When starting out as a self-employed professional, especially for the very first time, setting your rate can be incredibly difficult. It can be something you overthink and continue to do so as you fight the thoughts in your head about whether you’ve valued your skills and expertise accurately.
We don’t want to undervalue ourselves and miss out on potential income. Equally, we don’t want to look “too expensive,” even if we know our worth. Being perceived as “too expensive” can lead to missed opportunities, which can also cause strain on our mental health as we may be left wondering where the next pay packet is coming from.
In this article, I’ll discuss why getting your rate right is vital and some key considerations to keep in mind. These are factors that I have considered in my own professional career, and they continue to guide me in finding new clients and setting the right rates.
What Should You Base Your Rates On?
The £1 million question: What do I base my rates on? Of course, we’d all like to make seven figures on an annual basis, but it’s highly unlikely. Six figures might also be out of reach, but we can all dream. Still, how can we achieve what we believe we are worth and be happy to earn a living to lead a comfortable life?
You need to set realistic aspirations and targets. Each industry and profession is different, but doing some market research can give you a good indication of what could be earned in a year. Of course, it’s essential to consider it from a self-employed perspective, especially in your first few years, before the time comes to increase your rates.
Once a realistic figure has been determined, you should work out how to reach it. Again, this can vary significantly depending on the line of work. If you write, you could earn a set rate per word, per article, or be paid for the time that it takes to complete the work. If you offer a service, you might charge per task or work on an hourly rate.
The latter can be easier to work out when setting a rate, as you can decide how many billable hours you have in a day, and then multiply this figure by the number of days you want to work in a week, before multiplying this figure by the number of weeks worked in a year.
To keep things simple, say you want to work 40 hours a week over five days, you know it’s going to be eight hours a day. You want to take four weeks’ holiday in the year (20 days), so you’ll work 48 weeks. Take your desired salary target, divide it by 40 weeks, and then by 40 hours to calculate the hourly rate you should be charging.
N.B. Remember, as a self-employed individual, you will not be paid for time taken off, while you will also be responsible for paying your taxes (use our tax calculator for ease). It’s essential to set aside money for this at the end of each month so you don’t have to pay a lump sum when required. It’s also worth knowing your expenses, as they can quickly add up and impact what is earned, potentially requiring rate adjustments.
Choosing Between Hourly, Daily, and Project Pricing
As noted above, there are various ways to price yourself and set your rate. They can be in the shape of:
- Charging hourly
- Charging per task
- Charging a day rate
- Charging based on the project
- A hybrid of two or more options
Each method has its pros and cons, which is why it is essential to consider them in detail before selecting a method. Again, it depends on the type of work or service you offer, as some options may be more suitable than others.
For instance, if you’re a self-employed mobile barber, you’ll charge per haircut (task). If you’re a contractor, you might operate on any of the three (excluding the hybrid option) when setting your rate. If you work in content, you might charge per hour, per task, work on a rate based on a specific project, or use a hybrid pricing system if you have multiple clients.
Sometimes, it pays to be flexible with your pricing, as it can make you attractive to potential clients. This can be beneficial to work out rates for each of them, ensuring you’re covered for all possible eventualities when trying to acquire new customers.
Admittedly, it’s a bit of a headache knowing what to pick, but that’s where research can help make a decision for you if the industry you work in is more flexible than others in terms of how you can be paid.
How to Research and Position Your Rate
When conducting research, consider similar services and investigate what your competitors are charging. You can go online and check their rates if they have a website, as they will usually list them. If you can’t find any info, perhaps make an enquiry just to see what they charge for a typical job. You won’t always be able to ask directly, but be clever about it and ask for a potential job to be completed and see what price comes back.
A Google search can often reveal the typical rate for specific industries, but this should be taken with care, as figures can be influenced by several factors. You could even ask AI-writing tools to conduct research into what a typical rate might be. These tools will also provide sources for further information.
Once figures have been revealed, you should look to position yourself in the market based on the skills or expertise you have. This is where you need to believe in yourself and appreciate the value you can bring, even if it feels challenging to do so. In reality, there will always be someone willing to do something for less than you; this doesn’t mean they are any better, though. If you are confident in yourself and what you bring to the table, then you can charge a rate that justifies it.
Don’t short-change yourself just because you’re frightened of not getting any work. If you can show the value you bring, people will pay for it. However, don’t overprice yourself, either.
Explaining and Justifying Your Rate to Clients
The anxiety of being self-employed that can be had when it comes to pitching for new clients or work can be intense, especially when you’re starting out and not quite sure of the rate that you have set. Will they accept it? Have I made myself “too expensive,” or have I undervalued myself? The latter might get you a client, but you may have been able to charge more and still get the work.
It’s a concept that even the most experienced can struggle with at times. Everyone has budgets that they need to stick to, while everyone is always looking to get the best price available. This can lead to negotiations or scenarios in which you have to justify the rate that has been set.
Being confident is essential when discussing pricing. While it isn’t always necessary to justify your reasoning for charging a specific rate or way, there may be times when it will be questioned. If you’re confident when answering, people will find it hard to argue with you and push back.
Some may try to “low-ball” you with an offer, hoping you need the work. It can be tempting to accept these offers when there’s no other work available or you have time, but it’s not always the best approach. Imagine doing the same tasks for two clients but at different rates?! It happens, but with confidence and belief in your pricing, why should one hour come at a greater cost than another for the same task?
When and How to Raise Your Rates
If you thought setting your initial rates was difficult, knowing when to raise them and how to do it can be just as challenging.
Increasing rates can be as anxiety-inducing as trying to justify them initially. You essentially have to do it all over again. Hopefully, everyone will recognise that it is the right time to do so, which can make it easier. However, you may still encounter pushback from some.
Older clients may turn around and believe they should remain on the initial rate because of the work that they provide or because you owe them a sense of loyalty for using you in the first place. Some may turn around and begin to use the “too expensive” excuse because they simply got too comfortable at your previous rate.
It’s a challenging and daunting task due to the numerous variables that exist, but it’s something that should be done. The cost of living continues to rise, as do wages for PAYE employees, so why shouldn’t yours as a self-employed professional?
When’s the right time to do it? It’s a question that only the individual can answer for themselves. There is no real right time to do so. Some may feel that a year is a suitable period, such as at the beginning of the tax year, while others may choose to do it at another point in the working relationship. If there’s ever a good time to ask, it’s when the working relationship is at its strongest, as they are more likely to want to continue the collaboration.
Avoiding Common Pitfalls in Pricing
Common pitfalls that can be encountered when trying to set your rates include:
- Not accounting for any periods of downtime
- Forgetting to include expenses and business costs that need to be covered
- Undercharging just to generate income by acquiring clients
- Staying vague and not being confident in the rates that have been set
Doing these things can be potentially costly to you over a long-term period in various ways.
Conclusion & Takeaway
It isn’t easy starting up as a self-employed professional, as setting your rates can be just as anxiety-inducing as many other aspects going at it alone can bring.
There is a level of uncertainty that comes with it, as you don’t know whether people will pay what you want to earn, while you may constantly ask yourself questions about whether you have valued your skills and expertise accurately.
It’s a real challenge, and one that will be a continuous lesson with each new client we acquire; I’m still learning, after all these years! Still, I highly recommend following the steps outlined in this article to help you get started.
