A different approach to charging clients as a freelancer

Recently, I was thinking about some ways to increase my earnings and also handle the increased amount of inquiries I’m getting every week. Since I’m charging my clients for the time I spent working on their projects (classical hourly rates), the most obvious way is to just increase these rates, which results in higher-paid projects and probably fewer clients. After some time thinking about different models on how to charge a client for my freelance work, I developed a different approach, which I'm going to explain in this post.

When I was sick a few months ago, I went to the doctor and received an invoice for the first time since switching to a private insurance company when I started freelancing (Germans will know). The doctor had a flat hourly rate but added a multiplier to each task (I guess based on the instruments he had to use or the difficulty of the task). I was thinking about this model for a while and came to the conclusion that I could easily adapt it for my own business, in a slightly modified version.

Since I don’t feel like I’m working on tasks that are a lot harder than others (I put the same effort, knowledge and creativity into wireframing, designing and coding), I thought I could set the multiplier based on the client’s project and his financial situation.

The formula

After a detailed call with a new client, I know if I would enjoy working on his project (let’s be honest — there are these super-nice projects by fresh start-ups and there are these incredibly boring projects for bigger companies that don’t really care at all about the love in each detail). The first variable I'm putting into my formula is the "project fun factor" (p), which could have the following values:

• Great project. I share the vision of my client and I know I will have a lot of fun working with him, since he wants to build something great and he or his team are pretty cool dudes. Value = 1.0
• Average project. It might be fun sometimes, but there will probably be some hard times as well. While I’m building a nice product, it might be possible that I’ll need to do some stuff I don’t like (e.g. endless iteration rounds [not always a bad thing], silly pixel pushing that just needs to get done to proceed). Value = 1.25
• Not-fun-at-all project. There are these big companies that are willing to pay a lot of cash for your services. Unfortunately, the communication with these clients is often really hard; they are often not really willing to try out something new, which could have a great impact, and the product itself might be pretty boring or you might need to continue working on something that isn’t good at all (you know, these sites that are based on techniques from the 1990s, and need IE6 support because the clients of the client are not able to update their damn browsers). Value = 2.5

The next variable I’m adding to my formula is the financial situation of the client. Important to know is that I would never accept a not-fun-at-all project from a client that isn’t willing to pay a lot. Again, there are three different values for this variable (c):

• Bootstrapped start-up with a limited budget or other freelancers that don’t have an unlimited budget. Value = 1.0
• Well-funded start-ups and design agencies. Those guys are able to pay you well for the work you get done. Value = 1.5
• Big companies (like 100+ employees and a minimum yearly revenue of €10M). Value = 2.0

Finding out the financial situation and size of a company is pretty easy in most cases. First of all, I’m talking with the client — in most cases, they tell me about this even before I’ve asked, since it’s in their own interests. Moreover, I’m doing some research — the most funded start-ups love to gain some attention on tech blogs whenever they succeed on a funding round, and there are some databases out there (e.g. Crunchbase) that you can check out when looking for previous funding rounds of a specific company. The big ones won’t need to tell you they have money — either you know the name already or you can find out more about them through a simple Google search.

The last variable I’m putting into my formula is a basic hourly rate (R) which will be multiplied. I’m setting it at €65.00.

This is what the final formula looks like:

Hourly rate ≈ R * ((p + c)/2)

• R = Hourly Rate
• p = Project Fun Factor
• c = Clients Financials

Some examples

Let’s calculate some examples based on this formula:

1. Let’s assume I’ve been asked to work on a pretty innovative product (p = 1.0) and will be working for a bootstrapped start-up (c = 1.0). My hourly rate will be set at €65.00, which means the chances are high that the client can afford it and that I will have a lot of fun working with him on an exciting project. Win-win situation.
2. Let’s assume I’ve been hired to design a standard corporate website for a design agency that is currently too busy to have their in-house designers work on it (c = 1.5). In my eyes the project might not be that exciting, so I set p at 1.25. Based on my formula, my hourly rate would be €90.00. Most funded start-ups and agencies would be able to (and probably will) afford this price for good work.
3. Let’s assume a big group wants to hire me to fix and improve their (in my eyes) boring Customer-Relationship-Management System. Since I'm pretty sure this won't be much of a fun time, I set p = 2.5 and c = 2.0 which will result in a hourly rate of €150.00.

The problem with freelancers' rates

I think putting a price tag on your time is incredibly hard as a freelancer. It’s a balancing act between being affordable for the clients you want to attract, not being too cheap to cover your living costs, and building a healthy financial buffer zone. In addition, it’s pretty hard to estimate what skills, creativity and experience might be worth.

For some reason, only a very small amount of freelance designers I know are talking openly about their rates with other designers, which makes it even harder for the individual to compare with others and find a suitable rate for himself. From my experience the standard rate for a good UI designer is somewhere between €50.00 and €100.00. Some designers are charging more, and some less. Someone was even charging $1,000 per hour a while ago. There is no such thing as the perfect rate and it takes time to find one that fits your needs.

If you are interested in reading more business related articles for freelancers, you should really read Being a freelance designer.