For years, I have greatly undervalued my own time as a developer. In the beginning, I did not want to set my hourly rate too high because I did not have much consulting/freelancing experience. I wanted the work (chicken and egg problem) but lacked the experience.
As a freelancer, it can be hard to figure out your hourly rate. If you are new to freelancing or not sure what you are worth, you will probably settle on a fairly low rate. You might actually look around and see what other people are charging, which can be a mistake.
If you have ever had to compete on freelance work platforms like freelancer.com or upwork.com, you will know that developers/teams from other countries with lower cost of living like India and other parts of Asia are willing to do work for a lot less than Western counterparts.
Where this is very apparent is when you look at listings for WordPress work. The worlds most popular CMS means there are a lot of developers who can work with it. As a result, you will see that the hourly rate seems to cap out in many cases at $20 per hour.
Finding a competent developer who can work with WordPress and not produce garbage code for $20 an hour or under is going to be a difficult task. You might get a result, but it will be a compromised one.
This varies from country-to-country, but in Australia a full-time job provides:
- Your tax is paid by your employer
- Paid sick leave
- Paid carers leave
- Paid Compassionate leave
- Paid superannuation at a rate of 9.5% (contributing towards your retirement fund)
- Your employer has to give you notice if they dismiss you on a sliding scale depending on how long you’ve been working there (aka you have rights and periods of notice)
But in the consulting and freelance world, you get none of that. If you are sick, you don’t get paid. You have to track your income and pay tax, depending on how much you earn you might need an accountant.
You have to pay your own super (if you want), and your work is not guaranteed. You can go weeks or months without a paying client or paid invoice.
The freedom that working for yourself affords, comes at the price of more risk. As such, your value becomes intrinsically higher. But this is only one part of the equation.
You have other costs associated with freelancing. Your workspace; desk, chair, stationery, maybe a lamp, a printer/scanner, paper. Then you have the costs of electricity, the cost of your Internet and quite possibly liability insurance (which some companies want you to have).
How much you value yourself should also be factored in. Things like your experience, your efficiency and knowledge in the realm you are consulting/freelancing within.
Are you seen as an industry leader or developer expert? Are you acknowledged as being extraordinary in your field? These things matter, and you should price your hourly rate more accordingly.
The following example is just that, an example. It serves to paint a picture of what goes into an hourly rate, it is a guide and not financial advice.
You freelance on the side, but you have a day job from 9-5. You can devote 4 or so hours in the evenings. Because you have less time, it is intrinsically more valuable.
Your base hourly rate should be no less than $100 per hour, this is your minimum. Depending on the task at hand and nature of the company/project, it could be as high as $150 per hour.
For long-term projects that will span over a period of months, $100 per hour might be the right figure. If you are doing work on a project that will last for a month or less, bumping up your rate higher is advisable.
Remember you are quite possibly going to lose a third of that in tax (if you’re in Australia). If you’re a senior front-end developer, you’re most likely in the $87,001 – $180,000 tax bracket which is 37c for each $1 earned over $87,000.
This means for every dollar you earn, you are actually only earning $0.63c. So for every $100 you make, you only get to keep $63. For every $1000 you make, you are only getting to keep $630.
Suddenly you realise, that $100 per hour is actually not that high at all. It might become advisable to charge $120 so you get to keep $83 for every hour of your time.
This is an example of a freelance rate. If you are consulting, you are providing advice and services to another company and your rate should be two or three times your base. So that $100 base should be amplified to $200-$300 or higher per hour.
Freelancing and day job salaries are different
One of my biggest mistakes in the early days was attempting to factor in my salary from my day job, to calculate my hourly rate, and it’s incorrect. Logically, I can understand why developers would immediately try and correlate their day-job salary as an hourly rate.
But consultants and freelancers need to understand that your day job rate is actually a lot higher. If you get paid $35 per hour in your day job, this means the company might be charging $350 per hour to account for other expenses of running a business.
As a consultant or freelancer, you are running your own business. You might not have the staff, offices or huge expenses, but you are a business nonetheless.
You need to start charging like a business and not an employee working for a business.
Compare yourself to other skilled trades
As a developer, you have a skilled trade. I gave a pretty specific example before which concluded a base rate of $100. But, you only have to look elsewhere in other specialised fields to see what they charge.
Say you are having some electrical problems in your home, you call an electrician. You will most likely be charged a callout fee, this is to cover a situation where the electrician just needs to replace a fuse (a 10-minute job) and cover expenses of travelling, administration and so on.
In my limited experience needing an electrician, you will pay a minimum $100 per hour, possibly even more (depending on location). That is just the labour, the cost of materials is extra (and usually has markup).
You might be able to find a cheap electrician willing to charge half of a decent electrician, and they might do the job. But, at what cost? A cheaper electrician might cut corners or use inexpensive materials that won’t last as long.
Another great example is a lawyer. Who would you be more inclined to trust to represent you in court, a $500 per hour lawyer or a $100 per hour lawyer? Who is going to fight harder and work harder for you?
Cost alone isn’t always indicative of someone being better than someone cheaper, but it inspires trust and in most cases it is right. There is a correlation between price and value, people perceive more expensive things being better and cheaper being inferior.
As a developer you need to ask yourself: are your skills any less valuable than those of an electrician? I don’t think so. You are both experts in your field, you both do a job that not just anyone can do.
Conclusion and final advice
The biggest hurdle to overcome as a freelancer is fear that you are going to lose work and opportunities because you are too expensive. You might really need the money, so it can be easy to be desperate and willing to charge less to get the work.
But, the more you charge the better quality work you will get. As someone who has done quite a few cheap WordPress sites for a meagre $2k or less, I can tell you that the less you charge, the worse the clients and work will be.
Any client who isn’t willing to pay you what you think you are worth is not a client worth having. The people willing to pay less are usually the pickiest and inconvenient clients you will ever have. They will end up losing you money in the long run, as they request to change things and complain about the work itself.
Charging too little and undervaluing yourself can also work against you as well. Being the cheapest isn’t always going to guarantee you will get more opportunities.
For every opportunity you miss from being perceived too expensive, another will come along and it will be some of the most motivating work you will ever do (until the next opportunity comes along).
And the last and best piece of advice I can give you: DO NOT CHARGE FIXED PRICES unless it is a once in a lifetime opportunity, avoid charging a fixed price for a project. Provide estimates, but never exact costs.
In my experience, fixed costs will end up losing you a lot of money. A client will be less inclined to request changes and additional features if they know it’s going to cost them more money.
Sometimes your estimated time to complete a project might be wrong, it is after all just an estimate. Always charge hourly.