Freelancing: 7 Tips for Negotiating High End Rates

by Tom Ewer 6 Minutes

HandshakeI am a huge advocate of freelancing — it is the first thing I will recommend to anyone interested in making money online. The barriers of entry are low, there is little in the way of qualifications snobbery and you can literally start earning money tomorrow.

However, freelancing as a business model is far from perfect. In fact, if your aim is to make big bucks (say a comfortable salary well into six figures), you may find that freelancing has its limitations.

The money that you earn as a freelancer (in the traditional sense) is limited by two factors:

  1. The number of billable hours you work
  2. The rate you charge

In this post I want to focus on that second factor. More specifically, I want to focus on the most effective strategies you can employ to achieve the highest possible rate from each of your clients. These are the strategies that I have used to achieve an equivalent hourly rate of $150.

I understand that the concept of negotiating rates is an unwelcome one to many freelancers, but learning to negotiate effectively is absolutely vital to the success of your freelance business. Once you are done reading this article you should be in a position to make positives changes to your negotiating style which will lead to increased earnings.

Let’s get to it!

1. Determine Your Minimum Acceptable Rate (MAR)

Any freelancer should know where their bottom line is. You should never enter into negotiations without knowing the lowest equivalent hourly rate you are willing to work for. I call this your Minimum Acceptable Rate (or MAR).

The formula you use to calculate your MAR should look something like this:

( (personal outgoings + business outgoings) / hours worked ) + tax

Let’s consider a practical example. Say your personal outgoings (i.e. the total cost of living for you and your dependents) are $50,000 p.a. and your business outgoings are a projected $10,000 p.a. You plan to do client work for six hours per day for forty-eight weeks of the year (1,440 hours total). Your MAR calculation (gross of tax) is as follows:

( (50,000 + 10,000) / 1,440) = $41.67

Add say 30% for tax and your MAR (nett of tax) is $54.17.

The MAR is your bottom line, but it is not necessarily the rate that you put to the client. It represents a number that you will not go below in negotiations (unless compelling circumstances dicate otherwise).

When you’re just getting started in the world of freelancing your MAR will be calculated based upon of a quality of life that you consider necessary. However, as your business grows you may find that you adjust your MAR to reflect the quality of life that you want in the future, as opposed to what you have now. Let your proposed rate be driven by what you want to achieve as a freelancer and you may be surprised at the outcome.

2. Charge Per Project

For most freelancers, there are few things that limit your earning potential more than working by the hour. It creates an income ceiling that you cannot go beyond.

Say your hourly rate is $100 and you work six billable hours per day. Under those circumstances you can never make more than $600 per day. On the other hand, if you charge by the project, your earning potential is theoretically infinite. Similarly, working for an hourly rate gives the client far too much to think about in terms of their perception of value.

I’ll explain what I mean with an example. Say you are a freelancer writer and you are offered a blogging job by a prospective client. You think each post will take you an hour to complete and you want to charge $150 per post. The client thinks that each post will take three hours to complete and is happy to pay $150. You tell the client that your hourly rate is $150 and that it will take you one hour to complete the post. Many clients will baulk at this — even though their budget was $150, they feel like they’re getting ripped off because you are capable of completing the work so quickly.

All the client should have to worry about is the value of the service you provide. Don’t confuse them or change their perception of value with hourly rates. You should not be penalized for working more quickly and efficiently than the next guy, so charge per project and use your speed to your advantage.

3. Negotiate Based On Their Perception of Value

Too many freelancers work from the perspective of what they think their services are worth, when in reality they should be doing the exact opposite. Your opinion isn’t particularly important when it comes to negotiating rates — it is what the client thinks that makes all the difference.

So take the time to consider both your client and the nature of the project. The rate you can charge is affected more by the value of the project to the client than perhaps anything else. Ask yourself the following questions:

  1. How will your work benefit the client?
  2. How will it positive affect their bottom line?

The answer to those questions dictate in part what rate you can charge. For example, a blog post for a small business is likely to have a relatively limited impact. If on the other hand you’re writing sales page copy for a Fortune 500 Company’s next big online product, the benefit of your services could be enormous and you should price accordingly.

The above examples are deliberately disparate to make my point clear, but the same logic applies for every job that you negotiate. Consider what the job is worth to the client and adjust your sights accordingly.

4. Get Them to Name a Price

Nothing is more valuable in negotiating rates than getting the client to reveal their budget and/or the rate that they would be happy to pay. While most clients are a little more savvy than to do that upfront, you should always lead negotiations with the immortal question, “What kind of budget do you have in mind?”

Although a client may not give you a number to work with, they may give something away in answering the question. Any extra information can be extremely helpful in enabling you to negotiate a better price than you might have otherwise.

5. Start High

Negotiating is a part of business life for many people. In fact, you will probably work with many clients who will haggle a price on principle alone (regardless of whether they feel it is reasonable).

As such, you should always propose a rate higher than you would if haggling were not on the cards. This may seem like a bold move, but in reality you are just getting ahead of the negotiating curve. If the client can haggle you down to a number you would have accepted anyway, they will feel like they have gained something out of the process and you will still be happy with the agreed rate.

Furthermore, you are unlikely to find that a client rejects your rate outright unless you are well out of the ball park. If you propose a rate that is 10% higher than an amount you would be happy with and the client rejects you outright, they probably would have rejected the lower price too.

You don’t want to be working with clients who feel like they have to squeeze their budget to the maximum to accomodate you — such scenarios do not lead to healthy long term relationships. Far better to go through the haggling process with the client and make them feel like they’ve got a good deal.

6. Give Yourself Wiggle Room

If you’ve been asked to name a price before you understand the full extent of the work to be done then make sure to give yourself room for manoeuvre.

For instance, I’ll often be contacted by prospective clients who give me a very rough outline of what they would like me to do and immediately ask what my rate is. Under such circumstances I’ll say something like the following:

My typical base rate is around 20 cents per word, but that can fluctuate based upon the nature and scope of the work. If you can give me more details on the project then I will be able to quote you a fixed fee.

Note that I say the fee can “fluctuate” — I don’t say that the price could go up or down. If the client is still interested after that initial exchange then I can be pretty certain that they’ll pay 20 cents and possibly even more.

7. Seek a Mutually Agreeable Outcome

You will not get far as a freelancer if you intend to rip off your clients. Good negotiation is about both parties walking away feeling like they got a good deal. If you think that squeezing every last penny out of a prospective client to the point where they reluctantly agree to your inflated prices is a good thing, think again — that relationship is not likely to last very long.

You want to work with clients who will happily recommend you to their colleagues. You want to work with clients who will come back for repeat business. You want to work with clients that will supply you with an effusive testimonial. You will not achieve these outcomes if you seek out a win/lose outcome during negotiations.

What Strategies Have You Used?

If you have some experience in negotiating freelance rates then I’d love to read your stories and perhaps even your own strategies for getting the best possible rate out of a client. Alternatively, if you are relatively new to freelancing and have a question about the above strategies, please do not hesitate to use the comments section below!

Photo Credit: mikecco

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by Tom Ewer
Tom Ewer and the WordCandy team have clocked some serious mileage as freelancers, agency employees and even agency owners over the years, and they love sharing their combined expertise here on the Bidsketch blog.