RATES & BILLING PRACTICES
Setting your rates, my sources all agreed, is CRUCIAL. It is something you need to establish as quickly as possible, and something you definitely need to review periodically.
BrianR from High Rankings Forum says, "the no. 1 mistake that most startups make... [is] setting their rates too low in an attempt to buy their way into the market." High Rankings' Old Welsh Guy explained that an underpriced newcomer will get overly demanding cheapskates as clients, who think that because you're cheap, you're desperate for clients-- and so they can abuse and take advantage of you. "They want to pay the least but expect the most." This sentiment was echoed by many other sources, including HR's Harpsound, who offered this sage advice about those who will approach you looking for deals: "Turn down short-term cash and aim a step higher." It may be tough in the beginning to say "no" to a potential client who wants to bargain with you, but if you consistently sell yourself cheaply, it will be difficult to raise your rates to a reasonable level.
A related point, made by Vertster (of HR), was that you should get in the habit of billing your clients for absolutely everything. Even free advice. If you want to be nice, "then put it on their monthly invoice, but write 'no charge- thanks for your business.' " A brilliant idea.
What IS a reasonable level?
I encountered all kinds of fascinating ways to set your rates, with mathematical formulae galore-- HTML Writer's Guild Rates FAQ had some, and many others were suggested. But most people agreed-- check out your competition! See what the going rates are. REALISTICALLY evaluate what separates you from the competition, and determine whether you need to charge less, or can charge more.
Perhaps your competition's rates seem unreasonably high. This is where the mathematical formulae come in. Think about what you make at your day job (if you have one)-- it doesn't seem like such a high number per hour. Surely if you charge that rate, your rates will be lower than the competition but you'll still make a tidy profit.
BZZT! Wrong. What about health insurance? What about the rent on your office? What about allll those things you never noticed your boss paying for? These invisible costs will eat up the checks you get from clients. There's a reason the competition charges what they do, and it's not that they're greedy.
They just know they have to cover:
- health insurance
- business insurance
- home insurance
- rent (how much of your house are you using for your office?)
- heat
- electricity
- bandwidth
- hosting
- phones
- food
- sick days
- holidays
- research
- time spent seeking new clients (can be 40% of your time or more!)
- retirement fund (you're on your own!)
- TAXES. DON'T forget TAXES. You still owe them. The IRS audits freelancers a LOT.
- vacation days
- hardware upgrades
- software upgrades
- off-site backups (you DO have one, don't you?)
- car insurance
- employees! Will you have employees? They're expensive!
- emergencies!
- ... the list goes on, but I think I've got you started.
And oh, profit. You want one of those, don't you?
I'm charging too little. How can I increase my rates?
This can be tricky. So you started out cheap and are feeling the pinch now? On cre8asite, altyfc suggested sending out periodic newsletters, and in them including information on rate hikes. "You can't hope to keep everyone but you can hope to do better for yourself financially," he said. Others indicated that as they didn't charge set prices, but rather gave estimates on projects, they were able to work in rate increases more gradually. What is important is that you continually evaluate your rates, and don't hesitate to ask for more if you truly feel you deserve it and the market will bear it.
How do I get paid?
That's another big question that you need to answer right away. I got a number of suggestions about how to handle the billing issue. First off-- "use a good contract"!! That's the most important advice Jill of High Rankings Forum could offer: it will cover your butt in more ways than one, and will ensure that neither you nor the client will be unpleasantly surprised in the normal course of business.
Secondly, the issue of when payment is due becomes important. I received a number of responses imploring me not to let the final work out of my hands until the client's check clears; it seems a lot of my fellows have been, shall we say, let down. But it was generally agreed that this isn't always possible, and so a number of billing arrangements suitable for different situations were suggested.
For small projects: 50% up front, 50% on completion.
For one-off small pieces: payment upon completion. Guage the waters for yourself on this one-- if I lose 2 hours' work, I have another good sample to add to my portfolio, and a better eye for when I'm going to get screwed. I chalk it up to experience and don't mind. If I'd been doing this a few more years, it'd annoy me more. But, for a client you trust, it's moot-- work out custom billing arrangements as you will, especially if you know where they sleep.
For large projects billed by the hour, it's impossible to know how many hours there will be. High Rankings' Qwerty suggested a good-faith deposit of 4-5 hours' work before the project starts, just to get things rolling. Shane, from WebmasterWorld, suggested payment upon completion of project portions, so that the worker gets some money every month. "You say what percentage of the project was completed that month and they pay that amount each month." He mentioned that in his line of work, "clients like to hold back a certain percentage until the site is up and running."
And another possibility for large hourly-billed projects is simply payment into a virtual debit fund of sorts. The client pays for a chunk of time, and you work until the time's used up, at which point they pay you another chunk, and so on until it's finished.
One thing everyone agreed on was NOT to take profit-sharing arrangements, even from friends. The only time this is practicable is if you have near-complete control over the running of the site-- you have to be able to independently verify that their profits are exactly what they say they are, and you also have to be able to control other factors that affect sales-- if your specialty is only in one area of the site, it's not a good idea to simply expect that the other areas will be up to your standards. If you write dynamite copy and then the server goes down, you've held up your end but still get shafted. It's just not a good idea unless you get it all in writing and get a great deal of control over the whole business. Maybe make an exception if you really believe in the product, and have reason for absolute faith in the site owner.
These are all options that should be mulled over before starting. Decide which one or ones are doable from your standpoint. Then work them into your contract, and use that to set up the details of jobs.
Don't forget...
One final point, made by Vertster of HR, was that you need to get some decent financial management software to help you keep things straight. When he first started out, "I didn't have a good system, and ended up not billing some clients for work that I had done! Not only do you not get paid, but you look very unprofessional in the process," he lamented. Whatever your billing plan, whatever your billing method, organization here, as in all areas, is key to keeping your business afloat.