Putting A Price On Your Capabilities

Author: Debra Jason

More than once I've received e-mails from other independent writers asking about fees. In addition, I've entered online forums for freelancers and often seen numerous messages posted about the same topic.

Usually, the query comes from someone who is just starting out with his/her own business and is in a quandary about what's acceptable. This report is a result of those requests for information.

Believe me, it took some time and research for me to determine my worth when I first started in 1989. To help those of you who have called upon me, here are some pricing pointers based on my experience. Overall, there are three areas to examine:

Your overhead
Your experience
Your geographic location

"There are about 25 million Americans who develop grotesque facial ticks when they hear the words 9 to 5....We call them freelancers." -- N. Killihanm, The Washington Post May 23, 1989

What does it cost you to do business?

Before you hang up your shingle saying "open for business," what do you project your expenses will be? There are nine factors mentioned below, tangible expenses you can determine prior to starting out:

Monthly rent
Office equipment
Office supplies
Postage costs
Internet access
Long distance phone calls
Office furniture
Publication subscriptions
Association dues

Rent

If you're working out of your home, how much can you deduct for setting up a home-based business (don't forget utilities like the phone and electricity)? If you're renting office space, how much is your monthly rent, phone, utilities, janitorial service, etc.?

Office equipment and supplies

Don't forget your office equipment and supplies. What are you spending to set up shop? Do you have a computer, fax machine, copy machine, computer printer, scanner, etc? How about printer, fax and copy paper, and other office supplies? Determine what your costs are or will be for the equipment and supplies you need to get started.

Telephone

What about your telephone? These days, between the Internet and fax machines, you may find yourself with several phone lines. In addition to more than one line, you may have several phone services like Voice Mail, Call Waiting, or Caller ID. If you're using all these for your business, don't forget to calculate them into your expense estimates.

Looking at your fixed overhead expenses gives you a beginning number to work with. At the minimum, you'll need to earn this amount just to get off the ground, cover your bills, and break even.

You could take this number and divide it by the number of billable hours you think you'll put in each week and come up with an hourly rate. Obviously, if you want to write for a living -- that supports you and your lifestyle -- then you'll charge more than the number you calculate here.

What else should you take into consideration before finalizing your fees? Read on...

What's your experience?

As you gain experience, you'll get an idea of what's fair for each type of project you do. Keep in mind, that it's not just writing time you're billing for. As I've already mentioned, there's your overhead. And then, there's your experience.

I've spoken with people who have just graduated college and others who have held copywriters' positions at advertising agencies for numerous years. Obviously, pricing is quite different between the two.

Author and commercial writer Robert Bly explains, "...experienced writers can generally command higher fees than beginners. But talent is even more important, and a highly talented novice is worth more to clients than a hack, no matter how long the hack's been working. Still, as a rule, beginners set their fees at the low end of the scale, old pros, at the end."

If you're fresh out of college and have little or no experience, that doesn't mean you're not desirable. It just means you should price your services accordingly. When I first started The Write Direction, I had a few years of experience with writing for catalog companies and a direct marketing advertising agency. My portfolio was limited and so I limited my pricing. I had to prove myself, establish credibility and build a solid reputation.

I called other copywriters who specialized in the same area of interest as me (direct marketing) and, luckily, they shared their pricing with me. Most of them billed on a 'per project' basis, but gave me estimated hourly figures for the work they did.

Stephen R. Clark of Writing Creative Services agrees, "The best sources for pricing information are other freelancers in your local area. Check the Yellow Pages under such headings as Writing Consultants, Editorial, Desktop Publishing, Publishing Consultants, Proposal Writers, etc. Contact them and ask what they've been successful charging for different types of work."

When you're just opening your doors for business, make a concerted effort to call other writers in your area. If they've been established for a while they won't see you as a threat. You'll be surprised how many of them are willing to share their experiences.

After I spoke with other writers, I looked at how many years of experience they had in comparison to my background. It was quickly apparent that I couldn't charge the same as them since I was "the new girl on the block." Therefore, based on my what I felt I needed to earn to cover my overhead, I initially billed an average of $35 per hour (now, ten years later, this number has increased accordingly).

However, I preferred to bill "by the project" versus "by the hour." I estimated jobs and billed them on a 'per project' basis -- just as my competition was doing -- I didn't offer an hourly rate to clients and prospects.

In their book Advertising Freelancers, Ed Buxton and Sue Fulton reported that 74% of freelance advertising writers charged a fixed fee per project. Only 26% used an hourly or day rate.

Where are you setting up shop?

Whether you work out of your house or in an office, it's important to consider what part of the country you're working in. I started my business in Colorado after working in New York City -- the advertising capital of the country. I thought I could charge Colorado businesses the same rates I saw copywriters charging New York businesses.

A New York client wouldn't blink twice at a $3,000 direct mail package, but a small company in a small town, most often, flinched at the rate. However, as my experience grew and my client-base expanded across the country, my project fees balanced out so that every company is now billed the same rate for similar projects.

