Freelancers: Want to Earn More? Then Stop Charging Hourly Rates
If you’re just starting out as a freelancer, you might offer hourly rates for your services.
After all, hourly rates are simple enough to understand:
• Work three hours = get paid for three hours’ worth of work
• Work eight hours = get paid for eight hours’ worth of work
• Work 12 hours...you get the picture.
But such simplicity comes with a downside:
Hourly rates can severely limit your earnings.
This can be a major problem if you’re trying to grow your freelance income (and who isn’t trying to do that?)
In this article, I’ll cover:
• The downsides of charging hourly rates
• Alternatives to charging hourly rates
• When you might still want to charge hourly rates
Let’s get started!
What’s wrong with charging by the hour?
Here are three reasons:
1. Your earnings are limited to the number of hours you work in a day
If you charge by the hour and want to earn more revenue, one way to do so is to work more hours every day.
For example, do you normally work eight hours a day? Increase that to 10 hours a day, and that’s an extra two hours that you can bill clients for! Sweet!
However, we all have only 24 hours in a day. And out of these 24 hours, there’s only so many hours that you can spend on client work.
Working too many hours can lead to overwork, burnout and also poorer work quality. We’re not robots after all.
So even though you can push yourself to work more hours in a day to earn more, this strategy has limited effectiveness.
2. Clients may be scared off by high hourly rates
Another way to earn more revenue, if you’re charging hourly rates, is to raise your hourly rate.
But if you quote high hourly rates (like $100+/hour and up), these numbers are likely to scare clients off.
They’ll be thinking:
“This freelancer charges $200/hour?? That’s way too expensive for me. Maybe I should hire this other guy whose hourly rate is much lower.”
Charging hourly rates puts the focus on how much it costs clients to engage you. As a result, they lose sight of why they’re exploring working with you in the first place – namely, what they can get out of engaging you.
Hearing high hourly rates only makes them feel the pain of such costs even more.
3. You get paid less for being efficient (and vice versa)
As you get better at your craft, chances are you’re going to be able to do your work faster.
But using an hourly rate will mean that you’ll end up charging less for it!
For example, I was helping a client with some email marketing work.
Because I’m familiar with the email marketing software, I was able to get some of her tasks done in as little as 15 minutes.
If I charged an hourly rate for this work, I would be able to bill for only 15 minutes of my time.
On the other hand, if I had been less familiar with the software, such that I had to spend one hour on the project, I would get to bill for one hour of my time.
The result?
I get paid less for being good at my job.
Which makes zero sense, in my opinion.
If you don’t charge by the hour, how should you charge instead?
Offering hourly rates isn’t the only way to charge for your services.
There are other types of pricing strategies, some of which may be used more in certain industries compared to others.
For example, if you’re a freelance videographer, you may offer a day rate for a fixed number of work hours in that day.
Alternatively, if you’re a freelance writer, charging on a per-word or per-project are common options.
Personally, I prefer charging flat rates for projects with a fixed scope, based on the value that clients can get out of the work.
Here’s a great example of this in action:
Freelance copywriter Islam Benfifi charges US$1,000 to write 30-day email sequences.
But before he’ll work with you, you need to:
• Have an email list of at least 1,000 subscribers, and
• Sell a product for at least US$2,000.
His offer is really tempting, because you just need to make one sale from his emails to recoup the cost of hiring him!
(He also offers to pay you US$10,000 if he can’t help you make more sales, which only sweetens the deal even more.)
While such value-based pricing sounds great, offering it can be more complicated in practice.
That’s because you’ll need to be able to come up with a (relatively) accurate estimate of the value that the client will get from your work.
Depending on how much information you can get from the client on how your work will be used, this might not be easy.
If estimating your value to the client might be difficult, you could add in an hourly rate calculation to help the project make financial sense for you.
For example, if you want to earn an hourly rate of $100/hour for a project and you think the project will take you three hours, then charge at least $300 for the project.
When might you still want to charge hourly rates?
Although hourly rates have their disadvantages, you still may want to offer them in certain situations.
This may be where you’re being hired for work with an uncertain scope, such that you can’t put a fixed price to it.
For example, one freelance copywriter I know offers hourly rates only to clients who book her for at least two full five-day work weeks. During this time, she’ll help them with all their copywriting needs (even over multiple projects).
If a client tries to ask for her hourly rate for a shorter engagement, she tells them that their work doesn’t qualify for hourly rate pricing and quotes them a flat rate instead.
Pricing is not an easy thing to do. It involves considering many issues such as your clients’ needs and budgets, and how they intend to use your work.
And of course, deciding how to charge for your work is only one part of the story. You have to make sure that you get paid as well.
This is a giant topic on its own that I can’t cover here, but which I’ll be going through in an upcoming course called Painless Freelance Payments.
This is a six-module, 15-lesson course on issues such as:
How to include your payment terms in a contract
How to issue invoices that help you get paid
What to do if a client doesn’t pay you
Check out Painless Freelance Payments here.
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Author bio:
Fuelled by a long-standing interest in media, Tan Siew Ann ventured into digital marketing while in law school and has not looked back since. Being inspired by the struggles that she and others have faced while freelancing in Singapore, Siew Ann started lancerX to help freelancers turn their craft into sustainable and meaningful full-time businesses.
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