In today’s early morning conversation, we’re going to discuss how to set your rate and how to decide what to charge as a freelancer. We’ll also be discussing internal and external influences, and how they play a part in you deciding your rate. We’ll also talk a little bit more about money and how to increase your income as a self-employed person.
You can be afraid of failure, but far more of us are afraid of success. Let’s take away that fear today and discuss the mechanics behind how charging for your service works. We’ll also answer the question, “is it unfair for business owners to earn as much money as they do, even if they put in the same amount of time as their employees?”
Even though we’re not in the employee space, the idea is that as a business owner, you can charge more than you might think.
Today’s inspirational quote is, “the rich invest time, the poor invest money” by Warren Buffet. In other words, those who build wealth see their time as the most valuable thing. They’re constantly innovating on how to make more money without increasing the time that they’re spending doing it.
Time is one of the scarcest resources we have, and it’s important that we realize that. Those who stay poor only trade time for money because they see their time as having a fixed price. They see an income ceiling and believe that their work is only worth $35 an hour, for example.
I don’t know about you, but one hour out of your life is worth a lot more than $35. But you have to grow into a spot where you can charge more so that hour has more value to others. Those who are rich invest their money so that it multiplies, while those who are poor spend their money or save it and do nothing with it.
We’ll be talking today about how being self-employed really gives you the opportunity to keep expanding your income without increasing how much time you’re working. This plays off of what we discussed in earlier episodes about working 20-hour weeks while continuously increasing your income.
Most employees are used to working overtime to get paid more. They don’t want to wait around for that 3% raise or yearly Christmas bonus. Instead, they work overtime, but they burn out. I want to expand on something here regarding capital before we get deeper into our rate change conversation.
If you want to find success as a freelancer, you need to recognize yourself as a business owner. And if you think it’s unfair that business owners take home so much pay, you need to switch your thinking on this.
Instead of saying that business owners don’t deserve that money, think of it this way. In order to start that business, the owner had to take huge risks. This includes financial risks, which is exactly what you’re doing as well if you consider yourself an entrepreneur.
Those who are willing to take a bigger risk to solve a problem in the world deserve to get paid more. Not many people are willing to do it. The truth is that entrepreneurs often put in hundreds of hours to build their businesses, yet they barely get paid for this. It takes a lot of time to get the education and to build the skills you need to build your business, and not only does that often go unpaid, but you also have to pay for materials to get you there.
Not only that, but you also take time trying to find those first few clients. That’s a lot of unpaid labor as well. It takes time to get there, and oftentimes, you need to provide free services to really build your portfolio and become credible.
You have to work for less upfront so you can prove yourself and build your resume. The parable of the locksmith is a story about how a locksmith spent years to pick a lock. He shows up to a client’s house, spends about 3 minutes picking a lock, and says “alright, that’s going to cost you $150.”
The client is appalled, and states that paying him 150 bucks would mean he’s making thousands of dollars per hour. The locksmith replies, saying, “I spent 500 hours learning how to do it in three minutes.”
In short, the client is paying for the value the locksmith provided him. Unlocking the door for him was worth that much because if he didn’t provide that service, the client would have spent goodness knows how long trying to figure it out himself. The value you provide your company, your clients, THAT is what determines your rate.
It took me a while to wrap my head around this fact that I get paid for the value I’m providing and not the time that I’m putting in. Entrepreneurs are not only providing value to their clients and their customers, but all the work and time they put into building their business is also benefiting the economy. And then it's trickling into providing jobs for people.
Business owners influence hundreds if not thousands of people for the better. So, they get paid the most because they are valuable members of society.
Let’s talk about history a little bit here now. Karl Marx was a man who believed that capitalism was evil. He believed that companies took advantage of their workers by keeping all the profit to themselves.
Now, I am a believer that companies that are implementing various programs where they’re doing more profit sharing on some level, but that the business owners are still taking home more of the money. But Marx believed that the value of the product was based on the labor that went into creating it, not in the value it provided to the person buying it.
When somebody makes a product and they put a price tag on it, that price tag only reflects what somebody is willing to pay for it. It does not reflect how many hours and how many people went into making that product.
It is a natural law that Karl Mar did not understand. What you charge someone is what someone somewhere is willing to pay. And if the product doesn’t sell, it’s ultimately the business owner’s money that’s at risk.
Also keep in mind that it regulates itself here. For example, if you dump thousands of dollars into a product, plus the time you spend making it, then only sell it for 500 bucks, that’s obviously a loss. It’s not a good product. The cost to create the product needs to be less than what people are willing to pay for it.
