Freelancer pricing models — how to charge for services

Is your pricing model hindering your growth?

Photo by Austin Distel on Unsplash

I was giddy when I read the offer email. I imagined taking 3-day weekends, leaving the office at lunchtime, and sleeping in.

This was my first salaried job — an editor at a small weekly newspaper.

The paper had no requirements for the number of hours I worked. As long as the stories were covered and the paper went to print by each Monday at 10am, I could spend as much or as little time in the office as it took.

I had never had a job that wasn’t hourly before and it seemed freeing.

The reality turned out to be quite different. Events I had to cover happened in the evenings and on weekends. Interviews with sources were usually early in the morning before their workday started. And that 10am Monday print deadline? Well that meant Monday morning started at 5am.

Writing, editing, and designing the paper took 20+ hours per week. Events were another 15 hours at least (sometimes I’d log 10 hours just commuting to the events and offices). Plus each week I had to respond to readers, follow up with contacts, type up press releases, and work with the digital department to get stories uploaded to the website and shared on social.

At one point, our managing editor asked the editorial staff to fill out time sheets because he was worried that we might not be working full time hours. We quickly realized with simple math that if our paychecks were calculated hourly, we were coming in at well below minimum wage. (The managing editor never asked us to do that exercise again!)

Instead of trading “time for dollars” I was trading time for nothing in return at all!

Freelancers I work with often have similar frustrations. They’re pumped about their first retainer agreement or large-scale project but soon realize that the scope has ballooned uncontrollably or that deliverables are taking wayyyyy longer to deliver than they thought.

Maybe you’ve had that experience, too. Up late at night, skipping out on events, or missing time with family to hit a deadline — long after the money is gone.

I’ve been researching freelancer pricing for years now and the glaring hole is that nobody understands how various pricing models actually play out in practice. Because nobody understands it, nobody teaches it. And most of us end up guessing our way through this critical part of the business.

I’ve been researching freelancer pricing for years now and the glaring hole is that nobody understands how various pricing models actually play out in practice. Because nobody understands it, nobody teaches it. And most of us end up guessing our way through this critical part of the business.

Turns out, there are 10 freelancing pricing models. These models can be divided into short-term and long-term engagements and then ranked from level 1–5.

It’s important to note that these levels are not the quality of the pricing model, but how detached the payment structure is from time spent.

Level 1 models are entirely dependent on time spent, difficult to scale, and offer little flexibility. In contrast, level 5 models are easier to scale, depend more on results, and offer the most flexibility.

Let’s break down all 10.

1. Per word/image/page
2. Hourly
3. Custom project-based fee
4. Day rates
5. Services Menu/Packages/Productized Services
6. Hourly-based retainer
7. Deliverables-based retainer
8. Role-based retainer
9. Performance Bonus
10. Royalties/Partnerships

Short-term engagements

Level 1: Per word/image/page

Many freelancers, particularly writers, start out with this model of charging per word for their services. In a recent study, I discovered that only copywriters working less than two years listed “per word” or “per hour” responses to project estimates.

The problem with charging per word is that it creates the wrong incentives for both sides of the engagement. For the writer, you’re incentivized to write “longer” not necessarily better or effective copy. Speed is the only metric that matters in your business. For the client, you’re incentivized to value each word in the piece the same. Is a 5-word headline worth the same as a five-word sentence mid-piece? Should the writer spend the same amount of time and energy on each?

Quality and time are not valuable factors in this type of arrangement.

Level 2: Per hour

Freelancers (and those hiring freelancers) will often default to an hourly rate because the model is familiar to them. Most corporate jobs pay hourly and even salaried jobs are based on an estimated hourly output.

For hourly rates to work, both the client and freelancer need to know how long projects will take. If the project takes longer than expected, this is an unwelcome surprise for the client. If it takes less time than expected, the freelancer is penalized for efficiency.

It’s important to keep in mind just a fraction of a freelancer’s time is actually “billable.” Hourly rates can seem too high because freelancers have to take into account that they don’t receive employee benefits, they pay for their own equipment and office space, and have to budget in the time it takes them to acquire clients into their annual salary.

In a study of over 550 copywriters, we found that freelancers who charge by the hour make 42% less than those who charge by the project.

Level 3: Custom Project-based quote

The most common freelancer pricing model is project-based billing. After a prospect call (also called discovery call or introductory call), the freelancer creates a custom quote based on agreed upon deliverables.

A common way to calculate a project-based fee is by using “backstage pricing.” Kevin Rogers of Copy Chief is a big proponent of this method. In short, you use your target hourly rate multiplied by time estimates to come up with a flat fee. (Click here for a video where Kevin explains the whole process).

Like hourly billing, this method depends on knowing how long a project will take. The advantage of straight hourly rates is that once the project begins, the freelancer will no longer need to track time or report those hours to the client. It also allows both the client and the freelancer to know exactly what the fee will be with no surprises. It eliminates the efficiency penalty.

It is critically important with a project-based fee that both parties know (and agree on) the exact deliverables as scope creep is common in these arrangements. An appendix to the contract or project agreement listing each and every deliverable and timelines for each will make the project run more smoothly.

Level 4: Day Rates

Day rates combine the benefits of the hourly and project-based models. Freelancers that bill by the day provide prospective clients with an estimate of work that can be completed in a “working day.” How many hours are in a working day varies per freelancer. It could be as little as four hours or as much 8–10.

Day rates allow freelancers to maintain a predictable schedule and help clients get a more accurate idea of budget and timeline for a specific project.

