Why Do Freelancers Fail To Set A Good Hourly Rate.
Today, instead of a technical article, I decided to write about a difficult topic for all freelance developers, specially when you are just starting your career. I’m talking about your hourly rate. Many freelance developers struggle to come up with an appropriate hourly fee, usually leaning towards a low remuneration for their services. In this article, I will try to describe the main reasons why us freelancers don’t properly charge for our services and how to set a good hourly rate for your freelance services.
Why Do Freelancers Fail To Set A Fair Hourly Rate?
Most freelance developers I’ve met will confess that they have asked for low hourly rates for their services, specially when they were starting up, and many of them admit that they still do. That might be shocking and counter-intuitive for someone outside of the freelancing world, so why is that? Well, there is a number of reasons that have to do with how we see ourselves, our fears and insecurities:
Lack of confidence
This is probably the number one reason, the most recurrent theme. No matter how good we might be as freelancers in your respective area of expertise, we tend to underestimate our abilities.
We tend to think that we are not good enough to ask for a higher hourly fee. We might know lots of colleagues doing awesome stuff, or we might be comparing ourselves to people out there that have built wonderful applications or writen amazing articles, that have a successful blog with thousands of visits… Overall, we simply lack confidence in our own skills.
In order to dismantle this fear, let me quote you something I wrote in one of my previous articles:
… there is always going to be someone better than you, always. You don’t need to be the best developer (or writer, or graphical artist, or whatever you do), but you do need to work hard to improve your skills. You have to make sure to keep up with the latest trends and technologies of your profession, keep on learning and recycling your skills, and acquire new ones that would add value to your services. I do really believe that, if you spend enough time and dedication in something, you will eventually be good at it.
Lesson learned: don’t underestimate your skills
So you are probably not the best developer out there, and you will never be, but know what? It doesn’t matter at all. What really matters is the value that you can offer to your customers.
If you are good at what you do, don’t shy away from showing it. If someone has an hourly rate above yours, and happens to be doing the same job that you are doing, it’s not because the customer is a fool or has been deceived by this person, it’s just that she knew how to sell herself better than you do.
So my 2-cents: stop belittling yourself. You have the skills, abilities and experience. Convince yourself first, and you will convince your customers.
Fear of confrontation
Related to the previous reason, sometimes the enemy that prevents us from asking for a fair rate is the fear of being derided by our potential customers, so that when we explain our earning expectations to our customers, or we send them an estimate, they will scoff at it, dismissing it as too expensive or inappropriately high for “just our services”. I’ve been there, and I have received those reactions to my estimates.
You will find that those situations don’t happen as frequently as you might think but, when they happen, there’s no need to have an awkward reaction or feel offended. Just tell them that this is your price for that services, and that they might of course ask for other estimates or talk to other freelancers and then hire the services of the one that they consider the best fit for the project.
If they argue that someone offers to do the project for much less, tell them that it’s ok, that you are offering quality services, and that if someone’s doing it for less, then they should definitely accept that offer.
Lesson learned: value yourself.
The point to emphasize here is that you are a professional, and that you don’t race to the bottom, you offer quality services for a fair price.
Also, refrain from entering the “pull the petals” scenario, where a customer will insist on reviewing your estimates point by point so you can explain (read: justify) why are you charging that much for this or why is your price that high for that. Politely refuse to enter that game and assure the customer that you are a professional, and you are not trying to inflate your earnings, and ask the customer again to find other developers, ask for other estimates, and then make a decision.
Desire to please potential customers
There’s this psychological vulnerability we freelancers have: we love our work and want our customers to be happy with it. This sometimes means that we tend to give a little too much ground in our positions when negotiating our fees with a customer.
This also makes us vulnerable to the “future works” trap, when our customers guarantee us that, if we do just that work for less, they will probably hire us for a whole bunch of future projects they have in sight.
Never have I found a situation in which, after accepting to lower my rate in exchange of such “future projects” promises, the customer did actually return with a project ever again. So don’t fall into this trap. Tell the customer that your prices are fair for the services you provide, and that you might consider offering a better price in the future if those projects become a reality.
Fear of not getting the job
Last but not least, one of the main reasons why we lower our hourly rate is fear of not getting the job if we don’t, fear of our customer choosing somebody else just because of the costs of going with us.
This concern is specially important when we have no other customers at the moment, so we enter this mindset where we are keen to concede on our fees to get the customer, worried that we won’t be able to get another.
When you find yourself in this situation, kindly remind yourself that the customers you deserve are the ones that are willing to pay what’s fair for your expertise and knowledge.
Racing to the bottom, even before getting to know your competition, is not helping you acquire better customers.
Why You Should Ask For A Fair Payment For Your Services
You might have the feeling that lowering your hourly rate will allow you to grab more customers, and that might be necessary, specially when you have just started. However, racing to the bottom will lead you to work a lot more hours for less, get more demanding clients, and generally be less happy overall.
These are just some of the reasons why you should be asking for a fair payment for your services:
Get good customers
I plan on devoting an entire articles on types of customers and how to spot the good ones, but for now just trust me when I say that the best customers are those who are willing to pay for a professional to deliver them quality stuff.
They say that if you pay peanuts you get monkeys, but I usually say that if you accept peanuts you get jailers. Curiously enough, the customers that want to negotiate the price and get your services for the cheapest price possible are the ones that will be bothering you most with absurd requests, changing specs and impossible deadlines.