This is why capitalism is so important to embrace, understand, and be okay with. Don’t believe the lies and myths about capitalism, because the truth is that it regulates evil. It is a self-regulating system.
If you don’t advocate for capitalism, you will not succeed, and you will limit your potential massively. When the company does well, the employees get paid more. Everyone benefits from your success as an entrepreneur.
Now it‘s important to note that not everyone can get paid the same as the business owners, because then, there’s no incentive to learn more and improve your skills. Ultimately, people’s lives will not improve. It’s fair for business owners to get paid more than their employees so that they can make back all they’ve invested to get that business running in the first place.
I’m growing my business through a slightly different model. I’m not hiring employees, I’m hiring freelancers. My whole team consists of freelancers. Everyone on my team is a contractor because I want to support small businesses to the extent of actually hiring contractors who OWN their own individual businesses.
I can help their businesses grow, and they help mine grow. They get to decide what to charge, therefore, they don’t complain about what they get paid because the ball is in their court. They get to decide that themselves. That said, they also can’t just choose a random number for the heck of it.
There are many factors that determine rates. But they do get to charge more than an employee gets doing the exact same job. Similarly, I save money by hiring contractors because I am only paying them when I have work for them to do. My overhead is much lower. I’m not paying half of their social security tax like I would be an employee.
Another perk to doing this is that if one client bales, you still get income from other clients. You don’t lose your entire income all at once like you could with a salary job. This brings me back to my main point about why it’s okay to charge what you ought to charge as a freelance.
Don’t feel guilty for charging what you deserve. You’re not taking away from other people by charging more. Do not be afraid of success.
A big question here is, what affects your rate as a freelancer? What influences what you can charge? First off, your skill set plays a big role in your rate. How quickly you can perform your task matters. If you’re really good at video editing and you’re very fast at it, but the video you’re editing for a client won’t provide value to them, they’re not going to pay much for it.
Now we’re getting into supply and demand as a freelancer. You really need to deeply study how supply and demand works. Does this term ring any bells from your schooling days? You might have learned about it, but not REALLY learned what it means.
Your supply is here: how many freelancers are doing what you’re doing? If there are more freelancers than there are clients looking for that freelancer, then you can’t charge as much because the supply is greater than the demand.
If the demand is higher than what the supply is, then you can charge more because people are willing to pay for scarce resources. People want diamonds. Likewise, for you, people have to want your service and talent in order for the demand to exist.
This applies to wages as well. A company offers a wage for a job, and if no one is willing to do the job at that wage, they’re forced through the natural law of supply and demand to increase that pay so that they can fill the position.
As a result, I believe that the government needs to stay out of wages entirely because the system self-regulates itself. People will actually get paid more than the minimum wage. On average, if companies were allowed to operate in a truly free market, people could then feel more empowered to only accept a job if it pays enough.
Companies realize that they must offer enough in order to maintain quality. I started out as a video editor, but then realized that there are a lot of video editors, so I decided to shift into being a YouTube marketing expert. When I started offering my services as a YouTube expert, there was a growing demand, but still very little supply. I was sort of a niche within video marketing, and even video marketing as a service within itself was scarcer.
It’s more specialized, so I could charge more. It’s specific and not so broad. Once I narrowed this down even further into YouTube, it really made my position a fairly low supply, and I was able to charge more upfront simply because of the law of supply and demand.
Again, this also self-regulates. It’s not immoral. If I perform poorly, one bad review could ruin me. I had to make sure I became educated enough and gained enough skills as quickly as possible so that I could deliver the amount that people were paying for my services. Ultimately, the goal is that your customer or client walks away feeling like they got what they paid for, and that they didn't pay more than what they got. It’s a good moral exchange.
The next factor that affects your rate is your experience. How many times have you done the thing you do, and how big is your portfolio of results that you've produced for other clients? It’s much easier to pitch higher rates to a client when you can show them the results you’ve achieved for previous clients.
The sales process gets easier and easier when you have more testimonials. This is actually one way that you can override supply and demand; experience means a lot when supply is plentiful. And experience isn’t just about the length of time. It’s more about the results you’ve achieved since you’ve been selling your skill.
Let’s say that there are a hundred businesses willing to pay for a YouTube marketing consultant, but there are 200 freelancers offering that service. If you're just basing it off the law of supply and demand, the supply is twice the demand. You shouldn't be able to charge a lot, but if you were in the top 1%, as far as skill level and experience as a YouTube marketing consultant, you can then charge more, even though the supply is high.
