Assessing the price of your services is an arduous exercise for anyone starting out... How do you determine how much your clients are willing to pay for your services? Which aspects of your work can you include in your price? Read on for some specific explanations and examples...
Not all freelancers are equal
There are freelancers and self-employed people operating in a wide variety of trades and activities, from construction to childcare, consulting to art and events. At some point, however, everyone has to set a price for their services. Do you offer a monthly "all-in-one" fixed rate, or do you work on an hourly rate?
This choice largely depends on the nature of the work involved. Ordinarily, a self-employed person performing purely executive tasks such as administrative support or transporting goods would charge an hourly rate. Translators and copywriters tend to charge by the word or by the line, while graphic designers propose a price for the whole project. Others receive commission or remuneration linked to the results obtained. Daily remuneration or fees are often applied by self-employed consultants, (interim) managers, experts, advisors and so on.
How do you calculate your price accurately?
Setting prices should be a compulsory exercise for any self-employed person starting out. For the sake of clarity, we're discussing the process of setting prices for the services provided here. Although products and services are often intertwined, it's always a good idea to calculate the price of your services. This calculation can be carried out in various ways, but the best solution is to combine several methods.
#1 Estimate how much you would like to earn
As a first step, you could determine your ideal net income.
Are you about to quit your job as an employee and start out as self-employed? In this case, it's best to compare this amount with your current income or net salary. However, it's not always easy to determine your current income. Take a look at the income simulation below.
Simulation: income as an employee
Gerard works as a sales representative for a tile manufacturer. He earns €1,800 net per month. He also benefits from several financial advantages offered by his employer:
His salary + benefits – taxes brings him a net monthly salary of €2,550.
One day, Gerard finds a niche in the market and wants to start his own business: offering sales training to companies. He is prepared to live on less and sets himself the initial target of achieving a net monthly salary of €2,200.
Tip: refer back to your previous year's tax return.
#2 Calculate your expenses
Generally, to make sure you're well prepared, you'll draw up a business plan and a financial plan before starting out as self-employed. These plans must specify the expected expenditure, which is already a good basis.
If you haven't already drawn them up, consider the following elements (without taking into account deductible expenses, VAT reclaims, etc.):
- Estimate the costs involved in launching your business: purchasing the materials needed for your activity (software, IT equipment, etc.), one-off marketing expenses (logo, website), company car, administrative start-up costs (notarial deed), etc.
- Estimate the recurring expenses: rent, social security, accountants, utilities, Internet, any rental charges for leasing, marketing, insurance, pension savings, etc.
Do you already know where to set up your business? If applicable, find out about provincial and municipal taxes, personal income tax and the minimum corporation tax, etc.
If you really have no idea what you'll be spending, then do at least one of the following things:
- Talk it over with a fellow entrepreneur
- Or with your accountant
- Use your current expenses as a basis for your expenses (Internet, fuel, etc.). The big difference here is that you'll get (part) of the VAT back — but let's keep it simple.
- While this may not be the best idea, it's better than nothing: estimate a fixed amount for your small expenses.
It's vital to bear in mind that as a self-employed person you can't consider everything you earn as disposable income. Sooner or later, you'll get the bill, if you've already spent all your money by then, you'll be faced with a major problem.
Add up all the costs you're aware of and convert them into a monthly amount. Now you know what you'll be spending on average each month.
#3 Add up what you really need to earn each month
You've got the hardest part behind you now. Although the above advice makes a lot of sense, many self-employed people don't follow it. Done it already? Then you've already taken a very important step.
Now add up your desired income and expenses, to get a much better picture of the income you'll need to generate to keep your head above water.
Take a look at the expenses simulation for a simple start-up:
Simulation: start-up expenses
Melissa is starting out as a self-employed translator.
Her investments and costs are relatively limited:
Desired monthly salary: 1,700 + monthly expenses: 3,000 = €4,700;
On average, Melissa MUST invoice €4,700 a month. This is the net amount excluding VAT.
#4 Estimate your hourly rate
When you start out as self-employed, estimate your hourly rate as early (and correctly) as possible. On paper, it sounds like a dream come true. A rate of 50 euros x 8 hours/day x 20 days worked per month = 8,000 euros, and you think, "I should have gone freelance much earlier". But the reality is quite different.
