What to Charge as a Freelance Developer – and Why You Should Avoid Being the Cheapest

As a freelance developer, one of the most challenging aspects of running your business is deciding what to charge for your services. When you‘re just starting out, it can be tempting to set your rates as low as possible in order to attract clients and win projects. After all, if you‘re the cheapest option, you‘re bound to get more work, right?

Wrong. Competing solely on price is a race to the bottom that will ultimately leave you overworked, underpaid, and unable to deliver your best work. In this article, we‘ll explore why you should avoid being the cheapest developer, and provide tips for setting rates that reflect the true value you provide.

The Dangers of Competing on Price

When you set your rates too low, you may find yourself in a vicious cycle of taking on more and more work just to make ends meet. You end up working longer hours for less money, which can lead to burnout and resentment.

What‘s more, competing on price alone commoditizes your services. When clients view your skills as just another commodity to be purchased at the lowest possible price, they‘re not considering the unique value and expertise you bring to the table. This can make it difficult to build long-term relationships and secure higher-paying projects in the future.

There‘s also a perception issue at play. Many clients equate price with quality, and may view extremely low rates as a red flag. They may worry that you‘ll cut corners, deliver subpar work, or disappear halfway through the project.

In a survey of over 1,000 freelancers conducted by the freelance platform Upwork, 62% said they believe clients are willing to pay more for a freelancer that delivers high-quality work. Only 17% said being the cheapest is the most important factor in winning projects.

More Work ≠ More Money

It‘s a simple equation: the more clients you have, the more money you make, right? Not necessarily.

Let‘s say you charge $25 per hour, and manage to book yourself solid at 40 hours per week. That‘s $1,000 per week, or roughly $50,000 per year (assuming 2 weeks off). Not bad, but not great either, especially considering that you‘ll have to pay self-employment taxes and won‘t receive benefits like health insurance or paid time off.

Now, let‘s say you raise your rate to $100 per hour and aim for just 20 billable hours per week. That‘s $2,000 per week, or roughly $100,000 per year. Suddenly, you‘re earning double the income while working half the hours.

Of course, this is an oversimplified example, and raising your rates may mean taking on fewer clients overall. But the point stands: racing to book as many hours as possible at bargain-basement rates is not an effective way to grow your income over time.

Charge Based on Value, Not Time

Ultimately, clients don‘t hire you to spend a certain amount of time on their project. They hire you to solve a problem, whether that‘s building a website, optimizing an app, or automating a process. Your rates, therefore, should reflect the value you provide in solving that problem.

Value-based pricing is a strategy where you set your rates based on the results and benefits your work will generate, rather than the time it takes you to do it. For example, if you‘re building an e-commerce website that will help a client sell more products, you might charge a percentage of the expected increase in sales, rather than an hourly rate.

This approach requires you to have a deep understanding of your client‘s business goals and the impact your work will have. It also means you‘ll need to educate your clients on the value you provide and the results they can expect.

According to a study by consulting firm McKinsey, companies that use value-based pricing generate 24% higher revenues than companies that use cost-based or competitor-based pricing.

Strategies to Avoid Competing on Price

So, how can you set rates that reflect your value and avoid the trap of being the cheapest option? Here are a few strategies to consider:

1. Specialize in a Niche

By focusing on a specific niche or industry, you can position yourself as an expert and command higher rates. For example, instead of being a general "web developer," you might specialize in building websites for law firms or developing e-commerce solutions for fashion brands.

Data from Upwork shows that freelancers who specialize in a niche earn an average of 26% more than those who don‘t.

2. Create Packaged Services

Instead of charging hourly rates, consider bundling your services into packages at different price points. This can help clients understand exactly what they‘re getting for their money and make it easier for them to choose the right option for their needs.

For example, you might offer a "basic" package that includes a simple website with a few pages, a "premium" package that adds e-commerce functionality and SEO, and a "deluxe" package that includes ongoing maintenance and support.

3. Write Detailed Proposals

When submitting a proposal for a project, take the time to outline your process, explain your approach, and highlight the specific results and benefits the client can expect. Use case studies and testimonials to demonstrate your expertise and the value you‘ve provided to past clients.

A well-written proposal can help you stand out from competitors and justify higher rates. In fact, a study by the consulting firm Hinge Marketing found that the most successful professional services firms (including freelancers) are 77% more likely to have a clearly defined proposal process.

4. Over-Deliver and Get Referrals

One of the best ways to avoid competing on price is to have clients come to you, rather than the other way around. By consistently over-delivering on your promises and providing exceptional service, you‘ll build a reputation that generates referrals and word-of-mouth business.

In the Upwork survey mentioned earlier, 51% of freelancers said that referrals from past clients are the most effective way to find new business.

The Bottom Line

Competing on price may seem like an easy way to win clients and grow your business, but it‘s ultimately a short-sighted strategy that can leave you overworked, underpaid, and unable to deliver your best work.

Instead, focus on communicating the unique value and expertise you bring to the table, and set rates that reflect the results and benefits your clients can expect. By specializing in a niche, creating packaged services, writing detailed proposals, and over-delivering on your promises, you‘ll be able to attract high-quality clients who are willing to pay what you‘re worth.

Remember, your skills and time are valuable. Don‘t sell yourself short by racing to the bottom on price. Charge what you‘re worth, deliver exceptional results, and watch your freelance business thrive.