If you accept peanuts, you get jailers.
Good customers will value your work and, if you deliver, will be happy with your contribution. Those are the customers you should be chasing and looking after.
If you lower your hourly rate, you’ll probably get a lot more customers, but you will find yourself working a lot more in order to earn enough money. That means sometimes working on several projects simultaneously, working nights and weekends, and spending more time in front of your computer than you should be.
I’ve walked that path, and it only leads to burnout, being incapable of complying with deadlines, ending up with mediocre work, and most importantly, loosing the passion that made you once love your work.
So choose an hourly rate that will allow you to have a good balance between your work and your personal life. It’s ok to work hard in your projects, and having to work ocasionally overnight or during the weekend to finish a project in time. However, the fee you ask for your services should allow you to live a healthy, happy life, which leads us to…
Work less hours, be happier
If you work less hours, in projects that you are really passionate about, and you think you are being reasonably paid, I can assure you that you will be more productive, will produce better, more quality results for your customers, and will be happier overall. This is a win-win situation: you will build better stuff for your clients, so they will be happier, and you will be enjoying your life.
This is why you started freelancing in the first place, right? To be able to work on the stuff that you love, your way, and be the owner of your time.
Don’t race to the bottom
So don’t race to the bottom. Instead, improve the quality of your products and services.
Learn new things constantly, recycle your knowledge base, adopt new skills, and broaden your areas of expertise. Everything that you can do to become a better professional and offer much more value for your customers will help you build your brand as a professional freelancer, someone that people want in their projects.
Your goal is getting to a point where your customers look for you and want to hire you, instead of you looking for customers and asking them to consider you for their next project.
Setting your initial hourly rate
So how you set your initial hourly rate when you start your freelancer career? The usual rule is to think on how much money you would like to make monthly, and divide the result by 100. I usually add 10-15% to the equation, to make up for a rainy day.
So for example, say that you would like to earn 3K/month, or you were earning that when you quit your job to become a freelancer. 3000/100 = 30, plus a 10-15% is 35€ per hour. Of course, this quantity will vary depending on your geographic location, your experience, etc. However, don’t let the salaries of your region dictate your hourly rate. Don’t think “what’s the average salary in my area?”, think “What would I like to be earning monthly?“.
It’s better to come up with an hourly fee that’s too high that one that’s too low. You can always lower your rates in times of customer scarcity, allowing you to get new clients, and then raise your hourly rate again when you have some work to pay your bills. However, don’t hurry to lower your hourly rate if you can’t find a customer when you just start up.
It took me three months to find the first customer that was willing to pay me what I asked for. I had some previous job offers requesting me to lower my fees, but I decided not to accept. Know your worth.
Convincing your customers
We have already described in this article some techniques that you can use to respond to most common situation where the customers try to haggle your hourly rate. The key is convincing your customers of your worth. Don’t let them drag you to a discussion focused in the monetary aspects.
Instead, focus on what you have to offer that nobody else can, the value you can add to your client’s project, and how hiring you will result in them being happy with the result.
If the customers insist on getting back to the price question again and again, stand firm and explain them that you are not the cheapest professional they can hire, and that if the price is everything that’s important to them, maybe they should consider other options.
By clearly drawing that line, you help them understand that you are choosing your customers as thoughtfully as they might be choosing the people they want to hire.
My personal experience
Some time ago, I was contacted by a startup that wanted to build a new platform for buying and selling second-hand items. They wanted me to build the iOS application. After sending me the specifications, I built an estimate and sent it back to them, and we agreed on meeting in person to discuss the details.
During that meeting, I was told “Ignacio, we want to be honest with you: yours is the most expensive estimate we have received, why should we consider you and why are your rates higher than the rest of developers?”.
I looked at him and said “That’s because I’m the best.”.
Now this might seem a little arrogant, but it’s not. You really need to value your expertise, your skills, and your knowledge.
In my case, I finally landed the contract and developed the app for them in a month. The result? LetGo, one of the best startups to emerge in 2015, with a gorgeous iOS App that was at the top of the US App Store for weeks, and a company that has received recently $175M in funding. You don’t get that far by choosing the cheapest developer.
Increasing Your Hourly Rate
As your career progress, so should your hourly rate. This is not something to change overnight but, of course, as years go by and you improve your skills and experience, your hourly rate should reflect that.
My recommendation is to increase your hourly rate in a natural, logical way, as you achieve professional milestones that justify the higher fees.
If your work during the last three years has added value to your customers in a relevant way, you have made a difference in the projects you’ve been involved in, and your collaboration has been crucial to the success of those companies, I think you have legit reasons to increase your hourly rate. You have proven that you are a better professional, and that your presence in a project can really make a difference. You are a better professional, and can add more value to your customers that three years ago.
Start Charging A Fair Hourly Rate, Today
I would love you to apply what I wrote in this article, today.
Think about your hourly rate. Are you charging a fair fee according to your skills and salary expectations?
If not, consider what’s holding you back from doing so, and what would your desired hourly rate be, and act accordingly, starting with your next customer.
Notice that I’m not just asking you to raise your hourly rate for no reason. What I’m asking you is to thoughfully evaluate what you can offer as a freelancer, what you are asking for your services, and match that with what you honestly think you should be charging for them.