Align your rates with your offerings

You’ve got your values‌ in mind, figured out your target client, and know how much money you need to live — and how much you need to thrive.

Now, you’re going to put it all together. By the end of this step, you'll have the rates to charge for each of your services.

Identify how many days you’ll work this year

Count up how many vacation days and sick days you think you’ll need. I recommend around 20 vacation days plus 5 sick days, but feel free to adjust those as needed.

You’ll figure it out using this formula:

Ideal monthly income $_______ x 12, ÷ by the number of months you’re working this year (_____) = $________ actual monthly income, to cover vacation as well.

So it might look like:

Ideal monthly income of $6,000 x 12, ÷ by the number of months you’re working this year, which is 10. This equals $7,200. So that’s the actual monthly income you need to cover vacation, as well.

6,000 x 12/10 = Actual monthly income of $7,200

Determine your hourly rate

You have your monthly income. Now you’re going to use that number to find your hourly rate. 

Take that monthly income number and divide it by the number of hours you want to work each month. Work out how many hours are‌ actually billable — meetings, actively working on projects, revising previous work.  Remember that not every hour is “billable.” You’ll have some admin work to do, like answering emails or applying for new gigs.

Here’s your math: actual monthly income $_________ ÷ _______ hours per month =   $______ (the average hourly rate.

Say I want to work 80 billable hours every month. Plugging that into the formula gives me:

$12,307.69 ÷ 80 = $153.85

Compare these numbers to other freelancers in your niche to feel out if you’re in the right zone. 

If you’re really out to sea, you can check out the Editorial Freelancer’s Association, which provides some median rates. However, keep in mind that as you grow more experienced, these rates can‌ limit you.

For example, according to the EFA, nonfiction ghostwriters should earn $51 - $60 per hour, or between nine to ten cents a word. That’s not much better than what you'd get from an agency or content mill. Even as a beginner, you can expect to earn more than that.

Create a range

Source: https://twitter.com/wudanyan/status/1305993002771345409

How much money do you need to be happy? How much work will it take to give you that ground floor number? Your ideal salary isn’t just the highest number you can think of. Remember that taking on too much work comes at a cost, too, just not a financial one. 

Boundaries to keep in mind: 

• I can only work _____ hours per week because I have _____ other responsibilities.

• I won't work between the hours of ____ and ____ .

• I'll reserve _____ time for myself, not work.

• I won't take on additional work if I am working _____ hours per week already.

• When I am on vacation or sick, I'll delete my mail app and Slack from my phone so I can focus on resting.

Once you have a clear monthly number, add those and your services to your business plan document. This way you’ll never be at a loss for what you should be charging.

When is it time to move away from hourly rates?

I feel strongly about value-based pricing. This is for two reasons.

1. Hourly pricing limits you. There comes a point when the value you offer goes beyond what an hourly rate can provide.

2. Fair hourly pricing can scare clients. Charging $200 an hour? That’s a big number. Asking $5,000 for a project with clearly defined objectives and outcomes? The client can see that value more clearly.

So for each of your services, identify a project pricing based on the number of hours it normally takes you to complete.

Estimated hours for work  ______  x hourly pricing $_____ = Project rate $_____

Let me give you an example of where I had to transition a client away from hourly rates.

Originally, I was earning $60 per hour with this client. I didn’t want to lose the client, but I needed to raise my rates. I learned as I negotiated my new rate that $60 an hour was already at the top of their scale. But when I quoted them a project rate that accounted for my new rates — and that absorbed a higher hourly rate — they didn’t balk. 

So I changed to project rates and asked for $2,000 to complete the project. Behind the scenes, of course, I knew how long it took would be up to me, and I’d keep a closer eye on how much time I spent so I could hit at least $80 per hour. 

And to the client, $2,000 for a project was more palatable than paying $100/hour. 

If you want to learn more about value-based pricing, I highly recommend checking out this episode on my podcast, The Writer’s Co-op.