Pro Freelancing 101: Stop charging hourly rates, start selling impact

Every client who doesn’t want to pay your price, gives you more time to spend on those that do.

(BTW: The thumbnail image for this post is just a cute picture of a cat looking at a laptop. I found it. But it isn’t really related to this that much. Sorry, not sorry).

As a freelancer, one of the most difficult things to do is to decide how to price your services. It's a balancing act between ensuring that you earn a fair wage for your time and work while also making sure that you're not pricing yourself out of the market.

Also, it’s incredibly uncomfortable to tell someone to pay you. It’s super weird.

One of the most common pricing structures that freelancers use is hourly rates. But I have never, and will never, charge hourly rates.

Here’s why.

The “why”

There are probably lots of experts out there with longer, more in-depth answers to this question (in fact, I Googled that and found this, this and this).

But for me, it’s simple: Charging for hours incentivises the wrong stuff.

• For my clients: It incentivises their freelancer to focus on the time it takes to finish a project (the longer the project, the more money they earn), as opposed to the work and impact I’m actually creating for my client

• For me as a freelancer: It punishes me for being good at what I do. And makes life about clocking in and clocking out, instead of listening to what clients problem really is.

This means that, technically, a client would pay more to (and invest more in) someone who’s inexperienced and takes longer, than they would someone who’s exceptional at what they do and finish a project quickly.

Also, there are things like scope creep (unexpected things happen, which you hadn’t charged for), and unexpected expertise (your year in marketing ends up being incredibly valuable to the project) that you need to consider. And charging by the hour ignores things like that.

(Also, you probably know someone who struggles to charge what they’re worth. Consider sharing this with them?)

The “how”

Sell the infinite thing

If you sell your time, you'll only ever be able to take on a limited amount of work. Your time is a limited resource, but your value as a freelancer and the impact you can create with your work is not.

Instead of selling your hours — the limited resource you have — sell the infinite thing: The value you create with your work.

You could work for an hour today, that ends up impacting people daily for the next 10 years. That's a thing you can actually sell forever. That’s a thing that isn’t limited by the number of hours in a day.

Charge your cumulative value, not your momentary value

I could do 30 minutes of work and invoice you for that "moment."

Or, I could do 30 minutes of work and invoice you for the last 12 months of skills development I've put into being able to deliver professional-quality work.

On the surface, why wouldn’t the client want the momentary charge? It’s probably less and so what that I’ve done 12 months of skills development? Did you do the job or not? Simple.

Well, not really.

• Is a 500 word essay by a student who cruises the same as a 500 word essay by a student who listens, engages, asks questions, and shows up to class?

• Or: Would you let anyone operate on you?

Your answer to both of those is likely “no”, because moments don’t matter; the bigger picture does. And that’s what your client actually wants, even if they don’t know it explicitly.

Think in terms of risk investment

This leads me onto the next point, which is simply: Frame things in terms of risk.

When you date someone, you’re both investing something you’re willing to lose. Most often, this is time, but sometimes it’s also independence and emotional energy and weekend plans. Sacrifice is what makes it an equal, two-way street. And I want my relationships with clients to be similar.

So, next time a client pushes back on your price, try framing it like this:

• As the client, they’re taking the risk that the thing they buy doesn't do what they want.

• As the freelancer, you're taking the risk that you underestimate the time it takes to deliver the value you promise.

• The client’s cost is money; your cost is how much energy you put in; and because you’re both investing something, you both have skin in the game.

• Suddenly, we both have a vested interest in achieving the goals of the project (and not just clocking the hours to earn the rate)

What this has done for me is change the relationship from someone buying a thing off a shelf to a partnership. And that means we actually do better work, because we both feel compelled to put in real effort.

Pick your boundaries

One of the most important things you can do when pricing your services is to pick your boundaries. Decide where you're OK to adjust them, and where you aren't; and stick to your guns. (Not always easy, I know).

For me, I work this out by picking roughly what I want to earn in a month based on my quality of life, travel, skills development, equipment, business upgrades, etc. Then, when projects come along, I guesstimate how much of my month they'll take and use that as a baseline for where I won't sink below.

This is still based on time, though. So, the next step is to price the projects that come in based on the additional value I can create after the hours I put in.

(Uh... say what now?)

Ye, ok, that’s kinda wishy-washy. Here’s an example, using acorns instead of money (something a bit more universal? Yes.):

• I want to earn 30 acorns a month

• Someone asks me to create a website for them, which take 2 weeks to do

• Thus, my baseline is no less than 15 acorns for the project

• Now, I chat to the client and figure out what I can actually do for them.

• The axes I think on here are: What do they want to invest? What impact could the website have on their success? Where’s the critical mass for the website, whereby more investment from them doesn’t do much more? Can I get them there? How can I get them there?

• Turns out, the website is their main “store-front”, and investing in this could get them partners and customers and deals. If they invest 10 acorns, I reckon they could earn 100 in 6 months

• Based on that, I take my 15 acorns, and add an extra 10 acorns onto that

By setting boundaries and considering the additional value you can bring to a project, you can price your services more effectively and create a win-win situation for you and your clients. Whoop!

“Ok, but what if a client says it’s too expensive anyway?”

Great, now we’re talking. This is something you should be aiming for. (Pro-tip: Double your rates until someone says no. Then you know you’re onto something.)

If you quote someone, and they say it's too expensive, you don't have to lower your price. Do these things instead:

1. First, try and understand why it's too much: Most clients don't equate investment now into return later. Figure out what they are expecting this project to bring them back in revenue, and ask whether investing 30% of that ROI now is worth it? No? Alright, what about 20%? Often, you'll find this exercise helps them realize that investing $1,000 now can make them

2. If nothing comes from that, consider reducing the scope: Instead of charging less, offer to work less. Perhaps you can split the project into phases, too. That way, you’re not undercutting yourself, and they are paying what they can afford to right now.

3. If that doesn’t work, you can suggest an alternative approach: For example, as a designer, a client might not be able to pay my full website design fee. Something I might say to them could be:  “OK, a website is too much for you right now. What if we create a splash page using a free tool, and I help you focus your branding on your social pages instead? We’ll achieve similar results, at a budget you can afford to invest right now?”

4. Finally, if none of those resolve things, refer someone else: “Hey, not to worry. This is obviously not a project we’re able to negotiate, but I really want to help you out! Here’s a friend of mine, who’s very talented, and might be able to meet you at your budget.” You give value even though you aren’t working together, you build a network with other freelancers who might refer you later, and you don’t compromise your pricing. Win, win, win.

Conclusion?

I hate writing conclusions, but the long-and-short of this is that charging for hours never works out in the long-term. Even if it makes this one interaction easier (and boy can you fool yourself into thinking “Yes but this is a great relationship to foster!”), it’s going to set a precedent that is then harder to undo down the line.

Set a standard for the kinds of relationships you want with clients.

Decide what you you’re able to do for your clients.

And stick to your guns.

Good luck!

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