Rethinking your rates? Here are some things to keep in mind

Published on in Advice / Tips & Tricks

Something most of us freelancers dread more than spiders is talking about money, and more specifically, our rates. For whatever reason, we play it close to the chest when discussing what we charge clients, how we charge clients, and so on. Likely because we’ve heard plenty of stories about, or experienced firsthand, a client going with someone cheaper than us. I think a major issue with the freelance industry is this internal distrust, where we assume other freelancers will steal our clients if they have any information about us and what we charge for our services. One of my goals with the educational content we create is to have open, honest discussions about things like what to charge. And hopefully, the more we talk about these things the less of a stigma there will be on them, and we can all focus on providing great freelance services rather than distrusting one another, and we can all focus on our common enemy: spiders.

So let’s talk about rates. There are several options you have when talking about rates, and these will all be based on an overall number, your cost of doing business, or CODB. You’ll want to take some time and figure yours out (here’s our video on how to calculate yours), but I’ll use some sample numbers in the article below to illustrate my point. Let’s get into this a bit more. 

Charging by the Hour

Charging by the hour is probably the most common way to structure your rates - it’s something both clients and freelancers can quantify easily. If you know your CODB or hourly rate you can multiply by how many hours you worked on a project and charge the client that much. It’s also (relatively) easy to keep track of since we break our days into hours a lot of time, most people work 8 hours a day. Once you’ve been working for a while you’ll also get a pretty solid idea of how much certain projects will take you, so you can accurately quote projects. So why don’t we all use this method?

While this is a great method, and is the basis for all our other rate structures, there are some major flaws. As you learn new things, gain new experiences, and get new equipment you should be able to do much, much more per hour than you did when you were just starting out. It’s only fair to require more compensation per hour then as you move up in your career. Otherwise, a project that you did in 10 hours last year and can do in 5 hours this year will actually lose you money on that project. As you scale up your expertise and services your hourly rate will increase - you are more valuable now than you were 6 months ago, last year, or when you started.

An increase to hourly rates can scare off your current clients. The ease of use of an hourly rate structure can also be the downfall. A client sees a higher number initially and immediately thinks they will be paying more. You might not get the opportunity to explain to them that you can actually do that project faster now and ultimately save them time, and in the end they are paying the same as they did last year. Instead, they see a higher number, assume they’ll be paying more, and ditch you for the cheaper competition.

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The last thing I’ll mention in regards to hourly rates is the inefficiency of them for small or quick projects, especially if you’re a freelancer that travels or leaves the house for work, such as a photographer or videographer (this one isn’t as big of a deal for editors or designers who work from home almost entirely). For instance if someone hires you for an hour shoot you will spend well over an hour prepping gear, getting there, doing the project, driving home, unpacking, and so on. You can’t fit more than a couple of these smaller gigs into a single day, so while you might be getting paid your hourly rate you’re only doing 3 or 4 billable hours of work a day. This can be wildly inefficient, so my recommendation if you want to charge hourly is to have a 2 hour minimum or something like that so it’s much better use of an entire day for you.

Charging by the Day

Charging by the day (or half-day) is really common in freelance industries too. This, like hourly rates, is easy for both clients and freelancers to understand. If you work one day you make a certain amount of money. If you work a half, you make half that amount of money (kinda). Easy for you, and easy for the client. 

Some of the biggest benefits for working a half or full-day are getting hired for a guaranteed more amount of hours. You literally just get to work more than if you were hired for an hour. Yeah, you actually have to work more, but it’s a better and more efficient use of your time overall. Typically half and full day rates are a little more cost-effective for the client too - you’re kind of providing a ‘bulk’ service to them so it should be cheaper. Like shopping at Costco. 

I like to offer a slight discount for my half-day rates, and an even bigger discount for my full day rates. Let’s say I charge $100 / hr normally, well my half-day rate would be $350. I like to offer ‘up to’ 4 hours of work for a half-day rate, and I know some freelancers who offer 5 hrs as a half day. So the client gets a discount on my services, a win for them, and then I get hired for a half day and make more money than I would for just an hour shoot, a win for me. Full days are pretty much the same, but I would maybe extend the discount even further and offer $650 or even $600 for a full day shoot. An even bigger cost savings for the client. Typically I offer this further discounted rate for multi-day shoots - so a one-off full day would be $650, and then if you hire me for two consecutive days in a row I’ll drop it down to $600 for both days. 

