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Why You’re Probably Undercharging for Freelance Work (and How to Fix It)

David Yeo
WRITTEN BY
UPDATED
October 21, 2021

undercharging freelance work

 

Freelancing comes with a great sense of freedom, true to its name. You can work whenever and wherever you want. You set the ground rules.

 

But this freedom comes with many responsibilities, how to allocate your time, how to find clients and most importantly…

 

How do you charge for your work?

 

Most freelancers understandably start out by charging peanuts at first to gain experience or exposure.

 

Problem is, if you stick to cheap freelancing rates, it’ll take a toll on your career. You’ll end up slaving to over-produce to make up for the low rates you’re getting on each project.

 

So, why do we end up undercharging and how do we price fairly?

 

Month long contract? Best I can do is $5.

 

Common mistakes that lead to undercharging

 

Freelancers often make pricing errors that will end up overworking them to the point of burnout. These pricing errors stem from lack of self-confidence and market knowledge.

 

But what are the reasons behind all of this?

 

1. You undervalue yourself

 

When you’re just starting out, it’s completely normal to feel overwhelmed at the sheer amount of talent you’re competing with. Impostor syndrome is bound to happen, but it gets better over time.

 

However, when you undervalue yourself too much, you’ll start to think your work is not worth a lot.

 

With that mindset, you’ll end up charging clients much less than market price because that’s what you think your rates are worth.

 

Of course, that’s not true. You’re making diamonds but selling them at the price of coal. That’s not fair on you and definitely not healthy for your career.

 

1.1 How To Fix This?

 

Get exposed to the community. You might not be aware that there is a booming community of freelancers on the web.

 

Various social media platforms, forums and chat rooms offer many groups made by freelancers, for freelancers.

 

For example, r/Freelance on Reddit is a hub for freelancers to share insights and knowledge in the industry. Leapers is a community of freelancers that focus on providing mental health assistance for other freelancers. They’re very active on Slack and you’re able to chat with them anytime, anywhere.

 

You’ll be able to find great people in your industry to cross-reference prices and ask for advice through freelance communities online. Best thing is, they’re just a click away!

 

2. You set low (pricing) expectations for clients

 

Don’t get me wrong, starting at a lower than average price can work for new freelancers trying to score their first contracts.

 

The real problem is setting their initial price way too low. Let’s say one of your first few clients likes your work and becomes a regular.

 

Initially you charged them $5 for a project worth maybe $100. Once you’re established and gaining traction, how are you going to charge them?

 

Are you going to forever be giving them a special 95% discount? If you raise your prices, how are you going to justify the drastic price increase for the exact same service?

 

When you go too low, it’s very hard for you to bounce back up.

 

2.1 How To Fix This?

 

If you’re new to freelancing, you can charge lower rates. However, as we’ve mentioned – be sure to research other freelancer rates within the same niche. This will give you a better general idea of your ideal rates.

 

  • If you’re currently working at rates that are too low…
    Make clients aware that you are doing this as an offer. For example saying something like “Hey, my services are 50% off for now since I’m quite new to freelancing, but in future, I plan to bring my rates to the market price.”
  • For future projects…
    Be sure to charge the proper rate. For the old clients, you’ll have to come to an agreement with them. Not going to lie, you might lose a few regulars this way, but you’ll start gaining higher paying ones soon.

 

The next time you do feel like charging low again, such as giving a discount, make it clear that it’s for a limited time only.

 

Alternatively, you can hunt for bigger and more prestigious clients, charge them your average or higher, and then use that project as an accolade in your portfolio. E.g., if you managed to land a contract with Google, having that in your portfolio would already translate to increased rates.

 

The more prestigious your past clients, the easier it will be to justify price increases in future.

 

3. You don’t plan your packaging rates

 

New freelancers often just slap on a price for their services and call it a day. With more experience, they’ll start planning their rates.

 

However, many don’t take into consideration variables such as time/effort ratio and scalability. How tough is the job, how long will it take, can I do this on a large scale?

 

For example, when I started out I charged $500 per essay, thought it’d be good money at the time. Then I realized with an average 50 hours spent on the longer projects, I’m paid less than minimum wage.

 

In hindsight, charging per contract wasn’t the best plan. I could manage smaller contracts here and there, but multiple big contracts at a time meant writing enough to fill a dictionary and getting paid less than $2000.

