Freelancing 101: Is It Time to Raise Your Rates?

March 27, 2015


Surfing the web late one night, you stumble onto the site of a freelancer just like you. You hop over to her pricing page, only to see that not only is she charging double your rates – she’s fully booked up for the next three months.

If you’re sick and tired of scraping by, or you just want to increase your fees to accommodate a lifestyle change, know that raising your rates is a common frustration among new and experienced freelancers.

Read on to learn how to recognize when a raise is due, as well as how to act on this realization:

How Most Freelancers Set Their Rates

Most newbie freelancers use one of two methods when setting their rates. Either they base their rates on their former salaries or they set their charges based on the income they want to make.

Freelancer A, for example, made $75,000 a year in his last position. He divides this number by 50 weeks (leaving himself two free for vacations) and then by 30 to account for the number of billable hours he plans to work each week, this gives him a former hourly rate of $50 per hour, which he then bumps up to $60 an hour – just to give himself a bit of a raise.

Of course, Freelancer A’s calculations don’t account for things like taxes, insurance and overhead expenses – all of which he formerly relied upon his employer to cover. Freelancer B is a bit smarter. She uses an online calculator that takes these costs into consideration. After inputting his estimated expenses, as well as the take-home salary she wants to enjoy and the number of hours she plans to work, she decides to set her freelance rate at $100 per hour.



The Impact of Standard Rate-Setting Practices

Our first freelancer is out of business within six months, as unexpected costs ate so far into his profits that it made more sense for him to return to steady employment. But our second intrepid freelancer isn’t doing much better, despite taking the time to plan thoughtfully for new expenses.

Freelancer B started off strong – she booked a few new clients right out of the gate, and thought she was on her way to freelance success.

Over time, though, she began to feel squeezed from all sides. She found herself lowering her rates and offering discounts to compete with lower-cost providers. At the same time, she kept getting stuck with clients who demanded extra features and project scope expansions – none of which were factored into her initial price estimates. She was working more hours and making less money, which she recognized was a recipe for disaster.

Whether or not your particular freelancing story bears a resemblance to one of these examples, you’ve probably encountered at least one of the signs you need to raise your freelance rates described below:

  • You aren’t making enough to pay your bills – not just your day-to-day living expenses, but the incidental costs of running a business as well.
  • You’re constantly getting stuck with clients that demand more of your time than you’ve charged for.
  • You don’t feel that your clients respect the value you bring to their teams.
  • You determine that you’re charging below industry-standard rates.
  • The demands on your time or an influx of new prospects enable you to be choosier in who you work with and what you charge.

Recognizing that you need to raise your rates is one part of the battle, but the way you conduct yourself with regards to this important business decision is even more important.

How to Give Yourself a Raise

No matter what your situation is, there’s a right way and a wrong way to raise your rates. Demanding that a current client give you more money for the work you’ve already agreed upon, for example, isn’t going to go over well – and it could do some serious damage to your professional reputation!

New clients

It’s far easier to raise your rates with new clients than with existing customers, so we’ll tackle this aspect first.

Raising your rates might sound straightforward – you simply pick a higher number and give it out whenever new prospects ask what you charge. But I’d like to encourage you to take a different approach. It’s going to sound crazy, but I recommend you throw out hourly billing altogether and instead base your costs on the value you’ll bring to the client.

Say that Freelancer B is a web designer. She decides to up her rates to $125 per hour and estimates that it takes her an average of 20 hours to build a new site. From this, her average project pricing falls around $2,500 total. But suppose the new site she creates has the potential to generate $100,000 in new revenue for her customer. Doesn’t it seem fair that she get a larger piece of the potential profits for the vital role she’s played in generating them?

That’s what value-based pricing is all about. If Freelancer B walked into her customer’s boardroom and said, “Would you be willing to invest $20,000 in a new site with me if it would generate $100,000 in new revenue?” there’s a good chance she’d get it. Not only would she earn roughly ten times more than even her increased hourly rate would provide, she’d enjoy the benefits that come from being viewed as a trusted provider who puts the company’s interests first.

For tons more information on how to adopt this pricing scheme for your own freelance business, check out Freshbooks’ free “Breaking the Time Barrier” guide. It’s a one-click download – no sign-up forms or payment required.

Existing clients

Value-based pricing is a great strategy for earning what you’re truly worth as a freelancer, but it’s tough to put into practice with clients that are already paying you an agreed-upon hourly rate. In these cases, you have a couple of different options:

  • If the scope of the work has exceeded your initial contract (and you do have a contract, right?), you can approach your customer with a request to renegotiate. Say something like, “While I will provide all contracted deliverables at the original rate, additional tasks and projects beyond that scope will be billed at my new hourly rate.”
  • If you have a long-term client who’s been paying the same rate for months or years, notify the customer at least a month or two in advance that you’ll be increasing your rate using a statement like the following, “I appreciate your continued business, but cost of living increases require that I raise my rates correspondingly. Effective at the start of next month, my new hourly rate will be $125 per hour.”

Certainly, it’s important that your accounts and customer relationships be in good standing – don’t try to raise your rates if your client is still waiting on you for last month’s assignments.



Whatever strategy you decide to take, be professional and firm. If you weren’t confident in the value you have to offer as a freelancer, you wouldn’t be doing this type of work in the first place. Use this confidence to back-up your rate change requests, whether you decide to adopt a value-based approach or an hourly rate. Make your customers believe in your potential, and you’ll have no trouble charging the rate you truly deserve.


about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.