An 8-Point Guide to Setting Freelance Rates in a Hot Gig Economy

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Many gig workers know what it’s like trying to set rates with a new client.

Should I go for an hourly rate or follow a project pricing strategy? How do I figure in overhead costs? How do I convince my potential clients that my quality work is worth paying for?

And with so many different types of independent contracting work, it can be difficult to find business models to model and that also lets you figure out the best price for your work.

After picking the brain of seasoned freelancers, gig workers and entrepreneurs around the country, we’re bringing you this list of tips to help you set your rates, and most importantly— feel good about them.

8-Point Guide to Answering How Much Should I Charge?

Here’s our eight-point guide to help gig workers answer the question “how much should I charge?” Understanding these tips are the best way to ask for a competitive price for your work.

1. Understand the Going Rates

Whether you’re completely new to an industry, or been around for a while and wondering how to increase your rates, the first thing you’ll want to do is a bit of research.

“A big part of pricing your services is looking at what others offering similar services are charging,” says Kyle Dulay, co-founder of the influencer open marketplace Collabstr. “If you have a strong portfolio of work to show off, then you can charge more than the industry average, but this is typically not the case when you’re new.”

Spend some time figuring out what others in your field are charging at various skill levels and years of experience. You can do this by scouting out job postings that share info on required experience and compensation, or even just by asking around in your professional network. Some networking groups can also help you figure out a fee structure.
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Rates could vary in different regions but with all the remote working going on now, you can still live in the country and get big-city money depending on the type of work you do. 

As you begin to determine your own rates, check your social networks (like Facebook and LinkedIn) and online forums (like Reddit) to ask around. A lot of gig workers and freelancers remember being new to the industry, and they’ll probably be happy to provide some insights.

2. Calculate Correctly for Your Own Business

Once you’ve gained a basic understanding of the going rates for your industry, it’s time to start crunching numbers and come up with a pricing strategy.

Before you get too far into these calculations and settle on a project rate, you’ll want to take some time to really understand your own workflow and how long it will take to complete the job. It is something that will take a matter of hours or is it a week or more job?

“The biggest mistake I see other tutors make when setting their rates is not including the prep work as a factor in their rate,” says Kristine Thorndyke of Test Prep Nerds. “For me, I think about the materials I’m going to prepare as well as the time I will spend preparing the lesson for the student; and factor all of this into my rates.”

Depending on what kind of work you plan to do, there may or may not be behind-the-scenes work involved— and you’ll want to be sure your rates reflect that work as well as the final product.
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3. Factor in Taxes & Insurance Costs

Because you won’t be getting paid the benefits of an annual salary from working full time for someone else, it’s important to factor these costs into whatever rates you land on. You are responsible for your own benefits.

This means compensating for your retirement savings, health insurance, and even tax payments. A good rule of thumb is to plan on setting aside 30% of your gross income for taxes, and 10-15% for retirement.

Consider opening up separate savings accounts to keep these funds organized, or even scheduling automatic deposits. Whatever you do, just be sure you’re prioritizing your own financial well-being when determining your rates.
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4. Avoid Hourly Rates When Possible

As you get ready to set your rates and hunt for clients, it’s important to consider the different types of payment models available to you. As a writer, this might mean offering per-word rates or per-article rates.

But as a tutor, this might mean setting a flat rate per session, or even a weekly rate for so many hours of tutoring and support. However you choose to do it, we recommend avoiding hourly rates whenever possible. Be ready to discuss the reason for this with potential clients.

“One of the mistakes I see writers make is charging by the hour,” says Vincent D’Eletto, founder and CEO of Word Agents. “Charging by the word just makes so much more sense than charging hourly. The thing is, you’ll probably get better at whatever it is you’re writing about with time. So while it might take two hours to write a blog post at first, you’ll probably whittle it down to 30 minutes eventually, and you don’t want to make less money for working faster.”

The same can be said for many gig jobs, whether it’s content creation, tutoring, or even house sitting.

Be sure whatever rates you set don’t lock you into a rhythm of earning paid less as your skills improve. Whenever possible, charge by the work— not the time it takes you. If that’s not possible, then at least be prepared to increase your rates regularly, which we’ll dive into next.
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5. Increase as You Go and Don’t Forget Overhead Costs

Whether you charge by the hour or not, regularly increasing your rates is part of the biz when it comes to earning good money as a gig worker. A gradual increase isn’t likely to scare off a client, especially if you are providing a valuable service.

For some people, this might mean raising rates after getting more experience. For others, it might mean establishing a regular schedule of increases, say once a year. Don’t overlook the cost of doing business either and that includes office furniture and supplies, technology and even wear and tear on a vehicle.