Copywriter Laura Belgray used day rates as her preferred pricing model and required that clients book an hour or more consultation before booking the day. This allowed her to be sure that the project scope would fit into one working day. Click here for how Laura explained her rates and the process.

Two elements have to be in place for day rates to be most effective — the freelancer must understand how long it takes them to complete a project and the client must provide all the details and assets for the project up front as there’s no time for the typical project back-and-forth.

Level 5: Services Menu/Packages/Productized services

When freelancers have a set services menu, this allows clients to know exactly what they’re getting for the price. It also allows freelancers to limit their service offers to what they do best and provide the best results for their clients.

Packages (also called “productized services”) also eliminate scope creep as package scopes are clearly spelled out from the beginning.

Since the packages are the same or similar for each engagement, efficiency improves over time as the freelancer can hone their process for each client, automating or outsourcing steps as they grow.

While packages can be used in several niches, it is limited to deliverables where most clients will have exact or similar needs. (Think web copy, logo design, audits, etc.). Prerna Malik of Content Bistro uses packages almost exclusively. Check out this free training from Prerna for the Freelance Co-op for more details about how to come up with, create, and price service packages.

Long-term engagements

Level 1: Hourly-based retainer

A retainer describes a monthly fee for regular and consistent work. This allows freelancers recurring revenue while saving the client time (and sometimes money) as each project is not negotiated separately. Retainers could include consulting, editing, writing, designing and more.

As we’ll cover, there are several options for how to structure a retainer with the first being a set number of hours each month. Just as with the short-term engagements, the key is that both the freelancer and client can estimate how much work can be produced in the time frame.

Project time estimates are a good practice here. Sample language for a proposal includes: “20 hours per month dedicated solely to your projects. As an example, in this amount of time I can create original and compelling copy for a Sales Page or Email Series.”

A common issue that comes up with hourly based retainers is “rollovers” where the client requests unused hours can be used the following month. This needs to be discussed in advance and spelled out if, when, and how rollover hours can be used.

Time tracking is a key task in these arrangements so that the client knows how many hours are left for the month and how much each assignment costs in hours for planning purposes.

Level 2: Deliverables-based retainer

Similar to packages, deliverable-based retainers are great for clients that have a predictable, regular set of needs each month. A common use case for deliverable-based retainers are blog or social media content. Each month, a freelancer can produce weekly blogs and create associated social media posts.

This allows the client to budget each month and allows the freelancer to have a predictable workload. It also rewards efficiency. If the freelancer gets faster over time, they do not lose money as happens in the hourly model.

Deliverables-based retainers are a great option for engagements where the scope is well defined and does not change over time.

Level 3: Role-based retainer

The role-based retainer is the model that most closely resembles a job. This is where the freelancer is hired to perform a variety of services on a regular basis in exchange for a set monthly fee.

The most critical consideration for freelancers in this model is a well-defined scope of work. While the freelancer may be hired on as “marketing consultant” or “lead writer” or “in-house designer,” it’s important to decide (up front) what this role entails. Almost more importantly, both parties must understand and agree to what the role does not entail.

Of the hundreds of freelancers we’ve worked with at the Freelance Co-op, this model is most ripe for scope creep and burn out. Freelancers in this arrangement often find themselves overwhelmed because clear boundaries were not set up front.

The advantage is that freelancers who opt for this arrangement often only need 1 or 2 clients to create the lifestyle they want. Often these retainers also serve as an “on ramp” to full time employment.

Level 4: Performance Bonuses

Performance bonuses can be used in conjunction with any of the other pricing models as an incentive for the freelancer’s work to produce the desired outcome. It can be used to offset the risk of an hourly arrangement.

A common pairing is a retainer with a performance bonus. This allows the freelancer to have regular income and incentivizes them to focus on quality and outcomes. It creates a more equitable partnership between the client and the freelancer.

For the client, it allows for payouts to occur only when certain benchmarks or KPIs are hit. This allows the client some assurance that desired outcomes are reached versus paying top-dollar up front with no guarantee of success.

Clear guidelines need to be spelled out in the contract for achieving the bonus as well as the amount and schedule for payouts.

Level 5: Royalties/partnership

A Royalty (also called residuals or commissions) is a percentage of sales that a freelancer receives. This incentivizes freelancers to create the highest converting work possible. In practice, an looks like this:

1. The copywriter gets an upfront payment for the work
2. The copywriter writes a sales letter
3. The client promotes or mails out the letter
4. The copywriter collects a percentage of sales as long as the letter is being used by the client (in perpetuity). Although the copywriter may tweak or update the letter for higher conversions, they are no longer obligated to do any work to receive the royalty check.

Important elements to this model are 1) reliable, trustworthy tracking and 2) agreement on which numbers will be used to calculate the royalty percentage (gross sales, net sales, sales minus COGS, refunds, etc.).

For the freelancer, it’s important to use royalties in conjunction with a project-based fee. This prevents a situation where the freelancer completes the work but never gets paid for it. There’s a number of reasons this may occur — the client goes in a different direction, the work doesn’t convert, the medium is no longer viable (ex. Facebook ads become too expensive to run the package).

Each of these models has its place for freelancers and you may have noticed you can combine two or more models in a single freelance agreement. Honing in on the right freelancing model for your industry, services, and lifestyle is just one element of the Freelance Co-op’s FOCVS™ Coaching Program.

If you’d like to work with us on the business side of your freelancing, please first join the Freelance Co-op movement at freelancecoop.org. We’ll email you with more details about your business. Mention this post for specific pricing and packaging resources.