In his book Secrets of a Freelance Writer, Robert Bly puts it this way, "The variation in freelance fees is tremendous. However, by talking with a few prospective clients, you quickly get a sense of the upper and lower limits for projects in your specialty, your industry and your geographical locations. You may find, for example, that some clients expect to pay $600 for a brochure, while others regularly pay $2,000; but no one expects to get it for $200, and no one is willing to go to $4,000."

Wisconsin-based freelancer Robin Gee believes that location doesn't play as large a part in influencing fees as it once did. She explains, "Although East and West Coast clients still tend to pay more, the rest of the country is catching up. Thanks to fax machines, e-mail and other technology, where you live is less important for many businesses. You may live in the South or Midwest and end up working for an East Coast publisher accustomed to paying higher rates. On the other hand, living near a small business or publisher may give you the edge and create a steady income even though your clients may not pay as much as those far away."

Educate Your Clients

Keep in mind that the creative process involves educating clients. They aren't always aware of everything required in executing and completing a project. I've heard clients say, "It should only take an hour or two," but they don't realize you also have:

Preparation and research time
Brainstorming time
Time to execute revisions
Time spent on the phone or in meetings
Travel time

Although two projects may have the same components, the scope of the project may vary greatly. Therefore, the pricing for the two could be quite different.

Take a look at the example that follows:

Project: 4-panel brochure that is 11" x 17" (single fold)

Estimate for Client A: $1000

Client has testimonials
Client has previous marketing materials & samples of what competitor's done
Client has marketing/business plan
Client has done "homework" -- has stats on target audience, knows benefits of product, knows how it meets needs in the marketplace
Only one person involved in the approval process

Estimate for Client B: $2000

No testimonials available, you have to do interviews to obtain quotes
New product, you have to gather samples of what the competition is up to
No marketing/business plan written, possible library & online research required by you
Client hasn't done homework -- requires meetings in-person (which also means travel time) and meetings via phone to gather the necessary information
Approval is accomplished via committee

You can see how two clients looking at a similar project would require some explanation to justify the variation in cost. After reviewing all that's involved, most clients I have worked with understand the value of what they're paying for and agree to move forward with the project (as long as it's within their budget).

Can't I just use a standard formula to figure all this out?

I used to think there were no formulas for determining pricing until I came upon an article, An Inside Look At Consulting, written by Anne Wallingford of The WordSmiths. In it she describes a very reasonable method for determining fees.

Below is an example she includes where, by comparing a consultant's rate to that of an employee earning $45,000 annually, she determines a freelancer's market value. (This formula is presented to you by me with her permission.)

1a. Determine your daily labor rate (multiply the annual salary times 1.5 to account for life, health, dental, disability, and retirement benefits). This reflects a company's cost for an employee.

Example: $45,000 x 1.5 = $67,500 annual labor rate

1b. Divide the annual labor rate by 180 (the standard number of billable days in a year -- 365 days minus 104 weekend days, 8 holidays, 10 vacation days, 5 sick days, 24 administration days, 34 marketing days).

Example: $67,500 / 180 = $375 daily labor rate

Determine your expenses:

Multiply your daily labor rate by 44% (statistics shows that overhead for a self-employed consultant averages 44% of labor).

Typical expenses may include:

Equipment - computer, copier, fax machine
Internet Service Provider - online access, Web site hosting
Supplies - paper, toner, pens, business cards
Association dues
Seminars
Trade publication subscriptions
Advertising and marketing
Postage and shipping
Travel
Office furniture

Example: $375 x 44% = $165 expenses

Determine your profit margin:

As a business, a consultant takes risks and provides service (and/or a product) just like any other business. Each consultant must determine a reasonable profit margin; this can range from 15%-40%, with 20% being considered fair in most markets.

Example: $375 x 20% = $75 profit

Determine your daily billing rate:

Add daily labor rate plus expenses plus profit. Divide by 8 (the typical number of hours in a business work day).

Example: $375 daily labor rate

165 expenses
75 profit
$615 Total
$615 / 8 = $77 hour

Don't want to use a formula, but want a simple solution to setting your fees?

Well, you can always turn to the pages of an old issue of Writer's Market. Its "How Much Should I Charge?" section has become a regular feature. In it you'll find average fees for a broad range of freelance categories from "Advertising, Copywriting & PR" to "Computer, Scientific & Technical".

For example, here's a sampling of what you'll find in the 1998 edition under 'Advertising, Copywriting & PR:

Advertising copywriting: A $35-$100/hour; $250 and up per day; $500 and up per week; $1,000-$2,000 as a monthly retainer. Flat-fee-per-ad rates could range from $100 and up per page depending on the size and kind of client. In Canada rates range from $40-$80/hour.

Direct-mail packages: This includes copywriting direct mail letter, response card and advertising materials. Up to $85/hour or $500-$3,000/project, depending on the complexity of the project. Additional charges for production such as desktop publishing, addressing, etc.

Press releases: $200-$500/release.

Sales letters: $350-$1,000 for 1-2 pages.