Rates could vary in different regions but with all the remote working going on now, you can still live in the country and get big-city money depending on the type of work you do. 

“Every year, I reevaluate my experience with my current tutoring gigs and raise the rate 10%,” says Thorndyke. “I simply let the parents know that I’m going to be raising my rates for the year and let them decide if they want to continue having me teach their kids. I’ve found that 10% is a fair increase for the teacher that’s usually digestible to parents once they know you’ve been successful with their children.”

Other freelancers and gig workers quote raising rates by 15% or even 20%.

“I’d say increasing it by 15%-20% is often a safe way of doing it,” says B2B technology freelance writer Martin Soto. “If someone is paying you $100 per article and they’re happy with your work, it wouldn’t be outrageous to increase your price to $120.”

If you’re just starting out in the industry, you might consider taking slightly lower rates at first and increasing once you have a few months of experience. Just be sure you’re not falling into the time-old trap of undervaluing your work. Which brings us to the next point.
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6. Don’t Undervalue Your Work

Gig workers and freelancers everywhere are guilty of this, and it’s an all too-easy trap to fall into when you are figuring out your fee structure.

For gig workers with a lot of experience in a certain industry, the client should pay for that experience, and that’s why hourly pricing isn’t always smart. It may take you three hours to do the job but that’s because you have 10 years experience behind you.

So, you have an amount in mind that you want to make, but the potential client isn’t willing to pay it. Does that mean your rates are too high? It might. But it might also just mean that it’s over the client’s budget. Perhaps you can convince them otherwise.

Even more commonly, freelancers are simply afraid to ask for too much money — thinking it might wreck their chances of getting hired. Here’s the thing: In all of my years of freelancing, I’ve never once had a bad experience by setting fair rates for myself.

Have I had jobs that I don’t accept because their rates are too low? Yes. Have I had people tell me they can’t afford my rates? Yup. But these conversations don’t necessarily close doors, and they definitely don’t ruin professional relationships.

Oftentimes, clients and companies that are hiring gig workers and freelancers will try to get the best work they can for the least money. Sometimes this works out in their favor, and other times it doesn’t.

You never know what a client’s budget is, or if that budget will change down the road. As long as you have the expertise to back it up, and can afford to pass on the job if they don’t want to pay your rates, go ahead and aim high.
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7. Figure Out What You Need

One thing new gig workers might not anticipate, is that freelancing of any kind can be a pretty turbulent way to make money.

What do we mean by this? Mainly, that things can change— a lot.

Some months you might have more work than you really want, and others you might be frantically searching around for a new client. This is why it’s important to recognize where you’re at (financially and work-wise) before accepting new work.

“Every rate conversation should take into account your needs and your capacity, and that can vary from season to season,” says Regan Hofmann of Freelancers Union. “You might find you would rather lower your rate a little in order to sign a long-term contract with a client, if you need more stability at that moment. Or you may get something else from the job besides money — the chance to practice a new skill, maybe a cool perk or barter opportunity — and that means you’re OK with a lower rate.”

Just like any type of job, gig work is all about finding the right balance. If you’re stuck in a month where you really need money, taking a lower-paying gig might be appropriate.

Does this mean you’re undervaluing your work? Nope. It just means you’re doing what you need to get by.

On the flip side, you might be swamped with work and have someone who’s offering you more. This is a sweet spot to be in as a gig worker, as long as they are offering the right price.

If you’re new to gig work, this might not happen straight away, but once things get rocking and rolling you’re bound to knock up against this challenge. Which brings us to our final bit of advice.
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8. Stay Motivated

Gig work of any kind requires a ton of self motivation, especially when the work all adds up to your annual salary. Slacking off — at least slacking off too much — isn’t an option.

Without someone telling you what to do, you’ll be forced to manage your time on your own — which can be a whole lot easier said than done. That’s why it’s important to be sure you’re consistently accepting work that motivates you. This motivation might be based on the work itself, the growth opportunities involved, and of course — how much you’re getting paid.

Price your services right and motivation will remain constant.

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“It’s important to remember that pricing is not a one-size-fits-all thing,” says Dulay. “As you gain experience you should price yourself according to what you value your time at. If you’re taking jobs at $15 per hour but feeling burnt out and have no motivation to complete the job, this is a good sign that you should be pricing your services higher.”

A “good” rate for your services, he says, is the one that keeps you incentivized, and still brings in enough clients to support your own business.

We couldn’t have said it any better ourselves and still another way to answer the question, “How much should I charge?”

Contributor Larissa Runkle specializes in finance, real estate and lifestyle topics. She is a regular contributor to The Penny Hoarder.