Yes, I know technically I’m not making my ‘full’ hourly rate during those times, but it is RARE for a freelancer to have 40 billable hours of work in a week, and if I can find someone who is willing to guarantee me two full days of work I’ll give them a little discount. If a client is willing to hire me for an extended period, say 3-5 days I will usually give them an even bigger discount, and I’ve dropped my rates down to $500 / day for longer projects like tradeshows that I am guaranteed to be working for 4 or 5 days that week. Obviously, do what you’re comfortable with and keep the bottom line in mind, but I know I’m not the only one who fluctuates their half day, full day, and multi day rates like this.

Charging by the Project

“What’s your budget for the project?” is a question I think every freelancer has asked a client at some point. Essentially we want to know how much the client is willing to spend for the entire project. This isn’t so we can get filthy rich by keeping costs down and hoarding all the money for ourselves, but rather so we can begin to itemize the costs for everything the project will require - equipment, crew, editing, etc. I have asked this question literally dozens of times and I think only twice have I been told what a client has in mind for their project budget. Expect to hear a “What would it cost you to do it?” or something along those lines, as a response. Ah, the age-old dance between client budgets and freelancer costs. 

Charging by the project is pretty standard too, and a lot of clients like this way of looking at a project. Itemized lists of equipment rentals, hours of editing, and so on, are minutiae they don’t want to handle - that’s your job. So if you tell them you can do the project for $2,000 and they accept then they want the job done for $2,000 and don’t care what it costs. This rate structure can be great, until it isn’t. 

Let’s say you quote a project at $2,000 - it’s a video editing project that you assume will take you up to 20 hours. You actually finish in 16 hours, so you’ve come out on top in this scenario. But unless you have strict guidelines or a contract in place, a few revisions here and there can add up and you can easily go well over your estimated time for a project, and ultimately this means making less and hour.    

Obviously these scenarios are assuming you wouldn’t discuss additional costs with the client at all, or simply say “No” if asked to work beyond the predetermined amount. However, these scenarios are very real, and while you might end the project making more than your standard hourly rate you can very easily get caught in doing little bits of work here and there and making much, much less than you need. 

Charging by the project is one of my least favorite rate structures. Even though you can sometimes make more an hour this way I’ve found the high likelihood of making less an hour is not worth it for me personally. That being said I’ll quote per project with clients who we have worked with in the past that I know like this rate structure or on projects that I work on every year. 

Charging by the… Hybrid? 

No we’re not talking about Priuses here. This is a rate system I found out about a few years ago (I cannot remember where I discovered this but I take no credit for it) that I really like. It’s a hybrid rate structure, and it’s meant to take good parts of both larger day rates and hourly rates and combine them into its own rate structure.

For all projects you charge a standard ‘project rate’ that’s equivalent to ¼ of what your day rate is, and then you’d charge a smaller hourly rate for your work. Let’s say your day rate is $800, you would charge $200 for every project. Then the remainder of your day rate, $600, would get broken down into a smaller hourly rate, either 8 or 10 (depends on how many hours you typically work in a ‘full’ day - let’s use 10 for simplicity here). Then your hourly rate becomes $60. So a 1 hr shoot for a client would be $260, a 2 hr shoot would be $320, and so on. This hybrid structure, while more difficult to understand and pitch to clients, incentivizes them to hire you for longer periods of time, because the longer you’re there the cheaper it is per hour to hire you. There are also no hourly requirements with this, so if they know a shoot will take 6 hours they only have to pay for that, rather than paying a ‘full day’ rate. 

Truthfully I like this structure a lot but have yet to adopt it fully, since it’s more difficult for clients to wrap their heads around. 

Retainers 

Retainers (no, not the awesome mouth kind all of us cool kids wore in high school) are a great way to keep a steady stream of income as a freelancer. A client pays you a certain amount of money to do a certain amount of work every week, month, or year. You are guaranteed income throughout the year (a major issue with freelancing in general are the ups and downs), and your client will get regular content produced for them. It’s a win-win situation most of the time.

