Table of Contents
- No.1: Set your prices right
- No.2: Learn to say “No” to clients and projects
- No.3: Ask for payment in advance
- Closing thoughts on starting a freelance business
Starting a freelance business was an incredible journey for me. I have been on this road for more than seven years. During this time, I made a lot of mistakes and I learned many lessons, about what to do and what to avoid. In this mini series, I will share with you some of these lessons I learned the hard way. You don’t have to repeat any of these mistakes in order to learn. Take these lessons, apply them and build your own successful freelance business.
The last 4 things,or lessons, are in part 2.
No.1: Set your prices right
When I started my freelance business, I believed that making $20 an hour was a good money. Yes, this is exactly how much I charged in the beginning. When we take a look at websites offering gigs for freelance designers and web designers, we will see something similar. There are many freelancers charging something in the range of $20 or $30 for hour of work. I have to admit that I used these websites, mainly Freelancer.com, to see how much are other people charging. Then, I charged the same or similar amount.
This was good in the beginning. I should mention that when I started my freelance business I was on College. In addition, aside to food, Internet and library, I had almost zero expenses. So, it is no surprise that the money I was making in my new freelance business seemed like a lot. Then, I got in touch with other freelance web designers and developers. These people finally opened my eyes. They showed me that I was living in an illusion. I was charging much less than I should, especially with my skills.
This was one of those times when I realized that a large of people might not be right. Something isn’t the best thing to do just because almost everyone else is doing it. Just because a lot of people are charging $25 per hour doesn’t mean anything. It doesn’t make this number any better to aim for, or charge, than any other. What if all those people are actually on the same boat? What if they don’t know how much to charge just like we? As a result, and just to be safe, they rather lower their prices and undercharge.
Getting in touch with other people from freelance business was eye-opening. Without this experience I may never know that I ask for too little, that I should charge more. There is a lot of people starting their first freelance business who may be in a similar situation. So, as Marc Andreessen said on a The Tim Ferriss Show, raise prices.
How much should you charge?
Raise prices is a good advice. However, how high should you go? How much should you actually charge? This is the question for which we all want to know the answer. Remember, to get better answers, ask better questions. Unfortunately, this question is not as easy to answer. I can’t give you a precise number because I don’t know how good you are, what skills you can offer to your client, how much experience do you have and so on. It is like asking how much does a car cost? Well, what model are we talking about?
This is a question everyone has to ask and then look for the answer that fits his situation. However, I can tell that there is a high chance that you are not charging enough. Okay. The way I find out my current price is this. First, I took some time and analyzed my current skills and experience (with help of another unbiased person). Then, I searched for people with skills and experience on a similar level such as mine. Next, I asked them about their prices, or how much they charge their clients, and used these figures to calculate a rough average.
This was relatively easy and fast. The final step was harder and required more time. I took that average I calculated and started using it as my new price. And, every time my new client agreed, without any negotiation, I increased my price and charged more. I didn’t lower my price when first client started to negotiate with me. This sign was too weak. Instead, I tried the same price with another few clients. It doesn’t necessarily mean anything if one person thinks you are charging too much. However, a number of people saying it is a different story.
This is the sign we are looking for, clients complaining about our price and trying to negotiate with us. So, if more clients tell us that our price is too high, should we lower it? No. We should explain why our price is actually justified. In this moment, our job is to provide evidence and convince our client about our price, not back off. If we lower our price when we meet first resistance, it is a sign for our client saying that we too don’t believe in our price. Otherwise, why would we be willing to even think about charging less? No. We would fight.
So, remember, when you meet resistance roll up your sleeves and give your client solid evidence your price is justified. Keep in mind that this is not a time to negotiate, but to validate your price to your client. You can train your negotiating skills some other time. At this moment, our goal is to get the job AND get it for our original price. Not a dollar lower. We need to be willing to charge high rates. Beginner, or not, you should be uncomfortable with the rates you ask for. Discomfort and the need to justify is a sign you are close to the right price.
When should you lower your price?
If clients complaining about our rate is not a sign to lower our rate, than what is? The only sign that we are charging too much is hearing a clear “No”, from more than one person. If a number of clients tell you “No”, not giving you any chance to justify your price, right after you say your price, it is a sign to consider charging less. Remember, this reaction has to come from a number of clients. And, it must be clear “No”. No space for negotiation or discussion. Otherwise, there is a chance you can justify your price.
So, it is only when clients start to reject you right on the spot, after you say your price, when you should think about lowering your rate. Otherwise, if your client is just hesitant to say “Yes” and needs more assurance, provide her with evidence that justifies your rate. There is one last tip everyone who wants to start a freelance business should remember. You can charge how much you want as long as you can justify it. So, as you learn new skills and gain more experience, regularly revisit your pricing model and adjust.
No.2: Learn to say “No” to clients and projects
There is no rule saying that you have to accept every client and every project. This may sound a bit weird if you just started your first freelance business. Rejecting clients and projects? When I started my freelance business I was happy for any project or client I could get. Rejecting any of them never even crossed my mind. Well, there were some moments when I thought about it, when the client or project was really a good fit. However, back then, I needed any project and client. So, I dodged the bullet and did the work.
In the beginning of your new freelance business, it can be really unavoidable to accept any and every project and client. We all need to make money so we can cover at least our living expenses. Otherwise, we are in trouble. In business, not only in freelance business, but any business, it is up to us to find a way to become profitable. We have to make money by selling something, either our products or services. There is no one who will automatically pay our bills or rent in the end of the month. We are our own employer.
For this reason, let’s take this advice as something we should apply as soon as possible, maybe just not in the beginning. Anyway, why should we want to get into situation where we can afford to reject clients and project? Well, there are two reasons. First, when we can afford to reject clients and project it means we are doing well. We have sufficient amount of project and clients to work. And, we probably don’t have to worry about making enough money to survive, or thrive, this month, maybe even the following one.
