long as possible. Billing for an 8 hour day when you’ve only worked 4 could be considered unethical.
  • Potential scheduling problems if a project takes too long.
  • Forced to track time, although this is easier than tracking hours.
  • The project is still based on an estimate and the client may be upset if it takes too long.

Real-World Example:

You’re sub-contracting for American Express and agree to a rate of $1,000 per day. You work 6-8 hours per day and invoice the client every 1-2 weeks.

The client doesn’t ask you to record specific hours worked, but expects that you’re only billing for full days.

Weekly Rate

👉  Much like hourly and daily rates, you’re still billing the client for time and it’s often assumed you’ll be working close to full-time (35 hours) for that week unless otherwise specified.

I never work on any single project full-time. Instead, I always keep two projects scheduled in my calendar at 15-20 hours per week, each.

So when I give my clients a $2,500 weekly rate, I also specify that I can only commit up to 20 hours each week for that price.

Pros:
  • Focuses on the outcome of the project and clients are unlikely to concern themselves with hours worked.
  • Little or no time tracking involved.
  • Weekly rates are simple to calculate and more predictable for both parties.
  • Much easier to schedule for both parties. Estimates are easy to create and tend to be more accurate.
  • Easier to sell a higher rate when the time commitment is more vague (15-20 hours per week).
  • Great for long-term projects (typically 4 weeks or more).
Cons:
  • Limited earning potential. Maximum 52 billable weeks each year.
  • Clients may still derive a rate and compare that with the competition. If you charge $2,500 per half week, they’ll know that equals $125/hour.
  • If the project takes longer than expected, the client is paying for additional weeks, not additional hours.
  • Projects never take exactly X weeks. If a project takes a day or two longer than expected, the client won’t want to pay for an additional week. You may have to establish an hourly rate for small changes or revisions that take less than a week.
  • Major scheduling problems if a project takes longer than expected.
  • The project is still based on an estimate and the client may be upset if it takes too long.

Real-World Example:

A client asks you to design and code and new web app. You estimate that it will take 3 months (12 weeks) and decide to bill $2,500 per half week (15-20 hours).

The total cost of the project is expected to be $30,000. This billing strategy keeps the focus on the outcome and final result rather than how many hours are being worked each week.

You’re nearly completed after 12 weeks, but need an extra few days to wrap up outstanding changes. You’ll need to charge the client hourly or for an entire extra week.

Monthly Retainer

👉  A monthly retainer is when a client is paying a fixed amount to retain your availability, whether they need your services or not. A retainer fee should to be paid upfront.

Retainers are commonly mis-structured to give freelancers the worst of both worlds. What typically happens is that a client will only want to pay for your services when they need you, which means you’re now on-call. That means you have to leave room in your schedule for them (and not other clients) even if they don’t need you that month.

Also keep in mind that if the client pays at the end of the month, they aren’t retaining your availability. They are simply paying you for the time worked at a fixed price.

Pros:
  • Clients will most likely focus on tasks being completed than hours spent working.
  • Very simple and predictable for you and the client. Retainers are easy to renew as well, which can lead to a long-term partnership.
  • Excellent strategy for creating long-term, predictable income for your freelance business.
  • You can provide a wide variety of valuable work for the client.
  • You may be able to charge a higher rate because of the shift in perceived value. $8k/month might sound more valuable to the client than $125/hour.
  • Discounts can be offered in exchange for guaranteed work.
  • No need for estimates. The client can commit to X months in advance as needed.
Cons:
  • Limited earning potential. Maximum 12 billable months each year.
  • Clients may not be comfortable paying to retain your availability whether they need it or not. Most clients only want to pay for the time you actually work. That means you’d be reserving availability they may not need while preventing yourself from scheduling other paid work.
  • Sometimes monthly engagements (not true retainers) are paid at the end of the month, which can disrupt cashflow.
  • Larger companies have Net-30 or Net-45 terms, which means you may not get paid for 60-75 days after you completed the work.

Real-World Example:

A new startup company needs to hire a designer for numerous upcoming projects that will span several months. You agree to $8,000 per month for up to 20 hours of availability each week.

The client initially commits to a 3 month contract and pays for each month in advance in exchange for a 10% discount ($7,200 per month).

The client is impressed with your work and extends your contract 2 more times for a total of 9 months and $64,800.

How to Leverage Retainers to Create Predictable Income

Fixed-Fee

👉  A fixed-fee project is when you set a specific price for a fixed scope of work. The fee is typically calculated based on how much time you anticipate the project will take to complete.

Fixed-fee projects eliminate time-based billing and provide the client with the security of knowing that the price of their project won’t change.