This is something I experienced myself. The supply over the course of about a two-year period of YouTube marketing experts grew eventually to where the demand and the supply started to equalize a little more. But by that point, I had enough experience, and I had a big enough portfolio of results that I produced for past clients that I was still able to charge more.
I didn't bring my price down because the supply went up. I was able to keep increasing my rate based on my experience and the value I ultimately provided for my clients. If clients invest in me over someone else who charges less, they’ll see a bigger return, and then it makes sense for them to make that investment with me.
The fourth factor has to do with the concept of specialization. That will help you get paid more. In other words, how difficult is your skill to obtain? How specialized are you in that skill? Jack of all trade’s folks don’t get paid as much. You can’t be a super-expert in more than one thing because you don’t have time to focus on one particular skill set.
Sometimes, if you want to get paid more, you have to shift what services you're offering, and you have to specialize more. You have to go after developing skill sets that not as many people have, and essentially, you're niching down.
If you've ever heard that term, “you're getting more focused on a particular niche,” that means that a narrower set of skills can really blow up and help you become a real expert in that one thing, really focusing on that strength.
Video editing was a more specialized skill at first. But I eventually hit a ceiling with video editing. I had to expand into offering more strategy-related video services because I could produce a video all day long by editing in, but if the video didn't have good strategy, then it wasn’t going to make that client any money.
This way, I could actually make more money for my clients, and they were willing to pay more for that. So, what should YOU charge as your rate? The truth is that I can’t tell you a specific dollar amount.
What I can tell you is that you have to test it out by applying these factors and principles. Get used to what these principles mean in your own life, and experiment with them. If you’re struggling to find clients at that rate, then it often means something has to change. It may not be the rate, either. It could be your skill level or your portfolio size.
You don’t want to reduce your rate. Instead, increase your skill set, your knowledge, and shift your focus on something that you can specialize in more.
Another huge factor that may prevent you from finding clients is that you don’t have good sales skills. That was me. It held me back, and I’ll talk about it more in future episodes, but I was afraid of sales. It’s not immoral unless you’re trying to convince someone that they need something when they don’t, but I was afraid of being immoral.
I recommend that freelancers who are just starting out should audit themselves. Don’t get too hung up on researching market rates because that can throw you off. If you’re self-employed, you have to charge more because you’re covering your own overhead. You’re paying more in taxes.
You’re investing a lot of time in your business where you’re not doing work for clients and you need to be compensated for that time. So, you’ll need to charge more in order to walk away with what you deserve.
Let’s also talk about what to do when you’re testing rates and what to do when someone takes the higher rate, but others don’t. It’s tempting to just stick with that high rate and roll with it, but I encourage you to slow down. Be patient with the process. I want you to think about the value you’re providing your clients.
How is your work affecting their business growth and sales? Think of yourself as an investment, not an expense. You have to learn about return on investment (ROI) and how it works if you’re going to be a freelancer.
It doesn’t matter if you’re designing logos or writing or what have you, you need to learn the business and how it works, because you’re running your own business. You’ve got to learn it for yourself to find success.
You also have to learn and see where your clients are coming from, and what they need and what they’re looking for. That really makes the process a lot easier when they can see that you know how your services will benefit them and why. They will want to hire you more because they see that you care about the value that you’re providing them, not just the time you’re spending.
When it comes to charging flat rates, you need data. We’ll get into that in a later episode, but there’s definitely a science behind how to charge, whether it’s hourly, flat rates, weekly rates, or whatever you choose.
Also, don’t be afraid to earn more money. There is enough for everyone on this earth to live comfortably. There are enough resources for everyone, God didn’t screw it up. Your only limiting resource is in your own limited beliefs in yourself. When entrepreneurs have the freedom to innovate, everyone gets it taking care of. Don't get caught up in all the mumbo-jumbo about how those limited resources are.
Everyone that wants success can obtain it. We have to be good stewards of our resources, and we must be responsible with what we have, but the only limiting that happens occurs when the government gets involved. When people are not given the freedom to produce and obtain their own food and water and so on, then that’s when limited resources ARE real.
In closing, don’t be afraid of having an impact on this world. Be okay with making more money and accept that you’re benefiting the economy. Be okay with getting compensated for what you deserve.
That’s it for today. I hope you have a great day, and if you haven’t subscribed, definitely do so. Search the “Go Back to Bed” podcast on Apple Podcast or wherever you’re listening and check out the blog. I hope you learned a lot from today’s episode. I’ll see you next time.