Your retainer rates should be priced lower than almost all your others, since we’re assuming clients will be signing on for these in longer-term increments (bulk pricing, remember?). This is the biggest selling point for clients, especially if they know you and know your standard rates. I offer a standard 1 video a month package, and some editing only packages as well, both at a lower price than what I would charge if I were to just do a single video. Again, the thought here is that everyone is agreeing to a longer term commitment, so the freelancer offers lower rates if the client is willing to offer more work. And, as the freelancer you will get paid whether the client needs your services that month or not. Win-win. 

Retainers are not without their headaches. For instance, without very strict guidelines in place regarding how many videos you will be producing in a specific timeframe, you will, without a doubt, have clients who will want to do more than the agreed-upon amount of work at once (and then give you a ‘break’), or not do as much work during one timeframe and then expect you to ‘carryover’ all that time and work into the next month. It’s up to you on how you structure these agreements with your clients, and I have been known to allow some carry over from previous months for good clients that don’t take advantage of that.  

Negotiating Rates

 

Let’s be honest, most of us are better at editing photos or operating a camera than we are dealing with clients. But, we need clients to run our business so it’s something we gotta do. There’s one thing clients do though that makes every freelancer fume: question our rates. It’s essentially a big ol’ “I don’t think you’re worth that much” right in our faces. However, we’re making assumptions when this happens, the main one being the client doesn’t think we’re valuable. If they thought this though they wouldn’t be talking with us, so this assumption, to me, if a flawed, relatively self-absorbed one. Are there times when a bad client just wants the cheapest option? Yes, absolutely. But odds are, if they’re on the phone with you they want to work with you, but a lot of times they too are business owners and have very real budget constraints. So what do we do? We negotiate.

If you’re talking with a potential client, whether via email or over the phone, the hardest part of your job is already done - you have a foot in the door. Ask them why your current rate doesn’t work, and see what rates they would consider. We’ll need this information to find a compromise, and there are a couple options we have here that I’ve found work out pretty well. First, see if you can literally meet in the middle in terms of that rate, if they’re willing to provide more work. So your rate, for this client, would be lower than usual, but you’d agree to doing a few projects with them. Obviously make sure this is a decent client (i.e. no red flags initially) and you have contracts and agreements in place. This is a bit like the ‘bulk pricing’ we went over above - getting them to agree to more work at a lower rate, that way you are guaranteed a specific amount that works for your business. Our second option is to negotiate down over time. So stick firm with your regular rate, but offer to drop down that rate every time you work with the client, until you hit their desired rate. This incentivizes them to work with you longer term, again providing you more work, and even if, on your 5th project with them you’re making less than you want, it will have evened out to that middle rate in our first option. I’m sure there are additional ways to approach negotiations but these have worked well for me in the past.

When negotiating be willing to walk away, and be firm with your bottom lines. This can be hard since it’s easy to want to land a client no matter what the cost, especially one that maybe promises you future work or talks about how much exposure this will get you if you do this first project for them at their rates (both red flags). Walk away, quickly. Negotiating, like everything else in freelancing, is a skill you can work on and develop over time. Your first few times might be messy, you might make some mistakes, but use those as learning opportunities and work on approaching the situation differently next time.

Closing Thoughts

There are as many different types of rate structures as there are freelancers, so it can be overwhelming to decide what’s best for you. I encourage you to connect with other freelancers and have some honest discussions with them about their rates. Find one you think does good work and has been around a while and ask them some questions. And if you’re an older or veteran freelancer, be willing to discuss your rates with newer freelancers. We, as an industry, suffer when knowledge is held hostage or kept secret. And with all things freelance related, if you make a mistake just use it as an opportunity to learn and adapt and ultimately you’ll end up more successful for it.

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About the Author

Adam Rahn
Adam Rahn is an award-winning producer, director, editor, and videographer with over 15 years of professional video production experience. He has worked all over the United States utilizing a combination of creativity, technical skill, experience, and passion for visual storytelling in every single job he has worked on. His goal is to learn and grow with the industry, and adapting my current video-based skillset to the market as video, social media, mobile, and web converge.

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