Any time you’re using a fixed-fee strategy, you should anchor the conversation against the financial upside (the potential value of the solution you’re providing to the clients business.)

Pros:
  • Focuses entirely on the outcome of the project and eliminates time-based billing.
  • Guarantees the client will not pay more if the project takes longer than expected. This security is valuable and comforting to the client.
  • You’re incentivized to take as little time as possible. The faster you work, the higher your effective hourly rate is.
  • The sooner the project gets done, the happier the client will be. Because you didn’t sell them time, they shouldn’t be upset if it takes less time than you estimated.
  • Easy to schedule for both parties due to predictability. No need to track hours.
  • Great strategy for short-term projects with a clearly-defined scope of work that is unlikely to change.
Cons:
  • Limited earning potential. Maximum 12 billable months each year.
  • The price is typically still derived from a time-based rate, but you’re placing a limit on how much the client will pay you. It’s extremely important not to underestimate the project.
  • The longer the project takes, the lower your effective hourly rate will be.
  • Changes and revisions must be clearly-defined, otherwise the client may request unlimited revisions and make it difficult to complete the project.
  • Can cause major scheduling problems and stressful situations if the project takes longer than expected.

Real-World Example:

A startup company asks you to design and code 10 new website landing pages to help with a marketing campaign. You estimate that it will take 3 weeks to complete the work.

Rather than charge $100/hr for 60 hours of work ($6,000), you focus on the final outcome and sell the client the whole project for a fixed price of $8,000 to account for uncertainty and revisions.

You’re incentivized to take as little time as possible. If the project gets done quickly, your effective hourly rate has increased. If it takes longer than expected, your effective hourly rate decreases and you can’t ask the client to pay for any extra time you need to spend completing the work.

Value-Based Pricing

👉  A fixed-fee project where the price is based on the value of the project to the clients business, not the time it takes you to complete it.

The value is typically the first year of realized revenue for the business. Your price is typically 15-25% of that.

In other words, if the client expects to earn $100k in the first 12 months after the project is completed, they should be willing to spend $15-25k on the solution.

A value-based project is simply a fixed-fee project where the price is determined by the value of the outcome to the clients business rather than the estimated time it will take you to complete. #ValueBasedPricing Click To Tweet

Pros:
  • Eliminates time-based billing by focusing entirely on the value of the solution being provided.
  • Unlimited earning potential. The more valuable your solutions are to the businesses you work with, the more money you’ll earn.
  • Guarantees the client will not pay more if the project takes longer than expected.
  • You’re incentivized to take as little time as possible.
  • No time tracking and easy to schedule for both parties.
  • Great strategy for high-risk, high-reward projects with a clearly defined goal or desired outcome.
Cons:
  • You can’t guarantee results. There are too many factors out of your control. It’s important to communicate this to the client so they aren’t upset if the (expensive) solution is less effective than expected.
  • Requires sophisticated conversations about sensitive financial information in addition to powerful persuasion techniques.
  • Only works on high-risk, high-reward projects. You cannot charge for value when creating business cards, for example. The risk and reward are not high enough.
  • The client will be paying significantly more for a value-based solution. They may be put off by your effective hourly rate.
  • The longer the project takes, the lower your effective hourly rate will be.
  • Changes and revisions must be clearly-defined on any project, but especially when using fixed-fee billing strategies.
  • Can cause major scheduling problems and stressful situations if the project takes longer than expected.

Real-World Example:

A non-profit organization needs to get more students to attend paid events each year. Each student is worth $300 (the price of one event ticket).

Your goal is to help them get 100 additional students to attend events next year, which is worth $30,000 of new revenue to the organization.

To achieve this goal, you’ll charge the client 20% of the first year of realized revenue, or $6,000. The price is based on added value, not pages, features, or time.

Read a similar example to learn more about value-based pricing.

Learn How to Overcome Value-Based Price Objections

Summary

So there you have it. Those are the 6 most common billing strategies freelancers use to charge clients for their work.

I’ve used each of these strategies multiple times, sometimes even for the same client. There are no right or wrong billing methods, but there are some best practices.

As a freelancer, I’ve found that weekly rates, fixed-fee, and value-based pricing work best for most projects. I like to have a “go-to” time-based billing method and a “go-to” fixed-fee billing method.

When a client asks what my hourly rate is, I like to tell them I don’t have one (a little trick I learned from Jonathan Stark). The puzzled client will usually ask how I charge for my work and I’ll answer with “I’ll give you an exact price for the project” if I’m planning to charge for value.

If I’m planning to charge for time, I’ll tell them I charge by the week so we can focus on the goals of the project and keep scheduling simple and predictable.

No matter what billing strategy you use, always try to keep the conversation focused on the value you’re providing to the clients business.

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