1 00:00:00,000 --> 00:00:04,960 [Pasan Premaratne] Regardless of the pricing method you go for, you have to establish a baseline. 2 00:00:04,960 --> 00:00:12,650 The price you charge for a project should be enough to cover your expenses, billable work hours, and bring in some profit. 3 00:00:12,650 --> 00:00:17,770 Rather than just picking a random starting figure because it's what other people in the industry charge, 4 00:00:17,770 --> 00:00:23,790 calculating the best rate for you will allow you to accurately evaluate your financial progress. 5 00:00:23,790 --> 00:00:30,040 To calculate an hourly rate, start by totaling all direct and indirect expenses for the year. 6 00:00:30,040 --> 00:00:37,660 This includes things like rent, utilities, insurance, employee salaries & benefits, advertising & promotion, 7 00:00:37,660 --> 00:00:44,770 outside professional services, equipment, office supplies, business taxes, and client services. 8 00:00:44,770 --> 00:00:48,890 Next figure out the number of hours you plan to work in a year. 9 00:00:48,890 --> 00:00:54,460 Start by calculating the total number of days you want to work and the number of hours per day. 10 00:00:54,460 --> 00:01:03,340 If you're sticking to a 9-5 schedule, 5 days a week, that's roughly 251 working days a year—taking into account holidays and weekends. 11 00:01:03,340 --> 00:01:08,930 If you want to work 4 days a week, that's perfectly fine as well. You are in charge of your own schedule. 12 00:01:08,930 --> 00:01:13,490 Deduct any planned vacation time or time outside the business from this total, 13 00:01:13,490 --> 00:01:18,010 and you have a rough idea of the number of hours you will work during the year. 14 00:01:18,010 --> 00:01:25,140 Add to your total expenses a reasonable profit margin—usually anywhere between 10-15%. 15 00:01:25,140 --> 00:01:29,250 Divide this figure by the number of hours you plan on working. 16 00:01:29,250 --> 00:01:35,990 This resulting hourly rate should cover all the costs of running your own business, including your own salary. 17 00:01:35,990 --> 00:01:44,660 Say your annual expenses are around $72,000. You add a 10% profit margin of $7,200.¾ 18 00:01:44,660 --> 00:01:47,060 Divide this by the number of hours you work. 19 00:01:47,060 --> 00:01:55,360 So let's say I work 241 days at 8 hours per day, which is 1,928 hours. 20 00:01:55,360 --> 00:02:05,800 Divide this $79,200—your total expenses plus your profit margin—by the $1,928 to arrive at your approximate hourly rate. 21 00:02:05,800 --> 00:02:09,530 For this example, that's $41 per hour. 22 00:02:09,530 --> 00:02:15,360 Now when calculating working hours, most professionals don't include time spent on administrative work— 23 00:02:15,360 --> 00:02:21,760 things like writing proposals, billing, and self-promotion because that's not strictly client work. 24 00:02:21,760 --> 00:02:27,570 Other freelancers use a multiplier that's unique to the project—a creativity coefficient. 25 00:02:27,570 --> 00:02:31,610 This number is a multiplier of your base rate to help you match the price you charge 26 00:02:31,610 --> 00:02:35,780 with the level of creativity and difficulty of each project. 27 00:02:35,780 --> 00:02:42,400 Creativity coefficients can be close to 1 for projects that are dead easy for you and stuff that you do all the time. 28 00:02:42,400 --> 00:02:46,890 But as difficulty or uniqueness of the project increases, so does the coefficient. 29 00:02:46,890 --> 00:02:52,890 With an hourly rate when you consider a project, you should carefully estimate the number of work hours. 30 00:02:52,890 --> 00:02:58,890 You can then multiply this rate by the hours to figure out whether the client's budget at least covers your costs. 31 00:02:58,890 --> 00:03:05,450 If it doesn't, you can negotiate with the client for a higher fee, propose a different solution for the project that takes less time, 32 00:03:05,450 --> 00:03:11,970 talk about reducing the number of features implemented, or whatever is needed to come to a mutual agreement. 33 00:03:11,970 --> 00:03:18,790 Coming up with a per project price involves roughly the same approach, but is more appropriate for freelancers who have experience. 34 00:03:18,790 --> 00:03:25,840 Say product landing pages is your specialty and that over the years you've found out that it takes you 2 weeks to do it. 35 00:03:25,840 --> 00:03:31,000 You calculated your baseline rate awhile back and found it to be $40 an hour. 36 00:03:31,000 --> 00:03:37,840 Given these numbers and some rough calculation, we can say that you should be charging $3,500. 37 00:03:37,840 --> 00:03:44,410 After doing it for awhile if another landing page comes in, you know off the top of your head that the minimum fee for this project 38 00:03:44,410 --> 00:03:47,060 should be $3,500. 39 00:03:47,060 --> 00:03:51,650 Without having to drill down into hours and cost, you can comfortably tell the client 40 00:03:51,650 --> 00:03:54,890 that it will cost them around $4,000 for the whole project. 41 00:03:54,890 --> 00:04:02,600 Per project pricing is always more attractive to clients but it comes with experience, doing this for awhile, and knowing your numbers.