As a self-employed person, you can't charge a large part of your time to your end clients. You spend it contacting suppliers, carrying out administration for your business, prospecting, writing quotes and invoices, and so on.
A considerable proportion of your work will consist of non-billable time. As with expenses, people starting out underestimate the amount of time that goes unbilled. In other words, when they're staring out, service providers quite easily overestimate the number of hours they will be able to invoice their clients for. Take a look at the following two simulations to see what we mean:
Simulation 1: working hours for start-ups and the self-employed
Zohara is starting out as a life coach. During the first three months, an average working week is as follows:
Desired monthly salary: €2,000 net
Zohara CAN invoice 80 hours per month. Since she WANTS to earn €2,000, she MUST invoice €6,800.
The hourly rate applied to her clients is therefore: 6,800 / 80 = €85 per hour. In reality, she works a lot more than this. She therefore earns: 6,800 / 152 (38h/week x 4)/month = €44.75 per hour
And even this still doesn't correspond to reality. Like many other people starting out, Zohara forgets to take into account, among other things, her actual available time (see the point on holidays...).
The number of "unpaid" hours varies from one start-up to another. However, in the best-case scenario, you can expect this to be about 30% of your time.
Simulation 2: working hours for start-ups and the self-employed
Bert and his brother Jean are starting a family business. Bert is an interior designer. Jean is in charge of sales and administration.
After three months of business, an average working week is as follows:
Although both brothers work the same number of hours and complement each other very well, only one really brings in the money.
In other words, they have 50% of their time to generate 200% of income.
And that's without counting holidays and days off...
The above scenarios assume that you work the same amount each week of the year. In other words, you don't take holidays. As an employee, you were entitled to paid leave, weekends off and official public holidays.
Do you want to keep them while you're working self-employed? It is possible, but instead of generating income for 52 weeks, you have 52 – 2 weeks holiday – 2 weeks in between (illness, "off" days and public holidays you don't want to miss). This leaves a total of 48 weeks of work.
It's time for a little simulation:
Simulation: estimating real hourly rates for start-ups
Bert and Jean want (or rather need) to earn 12,000 euros a month. Only Bert works billable hours. Of his 45 hours of work per week, he spends 3 hours in the car. He does invoice for travel costs, but this is still far less than his hourly rate. In addition, it is customary to cover (fuel) costs. For ease, these revenues essentially amount to zero.
If they work every week of the year:
Bert and Jean MUST generate €2,769 per week.
If they take 4 weeks' holiday a year, however, they still need to generate the same amount:
A slight change in your hourly rate ultimately makes a big difference to your turnover. By simply increasing your desired hourly rate by a few euros, you can (in theory) easily take a week of holiday while working self-employed.
What about your hourly rate?
Calculating your hourly rate in relation to the income you need to earn has two advantages:
- You can use it as a basis for future price calculations (yes, we're not there yet).
- This makes the work motivating. When you work knowing the set amount in advance, you generally feel better. Even the unbilled hours are still covered, because you were smart enough to take them into account when assessing your price — and to include them in it.
If you're working as a contractor, it's obviously useful and necessary to offer an hourly rate. It's hard to estimate in advance how many hours you'll need to complete your job, and your client should to be well aware of this.
In many situations, working as a contractor is the only option. Take a look at the simulation below:
Simulation: contract work
Andrea is launching a law firm.
Every lawsuit is different. Some cases will drag on indefinitely, while others will be resolved quickly. However, it is impossible for her to predict in advance and let her clients know how many hours will be needed to settle their case.
HOURLY RATES ADAPTED TO DIFFERENT SERVICES
This solution is also becoming more common. Logically, an expert assessment will cost more than an essential but simple administrative task.
Simulation: varying hourly rates
Yannick is starting out as an accountant. In order to devote as much time as possible to his core business, he hires Simon as a secretarial assistant. Unlike a self-employed person who doesn't charge for the hours spent on the administrative side of things, Yannick has little choice, which is why he divides his hourly rate into three different services:
Neither Yannick nor his assistant can work full-time for billable hours. As a result, their hourly rate is slightly higher than they had envisaged. This way, they can be sure that they won't run into cash flow problems at the end of the month.
THE PITFALLS OF WORKING WITH AN HOURLY RATE
All the above simulations have one thing in common: they are theoretical examples. Don't trust them blindly. An hourly rate assumes an ideal situation overall. But in reality, it often looks quite different.