 

An associate of mine had a similar problem. He charged hourly rates but was able to get most jobs done in a few hours. Web development contracts were more infrequent back then, so he earnt about $500 per month with an average of 2-3 clients per month.

 

When he realised he could charge up to $1000 per contract, he was able to almost immediately triple his pay with a single solution. Now, he’s a full time freelancer.

 

We didn’t consider the factors of how hard was the job going to be, and how often they came.

 

3.1 How To Fix This?

 

Did you notice something interesting?

 

We had the same bad pricing experience, but with completely different charging methods.

 

Ironically, if the roles were reversed it would have been perfect for us.

 

If I started off charging per hour and he charged per contract, we would have solved our biggest problem with the best solution. You need to properly plan your packaging and how you want to charge people that best suits your career.

 

Not exactly sure what kind of plans you can do? Hoh, here ya go!

 

Ding* Ding* Where’s my money, Karen?

 

Methods of charging clients

 

There’s no hard and fast rule, as different situations do call for different considerations.

 

Here are some of the most common ways freelancers price their work, and when you might want to use each scenario:

 

Method #1 – Per hour

 

  • What is it?
    Freelancers keep track of time spent on a project and create a quotation based on billable hours.
     
    Price of hours is up to you. Generally, it’s best to consider how much you’d like to make a month and divide it from the average hours you work on contracts a month.
  • Best for…
    A) Large and ongoing projects;
    B) Projects with no set end date; or unclear how long it’ll take you.
  • Might not be great for…
    A) Smaller contracts;
    B) Quick projects.

 

Method #2 – Per project

 

  • What is it?
    Freelancers charge a single fee for a contract before or after its completion (best to choose before than after).
  • Best for…
    A) Smaller contracts;
    B) Quick projects;
    C) High-priority contracts.
  • Might not be great for…
    A) Large and ongoing projects;
    B) Projects with no set finish date.

 

Method #3 – Per milestone

 

  • What is it?
    A) Freelancers charge a % of their fees when a milestone is reached.
    B) Clients pay a set amount to the freelancer after a chunk of the project is done.
  • Best for…
    A) Large and ongoing projects;
    B) Projects you might not be able to complete.
  • Might not be great for…
    Small contract.

 

Method #4 – Per day

 

  • What is it?
    Freelancers charge their services by the day, allowing clients to book you for the entire day.
     
    Quite versatile for both short and long term contracts depending on how you price it.
  • Best for…
    A) Short projects;
    B) Consultancy;
    C) Sudden high-priority contracts.
  • Might not be great for…
    A) Freelancers juggling multiple contracts;
    B) Freelancers with tight schedules.

 

Method #5 – Per revision

 

  • What is it?
    Mostly used on top of another charging method, freelancers charge additional fees per revision.
     
    This is great for any freelancer to include in their clauses to prevent scope creeping.
  • Best for…
    A) Projects with a supervisor;
    B) Projects that require many drafts;
    C) Contracts with many ongoing changes.
  • Might not be great for…
    One off projects.

 

Method #6 – Deposit

 

  • What is it?
    Also used on top of other methods of payment, freelancers expect partial payment upfront as a safety precaution.
     
    Deposit packages are usually 50/50 or 50/25/25.
  • Best for…
    Financial protection.
  • Might not be great for…

 

Phew, that’s quite a bit of an information overload.

 

Good news is that it’s quite simple once you’ve grasped the concept of it.

 

Prepared to charge in!

 

All in all, by putting some thought and research into your rates, you won’t make the same mistake of undercharging clients like most of us do. And even if you’ve been in the game for a while, you might be able to come up with a more optimized charging plan.

 

Having a solid knowledge of market rates provides a clearer guideline for you to price yourself as fair as possible. However, at the end of the day, you’re the one who decides what your time and skills are worth.

 

When it boils down to it, the rates YOU decide will determine what kind of clients you will attract.

 

With proper pricing, you’ll be able to attract the clients that are worth your time, and you, worth their money.

 

 

David Yeo

About The Author

David is a content creator and freelancer. His journey started with writing songs, poetry and academic dissertations in Vancouver. David has freelanced for multiple companies around the world. Feel free to connect with him on LinkedIn.