"Clearly, freelancing is not only a way of working, it's a way of thinking. Learning to cope in the land of no benefits, no set pay check and no retirement plan works these people's imagination like a muscle. And a pumped imagination, they say, is their trump card." -- N. Killiham, The Washington Post, May 23, 1989

What about RUSH charges or cancellation fees?

Here's what the Code of Fair Practice from the Freelance Editorial Association has to say on the subject of RUSH charges...

"Rush Fees. Occasionally, a client presents a project that cannot be completed on schedule unless the freelancer agrees to work additional hours during nights, weekends, or holidays. In such a case, a rush fee of 20 to 50 percent may be negotiated to cover the overtime involved. If the fee is determined at an hourly rate, the percentage is applied to the hours involved. If the freelancer is receiving a project fee, the client and freelancer might break the fee into time units and apply the additional percentage to the units that are beyond normal working hours."

When a client calls me with a RUSH project, I explain that the project fee I'm setting takes into account that there is an immediate turn around requested (and therefore, I have to readjust my schedule of existing projects to 'fit' this in). In my contract, I also include a line that says an additional fee will be assessed for turn around times of less than 72 hours.

The Code of Fair Practice continues:

"...if the client requests that work be completed within a shorter period than originally negotiated or requests that the freelancer spend more time within a negotiated period, a rush fee--again 20 to 50 percent--might be appropriate. If the freelancer cannot accommodate the schedule change and the client deems the change essential, then the freelancer receives a cancellation fee for the remainder of the project and returns project materials to the client. Alternatively, the freelancer may, with the client's knowledge, subcontract all or part of the project to another capable freelancer."

Cancellation fees are also a vital part of one's contract. If, after a project has begun, a client cancels due to unforeseen circumstances, you should be compensated for your time and effort up to that point. The Freelance Editorial Association's Code of Fair Practice puts it this way:

"Cancellation Fees...Because freelancers reserve time for projects and depend on clients' schedules, it is necessary for contracts to protect the freelancer's working time. The contract between freelancer and client therefore specifies contingencies that will require a cancellation fee or a late fee."

In my written agreements with clients I word it like this, "Cancellations: If, for any reason, the project is canceled after it has been started you will be billed immediately (at the rate of $60.00/hr) on the basis of the time and effort expended and expenses incurred up to that point."

As a result of this brief clause, cancellation fees have never been an issue among my clients. They understand the repercussions of canceling before the project ever begins. And, they appreciate the importance of reimbursing me for the work I've done up until that time.

A word (or two) about spec work:

There comes a time in almost every freelance writer's career that he/she will be asked to work for nothing. As Martin Gross says, "Sooner or later, and usually sooner -- sometimes quite early in a freelancer's professional life -- the siren call of speculative work is heard."

If you choose to do spec work, beware. Should you take on such an assignment, you may actually see some money as a result. But, many times, you end up doing something for nothing.

Personally, it is rare that I'll do work on spec. In conversations with other freelancers (writers and graphic designers) the common response is that often the spec request is accompanied by big promises, but followed by small rewards. Obviously, the final decision is yours.

Martin Gross suggests that there are many types of "Speculative Sharks" out there, but offers this advice on a positive note:

"There are two instances when you may want to work on spec. The first is when you're starting out. Then, you may even want to write on spec to get the learning experience." "You may also want to consider spec work when a trusted advertising agency or printer or creative colleague asks you to 'join their team' on a contingency basis -- perhaps as the direct marketing consultant as part of a new business presentation."

A freelancer's query list for getting started, whether you're fresh out of school or you're just getting started with a freelance business after being gainfully employed, setting your fees requires a careful review of many elements. Before you go out on your own, look at the following questions, then give some thought to what's been discussed herein.

When you're done, you should be able to determine a starting point for setting your fees.

Are you unique in your pursuit or is there much competition in your area from fellow writers?
If there are other writers in your 'neck of the woods,' what are they charging for their services? Will your colleagues share their experiences with you?
Are your competitors' services similar to yours (you may be a catalog copywriter, they may be copy editors or proofreaders)?
How long have you been writing? Is your talent specialized in a specific arena (financial, high-tech, technical, etc.)?
Where are you located geographically? Will you look for most of your work in that location or out-of-town?
Are you going to work out of your home? What percentage of your home expenses will you be able to write off on your taxes (check with your tax advisor)?
Are you going to set up an office? Can you share expenses with other creative people (i.e. a fax machine, computer printers, copy machines)?
This list could go on and on.

However, answering some of these basic questions should provide you with an arsenal of information to analyze. Whatever price you decide to set for yourself, be confident that 'you're worth it.' There will always be someone who can do what you do for less money. However, whether they're as skilled as you is another question.

I know I'm not the only writer who has experienced the following and I'm sure you will too. There will be a time (or two) when your prospect selects another writer whose price is lower than yours. Inevitably, you may find that, at a later date, you'll get a phone call from that same prospect explaining that the writer they hired "fell short of their expectations."

Now they're begging, would you come to their rescue?

Remember, your knowledge and talent are valuable. Don't be afraid to ask for what you believe you are worth. Of course, every thing in life is negotiable, but don't sell yourself short.

Good luck to you as you pursue your freelance writing career.