Assess your hourly rate with the help of your accountant, to avoid unpleasant surprises. If you are already self-employed, we recommend that you repeat this exercise every year!
#5 Apply a rate per project rather than per hour worked as soon as possible
Now that you've estimated your hourly rate, you can more easily calculate your prices for larger-scale projects.
Your price for a project = the estimated number of hours x your hourly rate
Don't forget to include any additional costs, such as travel expenses, printing educational materials, etc.
Drawing up a quote based on a project rather than the number of hours worked has several advantages:
- You and your client are both aware of the cost/benefit in advance.
- Your client doesn't have to worry about the actual time you spend on the project. This builds a trusting relationship.
- You keep the same rates, while maybe working more efficiently — and therefore more quickly — after a while. As a nice consequence, your average hourly rate increases without the client noticing.
Even if you're already invoicing on a project basis, it's a good idea to keep an eye on the number of hours you spend on these projects.
- This approach allows you to work as efficiently as possible. If you know that you're only being paid for three hours' work, you'll be less inclined to spend eight hours on the job.
- Eventually, you'll get a more realistic picture of your business. People running start-ups often tend to overestimate or underestimate themselves. By keeping an eye on your working hours, you'll be in a better position to estimate the right price to charge your future clients.
COMBINE CONTRACT WORK AND PROJECT-BASED WORK
This method is also very common, and proves very useful for some specific types of service.
Simulation: rates for contract work and project-based work
Patrick is starting out as a locksmith.
His tasks vary. It takes between one and five hours to install a lock. His working time depends, among other things, on the object that he is installing the lock on (safe, door, suitcase, etc.).
For other odd jobs, they almost always work out about the same, so he sets a specific rate.
When you submit a quote based on a project, don't include your hourly rate or any estimate of the number of hours required to complete the job. In fact, your clients would end up doing the calculation themselves and, if they do, their conclusion is usually that you're expensive.
#6 Set your price according to what your competition is charging
Can you offer unique or highly specialised services? If this is the case, you'll undoubtedly have a lot of value, and the competition will also be less fierce. This means you can charge a higher hourly rate or price. The easier the job, the tougher the competition and, consequently, the more pressure on your rates as a freelancer.
As a start-up, it's always a good idea to be aware of your competitors' prices. If necessary, call on some friends to investigate on your behalf. Compare your own hourly rate with the reference prices that may be set by your union, look for recent (!) prices on the Internet, etc., and ask an accountant for advice.
However, make sure you wait until you've set your own prices before comparing them with those of the competition. Otherwise, you risk looking blindly at your competitors' prices and letting yourself be influenced too much. Also, bear in mind that:
- You don't know your competitors' costs. They may employ staff, own a more expensive car, or have fewer expenses.
- As a start-up, you have little or no experience. It might take you five hours to do what your competitor can do in two hours. If their hourly rate is higher than yours, you end up with the same price. Or maybe you're even more expensive.
In short, it's often better to rely on your own strength and compete on quality rather than price. Look at what other start-ups (dare to) ask. This is a very useful task that will allow you to asses the hourly rate you've calculated. You may find that your price is a little too high — or vice versa.
#7 Assess and invoice your added value
As a service provider, you supply added value. Clients come to you because they don't have sufficient knowledge or time to do it themselves. This means you have added value to offer, and you can/should charge money for this.
The exact amount and type of the added value you provide varies from one start-up to another. We'll explain this concept using two examples.
Simulation 1: added value calculated in terms of time saved
After completing his studies, Noël started out as a self-employed programmer straight away. He developed an online program that enables company managers to see an overview of all their employees' journeys at the end of each month. This data is nicely presented in the form of statistics: number of kilometres travelled, locations visited, time spent per location, fuel costs, etc.
Compiling this data would normally take four hours of work a month for an administrative employee. This was the basis Noël used to set the price for his programming.
4 hours x 35 (cost of paying the employee who would normally do this task) = €140/month.
Here's another example of how to price your added value.
Simulation 2: added value calculated in terms of flexibility
Laurent is starting out as a self-employed photographer, and his assignments are fixed in advance. However, from time to time, he is given an urgent task to complete that evening.