The good, the bad and the ugly
So, we can say that the option to reject clients and projects we don’t like is one of our goals when we start freelance business. To do so well we have the option to choose. However, this is only reason number one. Reason number two is that not every project and client will be the right fit for us. There will be projects and clients we will look forward to with a smile on our face. These projects and clients will remind us why we do what we do and why like to do it. Hopefully, we will have many of these, especially in the beginning.
Then, there will be projects that will arouse hardly any emotions in us. Projects in this category will be just a job, nothing special. We will complete these projects and forget them after some time. Then, there will be projects, and clients, we will hate. We will look at these projects grudgingly work on them only thanks to the power of our will. Hopefully, we will have only very few of these. These are the projects which can cause us to terminate our freelance business. Nobody wants to wake up each morning to do the work she hates.
When I started my freelance business, as a web designer and developer, I worked on a number of projects I hated. Every morning was a battle with resistance. I had to force myself to work on these projects because I want to finish them and move on. I probably don’t have to tell you that it took a long time until I completed these projects. It was a very uncomfortable, almost painful, stage of my freelance business. Anyway, why am I telling you all this? I don’t want to discourage you from pursuing your dream.
Find a balance between the good and the bad
My reason for saying this is a situation that is likely to happen and you should be prepared for it. You should not think or hope that every project you get will be your dream job and not every client will be like your best friend. Anyone who is in some type of a freelance business will probably confirm this. There will be bright days as well as dark. What I want to suggest is that you should find a way to balance the bad projects with good ones. When you get a bad project, and you have nothing else, do what is necessary and finish it.
On the other hand, if you get a bad project and you have at least one good, think about saying “No” to the bad one. Well, if you can afford it. It is sometimes better to sacrifice some money and do work you like than to take every job and feel miserable. Remember that freelance business is a marathon. It is a long-distance run and it requires a lot of time to build a name for yourself and your business. You need to find a way to keep yourself motivated and sustain momentum. You have to find the strength to going and not give up.
The more bad projects and clients will you accept, the harder it will be to find this strength and keep momentum. It is true that you can just grit your teeth and continue no matter how you feel. I know it because I did it. However, you will question your decision about starting a freelance business every day. Every day you will look for some reason to stay on the track. If you love your work, this will start to change as the time will go. It is up to you to ask yourself, is the money worth it? Is it necessary to accept this project, or client?
If the answer is “No”, then it is up to you to make the choice. Don’t feel bad for rejecting a bad project and taking only good ones for some time. This will help you sustain motivation and energy on your path and help you build your freelance business. Also, maybe this is just one bad project and the future has a nice surprise for you. Who knows? And, what if you can’t afford to decline? One, remember that it is just one project. There will be another, better. Two, remember your previous good projects, those you liked. Then, finish the job.
No.3: Ask for payment in advance
Always ask your clients to pay you upfront. This will be my last advice for this, first, part. It doesn’t matter whether it is a new client or one with whom you’ve already worked on multiple projects. You should always ask for some payment in advance, before you start working on the project. Let’s make something clear. Asking your client for money upfront is not a sign that you don’t trust her. In a fact, it is about the opposite. Asking for money upfront can help you create trust between you and your client. How?
When your client pays you some part of the payment upfront, it means that there is a clear commitment on both sides to bring the project to successful end. Your client shows that she wants you to finish the project and pay for your work. Sure, it can happen that she decides to terminate the project before it is finished. This is something even upfront payment can’t prevent from happening. However, the chance is lower. To lower it more, ask for non-refundable upfront payment. This will motivate your client to keep the project going until it is done.
By paying upfront your client also shows her confidence in you and your skills. Why would she pay someone if she doesn’t believe he can get the job done? See? Upfront payment shows that she trusts you. Now, your side. When you ask for, and accept, upfront payment it means you are committed to get that project done. When you accept upfront payment, you can’t back off just because you changed your mind. Well, you can, but you made a clear commitment and you will break it. Without payment, it is just your word.
Also, when you ask for upfront payment, and accept it, it shows that you are confident you can start it as well as get it done. Why would you accept payment for a project you know you can’t complete? Well, who knows. It shows that you have the confidence in your skills and that you take that project seriously. As you can see, asking for payment in advance helps build mutual trust between both sides. It is not a commitment only for one side of the table, but for both. It is part of a serious freelance business. Don’t feel bad for doing it.
How much should you ask for?
This is one of those questions for which there is no right answer. It is highly individual. Some freelancers ask for 10%, some 25% and others 50%. There are also freelancers who always ask even for 100% upfront. And, we should not forget the clients. Some will be willing to pay more and accept the upfront payment as it is. Other clients will want to pay less and they will try to negotiate with you. It is again up to you to decide whether you lower the amount or not. In the end, you will get the money anyway, either now or when you finish the project.
So, this is not such an issue as client trying to negotiate and lower your price. You can be flexible here and tailor the upfront payment to every client. Why to terminate the contract right before closing it, right? So, if you want 50% and your client is willing to pay 25%, be grateful say thank you, accept it and close the deal. After that, get to work because you have a new project to complete. Congratulations.
Closing thoughts on starting a freelance business
First things first. Congratulations to your decision to take the leap and start your own freelance business. This path may have difficult, even though, beginning. However, it can be very good and rewarding experience after you get your freelance business up and running and get momentum. Remember that those first steps are usually the hardest. Don’t let them discourage you. Remember that if someone else could make it and build a successful freelance business, you can too. When you hit obstacles, deal with them one at the time. Keep going and don’t give up.
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