5 Ways to Charge Money as a Freelancer & Pros and Cons of Each (Hourly, Project-Based, Commission + Retainers & Value-Based)

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Working as a freelancer

One of the most difficult things for a freelancer to manage after landing clients is to figure out how much to charge for their service or skills.

You don’t want to overcharge, but you do want to be paid appropriately for the time, effort, and value you put into your work, as well as your talent and skill. 

And, you also need to afford to live! 

It’s not uncommon to have no clue how to charge clients when you first start out as a freelancer #freelancerlife πŸ˜‰

Most likely you will start out with an hourly rate. Assuming that this is the easiest and best option. 

It is, in fact, not the best option.

So let’s talk about the 5 main types of ways you can charge your clients as a freelancer plus the biggest pros and cons of each type.

If you’d prefer to watch a video over reading we have a whole video on this on Youtube!

We’d love to know which of the 5 is best in your opinion?

⏳ Type 1: Hourly Rates

Hourly is exactly as it sounds.

You charge X amount per hour of work eg. $30/hr – then you will have to track your time and bill the number of hours you worked multiplied by your hourly rate. 

If you work 10 hours, your rate is $30/hr = you bill $300.

Depending on your client, you may have to use a time tracking tool like Toggl or Harvest and submit your hourly breakdowns and timesheet to them. 

πŸ‘ Pros of Hourly Rate Pricing:

Really, the only time we recommend using hourly is when you’re not sure what the scope of the project is.

For example – If a client comes to you and says I really need help with team management. Can you manage my team on a weekly basis? 

That’s relatively hard to scope how long it will take on the spot – so hourly is easier to start with to see how much work it will be – and then once you have a better estimate of how long it takes, you can then turn it into a package or retainer rate.

πŸ‘Ž Cons of Hourly Rate: 

There are quite a lot – hourly is our least favorite way to charge and we do our best to avoid it.

The major con is you don’t really want your time to be tied to your income because it’ll make it really hard to scale as you only have x working hours per week, right.

With hourly if you get better and better, or faster and faster, at your job, you’re essentially penalized for it – you’ll be paid less because you’re doing it faster even if the value to the client is the same.

Another one is you will have to time track which can be pretty annoying especially if your client makes you submit reports. 

We personally do not enjoy doing this and choose to not work with clients that required this.

Especially after the first year of freelancing.

πŸŽ₯ If you’re looking to take it a step further we have a step-by-step guide here on β†’ how to calculate your hourly rates.

πŸ“₯ Type 2: Project or Deliverable Based Packages

The second type is project or deliverable-based.

Basically, this means you complete a one-time project or deliver a list of items and you get paid a fixed amount for finishing it.

As an example, you write 4 blog posts and you get paid $500 for it. 

It has nothing to do with how long it takes you to write the blog posts – it just has to do with the deliverables.

πŸ‘ Pros of Project-Based

It’s not tied to your time – so if you’re good and fast at your job, then you can get paid really well for your expertise.

Another pro is that it’s a set amount which is nice because you can then more realistically gauge how much money will come in at month’s end, versus hourly where you may not know exactly many hours you will work in a month.

πŸ‘Ž Cons of Project-Based

Okay – this isn’t a super con but something to be mindful of as this can be a huge trap – if you do project or deliverable-based, you have to be crystal clear in scope and expectations. 

Otherwise, it’ll be chaos for you.

For example, if you’re charging for 4 blog posts, you need it clearly written down how many words each post should be, in what format should they be delivered, how many revision rounds are included and will images be included. 

If you don’t get clear on the expectations – it’ll be a nightmare later because your client will have different expectations to you and it could lead to a break-down in the relationship.
Want ALL the details on how to work online as a digital business manager?

Check out my FREE intro class which goes over what exactly a DBM does day-to-day, how much I make as a DBM, my 5-step plan to get you started and more!

πŸ“ˆ Type 3: Value-Based Pricing

There is a lot of talk about ‘VALUE BASED’ pricing in the freelance space, but let’s pause for a moment.

First of all – your worth is inherent to you – nobody can put a price point on that. 

We are not talking about your worth or your value as a human being whatsoever. 

Detach your sense of worth from how much money you’re making, please!

When we talk about value-based pricing, we are talking about the value of your skillset in the context of your market or industry – and specifically, the value of your skillset in helping a client achieve their goals – whether that’s to make more money, save time, or save energy.

☝️ One tip, if you are just getting started, do not worry about value-based pricing. 

Many people might tell you to do value-based pricing from the beginning, but there is NO REAL mathematical equation to calculate this.

If you’re just getting started, you may not be super familiar with how much value you’re providing a client.

It comes with time and experience.

Value-based is something you should slowly move into as you gain more experience and understanding.

Only then, can you better contextualize the value of your work to the client’s business and you can charge matching rates.

More specifically, value to a client can be distilled down to 3 factors:

  • Helping them save or make money
  • Helping them save or make time
  • Helping them save or make energy

So if you’ve been working with a client for a while… start thinking about some of those factors and how your work is contributing to these factors.

❓Things to consider when thinking about value-based pricing:

  1. Known Monetary Result of the Freelance Service You Are Offering 

If you are a copywriter and you wrote a killer sales page for a client – and you know that sales page generated over 6 figures for your client’s business. 

This is a known result – a known ROI of that investment. 

