Most Overlooked Factors when Pricing Your Freelance Services
There is nothing worse than finishing a project and realizing you didn’t make the income you had intended to make for your service. Set yourself up for success when pricing your services by remembering to account for these often forgotten parts of running a freelance business (or any business really!)
Client Communication
Responding to emails, replying to texts, scheduling meetings, showing up to meetings (especially if they are in person and you have to drive there and buy a coffee too!), and answering phone calls is all time that you are spending on your business and on your clients that is not directly related to delivering the service your client booked. You can figure out how to best account for this time in your proposals and billing by tracking your time by client so you know how much time you are really spending on all the tasks associated with a specific client.
Brainstorming and Ideation
If only we had the brilliant idea for our client the first time, every time. Unfortunately, that’s not usually the case. We have to spend time brainstorming and thinking through three of four ideas before we decide on the right one. But that time is not irrelevant. Budget time for brainstorming and thinking through your client projects as part of your pricing.
Organizing and Storing Information
No matter how organized your systems are for accepting information from clients, there will almost always be extra information that shows up later or in a different place than everything else. Keeping track of all that information and getting it saved in the right place and in the right context is important and can be time-consuming. You also need to make sure the information you store for your clients is secure. This generally involves paying for storage room in some form or fashion such as an online file storage system or buying an external hard drive or something of that nature, so there is a direct cost and a time cost involved.
Payment Processing Fees
If you accept payment online (which I strongly encourage to help with speed of invoice payment), then there will be transaction processing fees. Usually, these are around 3% and vary slightly depending on what specific platform you use. Go ahead and build that 3% into your prices from the start. It might seem like a small number, but when you consider that the average size of an annual cost of living raise is less than 2%, that helps put it in context. Those fees add up over time so don’t let them be cut from your bottom line.
Taxes
Let me start this one by saying I am not a tax professional and cannot give tax advice. I’m just going to share what I’ve experienced and what has worked for my business. The most important part here is to not forget that as a self-employed person, you don’t have an employer pulling taxes out of your paycheck before you receive it. This means at the end of the year, you will likely have a tax bill. Your unique situation will impact how much money you owe in taxes and you should plan that a portion of your income will be owed. For me, I like to use a separate bank account to accept payment and I make sure I always leave 25% of my income in that account to be set aside for a potential tax bill. If I don’t end up owing that much at tax time, this is a nice surprise of money that is already set aside in my savings and can now be repurposed for something else such as a re-investment in my business or something fun for our family.
Equipment Upgrades and Replacements
At some point, you will have to replace or upgrade the equipment you use to provide your service to your client. Whether this is a cell phone, a laptop, a router, a camera, props, or whatever, go ahead and budget in your pricing that you will need to replace or upgrade these in time. That way when it happens, it’s not a surprise, it’s a planned expense.
Late Payments
When a client misses an invoice deadline, this affects you in a couple of ways. First, you immediately start spending time and energy wondering if they are ever going to pay. Second, that money is being devalued due to inflation. Unfortunately, inflation is happening at an alarming rate right now, so the money you made yesterday is worth less value today. When an invoice goes unpaid for months, this can start to add up. Third, there is an opportunity cost. What could you have done with that money had you received it on time that would have enabled you to make more money? What programs and education could you have invested in? What income-producing assets could you have spent it on? What special memories could you have afforded to make with your kids? It seems small and can be difficult to quantify, but is important to remember. One way you can account for this is by implementing an interest fee for late payments or to include a cease of service delivery until payment is made. Grace periods are important because we are all human, but we also need to make sure we aren’t consistently paying for someone else’s tardiness with our mental energy and opportunity costs.
Freelancing is about more than income…
While freelancing and owning your own business is about doing something you’re passionate about and building great client relationships and not JUST about making money, I’ve found that making sure the financial side of your business is taken care of first, allows you the freedom to get to the other amazing parts of your business. When you feel financially secure, you can pour all that mental energy that you used to spend worrying about paying bills and hitting income goals, and instead pour that into your business and the pieces of it that you are so passionate about.
Ready to get your next freelance client?
You can find support, resources, and guidance in our Facebook group Purposeful Scaling Freelancers as well! This is a free community of people committed to starting or growing their freelance business to support their ideal lifestyle, bring them purpose, and provide an income.
