Determining an Hourly Rate: A (Sometimes) Necessary Evil
In a perfect world, freelance UXers would charge by project rather than working up hourly estimates and invoices.
Unfortunately, this approach can’t always work. I sometimes find myself facing strong expectations about how (and what) I will charge, especially when I’m subcontracting with marketing agencies.
Setting a rate for new clients isn’t easy, so I thought I’d offer a view of the pricing model I’ve arrived at after many years of freelancing, as many years of wincing at agencies’ crazy schemes, and perhaps one philosophy class too many.
I’ve broken my model down by the most important factors I weigh when making my bids:
- The going rate
- My replaceability
- The value I add
I also touch on a pair of considerations I avoid taking into account at all, despite their allure:
- How much I want the job
- What I know about the client's budget
The Going Rate
I almost always start with some understanding of what other freelancers are charging for a given kind of work. Let’s say I have the sense (or can acquire it) that usability testing goes for between x and y an hour. I start with that figure in mind and do some reckoning on the intangibles that make up the remainder of this article.
It’s worth acknowledging that, in a way, anchoring oneself to the going rate is frustratingly arbitrary. From a more principled standpoint, it seems better to figure your rate with a set of formulae involving the cost of doing business, the cost of living, the kind of profit you want to make, and the number of hours you expect to work.
However, this method means a lot of hard work, a little advanced math, and a touch of clairvoyance. It will also likely yield very different rates for different people in the same field because of individual differences in cost of living. I may insist on eating pastured poultry while you stick cheerily with factory fowl, but my clients can’t be expected to pay me more to accommodate my chicken choices. Likewise, just because I got my training on the job and you have a fat loan payment every month for grad school, that doesn’t mean you should command a higher rate.
In lieu of these calculations, I resign myself to trusting market forces to determine a baseline rate against which I can measure my own value in the ways I discuss below.
With an initial figure in place, I consider including a premium (or, in rarer cases, a discount) to account for the difficulty (or ease) of replacing me as a resource. As long as my clients see me as worth what I charge them, this concept remains theoretical, because then I don’t get replaced. Even on theoretical grounds, though, replaceability does matter, since I can bring in more money each hour from clients who can’t imagine trying to replace me.
For rate-setting purposes, it’s worth clarifying that replaceability should be a factor only at the start of a project. If I were abducted by aliens midway through a project, my clients would have to scramble to meet their deadlines. I want my rate to reflect a more common situation, where the client has ample opportunity to find somebody else. I don't want to hold anybody hostage; I want my clients to want to stick with me.
In that hypothetical situation, where a client has worked with me and is considering working instead with somebody else for the next similar project, my replaceability is made up of several components:
- My past successes on projects at the same company (or working elsewhere with the people now employed there who can vouch for me)
- Their comfort with my shortcomings (the “Devil You Know” factor)
- Most importantly: the prevalence of my relevant training and experience in the population from which the client might seek to replace me (which is, typically, the pool of local freelancers in my field)
The more unique my preparation for the work at hand—in terms of both training for tasks (e.g., usability testing, web strategy) and experience with a certain kind of project or client (responsive design, higher education)—the more I am inclined to charge.
The underlying principle is again not about creating a captive, resentful audience, but about fair compensation in an open marketplace. If I can do better on a given project than the likely competition, then I will charge more. Over time, if I’m right about my assumptions, I will be successful at the rate I’ve determined. If not, I won’t.
Value I Add
Let’s say I’m up for a project overhauling the user experience of a large university website. I’ve done many of these, and so I imagine myself difficult to replace. But I also used to work as a content manager, establishing and overseeing large-scale content migration projects. It’s so easy to hamstring a content team with unmaintainable content types that I expect my thorough understanding of what makes a CMS tick will surely help me do a better job architecting page templates than someone without that knowledge.
That particular experience probably isn’t required to get the work. My client, the agency, wouldn’t likely articulate it as desirable, nor would their client, the school, think to demand it of the UX resource on the project. It might not even be something I choose to discuss with my client as a selling point, since it is tangential to the job’s actual requirements. But I know that it will help me do better work, and I might even expect that its importance will become clear over the course of the project, helping the agency understand my value.
In a way, these extras are the silent counterpart of replaceability, serving the audience well, but as behind-the-scenes DVD extras rather than scenes that made the final cut. Some of them are even farther afield than the content-management example above. For example, having an aunt who runs a non-profit helps me understand the respective challenges of grant funding, earned income, and donation streams—such that I can more effectively serve potential grantors, customers, and donors in the experience I help create for them.
What Not to Do
As a rule, I don’t lower or even raise my rate because of my answers to either of two common questions:
How bad do I want this work?
Almost every agency I know of has at some point taken a loss just for the sake of landing a given client or project. Maybe that’s the way they have to do it, as companies with big payrolls, but as an individual, I find that it lacks integrity. If a potential client won’t pay me what I’m worth, I’ll find somebody else who will—and the one I’ve declined will likely find somebody else who’s worth less.
On the other side, I’ve known several freelancers who charge more for work they would rather not do. The mentality is, I really hate this kind of thing, but I’ll do it for an extra ten percent. This seems lazy to me. If you can afford to stand firm on your price premium, you can probably also afford to decline the work and find a gig you’d rather have. Charging the “dispreference premium,” especially for what is likely to be mediocre work, is also surely not a recipe for repeat business.
What’s left for me in the budget?
Here’s a familiar story: A group I’ve worked with has a sense of what they’d like to do for a potential client, and the sales team has heard through the grapevine that the budget is only three-quarters of what it would take to get it done. The final proposal went out for that reduced amount, with no change to the project’s original scope. The team asks me if I will do my part to get the project done, but for a reduced rate.
Charging less for the same amount of work is something freelancers can’t afford to do too often, since they lack the cash-flow cushion that successful agencies sometimes have. In the nastier ends of the agency environment, unfortunately, setting a precedent like that can mark you as a pushover.
In these cases, consider instead requiring fair compensation for what I know you can deliver. If you know for certain it won’t fly, save yourself the awkward conversation by politely declining, offering to keep in touch, and going off to find work that will pay you fairly.
Interestingly, you might be surprised how often you’ll hear from those same organizations again. When you set yourself up as a premium option—and demonstrate your value during your sales process—working with you becomes a kind of aspiration. In the long run, standing firm on a carefully reasoned and thoroughly justified rate usually pays off.
As I mentioned, my system isn’t perfect, and there’s a good chance that no system is. But mine has worked well for me. Here it is in shorter form:
- Start with the going rate.
- Make any sensible adjustments to account for your irreplaceability on the project at hand—mostly, that is, on the prevalence of your most relevant training and experience in the pool of freelancers from which your client might hire if you weren’t around.
- Consider other intangibles that may make you more valuable—subject-matter expertise, for example, or useful skills uncommon in the field.
And again, I avoid compromising my rate based on a strong attraction to the particular work I’m trying to get or on what I know the client may have left for me in the budget.
Every client is different, like every project and every freelancer, so you may have to make adjustments I haven’t considered here. But I hope that my system at least gives you a useful starting point and, ultimately, helps you earn what you’re worth.
Image of Japanese abacus courtesy Shutterstock