  • You can send out a survey to past clients or when you offboard projects. 
  • Check-in with clients 6-12 months after you wrap up a project to see the results. 
  • Then write case studies on them to really capture the results of your work.

2. Time or Energy Saved 

This is something we don’t really think about too much but business owners will pay money to people who save them mental energy and time because that is such a precious resource.
  • How much time and energy are you saving the freelance client you’re working with? 
  • Did you take them from a 60-hour workweek to a 30-hour workweek? 
  • Did they go from hating their work to liking their work and business again?

3. Perceived Value

also know as, what does a client THINK a service is worth to them in their current situation. 

How urgent is the issue? 

πŸ”₯ Let’s say, you’re are a digital business manager and you’re on a discovery call with a potential client whose entire business is up in flames.

They absolutely hate having to manage the day to day operations, they feel endlessly stressed because they have no systems or processes, they can’t scale their business because everything internal is a nightmare – so much so that they want to burn their business down to the ground… #truestory by the way

And then you come along saying,

“I’ll step into your business take EVERYTHING you hate about managing your business, the team, the projects – off your plate – I’ll create systems and processes for you so you can take some time off without worrying your business is going to break down and you can get back to doing what actually want to do in your business…

That’s music to their ears. πŸŽ΅πŸ‘‚

You are saving them time AND mental energy AND helping them make more money in the long run.

Triple whammy. 

That perceived value is HIGH – it could be life-changing value to them – it has nothing to do with the amount of time you spend on a laptop. 

Also, consider – that it’s really about how much the client NEEDS your service in that situation.

πŸ‘ Pros of Value-Based 

Value is the BEST foundation for pricing for both you and the client.

πŸ‘Ž Cons of Value-Based 

It’s SUPER hard to calculate and not beginner-friendly. 

Most of the time, a client is not thinking,

 “How long is this task going to take me to do

They’re thinking “How much money is this investment going to bring me and my business.”

So as you get a better understanding of how much ROI you can help clients generate, the more you will be able to ground your pricing foundation in value.

And very importantly, always tie your pricing to the value you’re bringing to the table, not the actual intricacies of how you do your job.

Clients don’t care about software, about techniques, about frameworks – as much as they care about ‘what’s this going to do for my business? and How’s it going to help me reach my goals?’

πŸ˜‰ Okay, ted talk over.

πŸ—“οΈ Type 4: Monthly Retainers

Retainers are a great way to get paid.

Essentially the client pays a fixed amount – for example, $2000/month to retain you – on a recurring basis.

These are normally based on hourly or deliverables as well. 

A $2000/month hourly retainer where the client expects you to set aside 20 hours a month for them. 

Or

A $2000/month deliverable retainer where the client expects you to run the day-to-day operations of their business.

It’s like a reservation of your time – to say ‘please keep this slot open for me‘.

πŸ‘ Pros of Retainers

You guessed it. 

It’s recurring and safe – win, win

A lot of the freelance ebb and flow is fixed via the security of retainer based income. 

A retainer is an income that you can count on – it’s like getting a paycheck from a 9-5 but with more freedom.

If you normally have 2-3 clients on a retainer at one time you now have a stable freelance income.

Then you can take on smaller one-off projects when and if you want to.

Alongside that, when you sign retainers, you don’t constantly have to be looking for new clients – which, as a freelancer, is a plus. 

You can also build a long-term relationship with your clients on a recurring basis based on a recurring need in their business.

πŸ‘Ž Cons of Retainers

There aren’t many honestly – here you just have to make sure to spell out some details of the retainer clearly. 

  • Do hours carry over to the next month? 
  • Do you have to time track and submit your timesheets? 
  • What can the retainer be used for? 

And, (a note from experience) make sure that if there is more work than originally agreed upon, you make it clear up front, and then if the client says ok to make it over time, then bill overtime!

πŸ’° Type 5: Commission Based

Commission-based is when you take a percentage cut of profit or income of a specific project or of the entire business.

For example, If you’re a copywriter then a percentage cut of all sales generated through a sales page you write can be paid as a commission. 

Or, if you’re a digital business manager, then you get a cut from the revenue of a course launch that you manage.

This is possibly the least common of all the pricing structures – from our point of view.

πŸ‘ Pros of Commission-Based

Great if you’re great at your job and know how to drive revenue for clients and you feel confident about what the commission is based on.

This can be a great way to be rewarded for being brilliant AND can be a great motivator for you to help grow the business.

πŸ‘Ž Cons of Commission-Based

Potentially risky if you do it with a client, business, or industry you don’t know AND it’s super risky if you do solely commission-based pay. 

I would not recommend that unless it’s someone you truly believe in and you are 95% sure they’re going to succeed.

Otherwise, we would recommend doing a combination of a lower amount of retainer plus commission-based as an added incentive.

There you have it, the 5 main ways to charge money as a freelancer. 

If you’re looking for more help with getting started with freelancing, check out this video on how I started freelancing online with no experience.

Want ALL the juicy details on how to work online as a digital business manager?

Check out my FREE intro class which goes over what exactly a digital business manager does day-to-day, how much I make as a DBM, my 5-step plan to get you started and more!

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Want ALL the juicy details on how to work online as a digital business manager?

Check out my FREE intro class which goes over what exactly a digital business manager does day-to-day, how much I make as a DBM, my 5-step plan to get you started and more!