In addition to his fixed rates for photo reports, Laurent also applies a specific fee for this type of task. The client needs it immediately, which means other clients have to wait. So as not to make his rates unnecessarily complex for himself and his clients, Laurent applies an rush surcharge based on a percentage system.
2-hour photo report: €150.
You can easily determine and differentiate your price based on the added value you have to offer. However, make sure you can also justify this (additional) price. A premium price for a premium client requires a premium service (you can work faster or over the weekend, offer them your first working hour, work on the client's premises — or not — etc.).
#8 Assess your price according to the other party
There's a big difference between working for the baker down the street or for a multinational enterprise. When setting your price, it's not only the nature of your client that counts, but also their location. You can easily offer a slightly higher price to your clients in "richer" areas, such as Brussels. Certain sectors are also known to pay better, such as banking and the pharmaceutical and chemical industries. As for the cleaning and transport sectors, they pay less.
Whenever possible, adapt your price to suit the other party. But be smart and never go below your fixed hourly rate, even for the local baker. If you pass this threshold, you're opening the door to being exploited. In this case, closing it again can cost you several clients, your reputation and, ultimately, your income.
#9 Assess your price according to what your clients are willing to pay: the niche market
Something is only worth as much as a fool is willing to pay for it. This generally applies to rare products, such as highly sought-after collectibles, for which people are prepared to pay astronomical sums. You can also apply this principle when setting the price of your services.
When you provide services in a niche market, your potential client base is much smaller than when you offer more mainstream services. If you provide services in a niche market, it's not unusual to raise your prices considerably, provided your offering does indeed contain something highly specialised or unique.
Simulation: adjusting your price depending on supply/demand
With his start-up, Steve supports companies wishing to relocate their industrial facilities.
More specifically, he focuses on finding a suitable site and sufficient logistical support. A true niche market.
Since he can only take on a few projects a year, and demand is relatively low, there are only a few companies that offer this type of service. As a result, Steve demands a very high price. Companies are willing to pay for this service because Steve adds so much value.
Do you really have something unique to offer where there's a demand? Then make sure to propose sufficiently high prices. What's more, a high price very often gives the impression that you're providing a service of essential quality.
Don't forget !
When calculating your hourly rate, make sure you also take inflation into account. The cost of living is rising each year, as are employees' salaries. What's more, you're also developing. From time to time, this progress lets you give yourself a pay rise! That's why you should assess your hourly rate carefully every year.
Many start-ups forget to adjust their prices. Don't make the same mistake.
A client whom you currently charge €40 for a service will remember this amount as a reference point. If your client then places a new order and suddenly has to pay €50 for the same service, you've got a problem.
Unless you make it clear to your clients (and yourself) in advance:
- That your prices will be indexed each year.
- That your quote includes an expiry date.
THE LITTLE JOBS THAT COST YOU MONEY
Your satisfied clients often start by giving you small requests, little morsels. Giving them five minutes here and there all adds up in the end. You can, of course, do a quick job to please one of your clients. However, you also need to earn a living, and clients need to understand that you don't work for free. Mentioning a fixed rate for small jobs is a good option (in the quote, general terms and conditions, etc.).
If you want to offer a discount that would mean you fall below your hourly rate, make sure you state this clearly. Offering a client a tacit discount isn't exactly a brilliant marketing move.
You can offer a discount for several reasons:
- Volume discount: you can easily give a discount to a client who uses your services frequently. This shows your gratitude and builds trust.
- Temporary discounts: a wellness centre may offer a special discount for Mother's Day.
- Loyalty discount: you can certainly give your loyal clients an extra discount as a thank-you.
Some useful links
- Freelancenetwork.be: database for finding freelancers and posting assignments requesting their services.
- lovetobefree.be offers some useful tools to support freelancers:
- With Nacalculator, when you've finished an assignment, you can calculate whether your estimated costs (hours worked, actual costs, etc.) were in line with reality. Recalculation is a very important process for keeping your revenue stream under control.
- The hourly rate calculator enables you to find a well-founded rate. Enter the parameters and you'll see straight away whether you're currently charging too little, just enough or even more than necessary.
- Freelance business guide's hourly rate calculator (calculations also possible in euros)
- Comanage 2.0: online management tool for SMEs and self-employed people (invoices, quotes, client management, calendar, etc.). This site will soon be available in French too.
Sources: this article largely reproduces the content of an article on the comanage.be website (published with permission).