Stop leaving money on the table with your freelance rate

When I took on my first client, I had no idea how to set my freelance rate. Asking for too much would make me seem greedy. Asking for too little and I would fall into the trap of being overworked and underpaid. It has taken a couple years, but I’ve finally come up with a system to set a rate that is best for me and my client. First I had to unlearn the hard way.


Most freelance web developers base their rate off their current (or last) salary. Our salaries represent our market value so it makes sense to use it as a basis for our rates. Well, as it turns out, thinking this way is wrong.


To figure out what you should charge, you need to understand how your work fits into a client’s budget. You may know your client’s budget but how did they even come up with this budget? What is the relationship between the budget and what you are working on? A quick story will help illustrate my point.


Sally, the CTO of the Acme Corporation, just got off the phone with Wile, their biggest customer. He wanted some quick drying cement delivered today, but yesterday’s website outage prevented his purchase. Wile is threatening to take his business elsewhere, costing the company thousands of dollars in revenue.

What Wile doesn’t understand, is that the outage was out of the Acme Corporation’s control. Their sales site is hosted on Jeroku and when Jeroku started doing maintenance, it took the sales site down. Sally decides to make a tough decision: it’s time for them to move off of Jeroku.

Sally had seen the warning signs for months: their Jeroku bill is well over $10k/month and outages seem to be happening more and more. She’s wanted to move them off, but delayed the decision because they didn’t have a dedicated web developer on staff. Sally wants this done right away. So they bring in Bill, the freelancer, and ask for a quote. Being new to freelancing, Bill thinks he has to come up with a hourly rate.


At his last job, Bill was compensated as follows:

  • a $70k salary
  • Health insurance
  • 3 weeks paid vacation plus holidays

To come up with his freelance rate, Bill reverse engineers what he was last compensated:

($70k salary + $20k in health insurance)
(49 working weeks * 40 hours)
= ~ $46/hr

Now Bill has an hourly freelance rate.

Based on his experience, Bill estimates it will take two weeks for the migration off of Jeroku. He quotes the Acme Corporation at $3.7k (40 hours * $46/hr * 2 weeks). Sally quickly accepts. Bill doesn’t realize it, but he’s just missed out on a ton of money because he’s missing a key insight in his calculation:


Sally knew it was costing $10k/month to stick with Jeroku. If the Acme Corporation could migrate off of Jeroku by the end of the month they would save $10k next month and every subsequent month afterwards. With this in mind she set an initial budget for the project to $10k. This is why going for Bill’s $3.7k quote was a no brainer.

Sally was considering the amount of money it was saving her company. Bill on the other hand, only considered the money he thought he should be making. Simply put, Sally was focused on a solution while Bill was focused on hours.


Let’s revisit the Acme Corporation but now Sally is contacting you for a quote. Your first task is to talk to Sally and identify two things:

  1. Their problem. The more specific details you find, the better. You get bonus points if you can identify how much money the problem is costing them and therefore, how much money a fix will save/make the company. In our example, the Acme Corporation loose $120k/yr staying with Jeroku and significantly more whenever their site goes down.
  2. The budget to solve the problem. To find the budget out, simply ask: “What is your budget?” If they don’t have an answer for this, it’s a red flag. This client has not put enough thought into their cashflow, what makes you think they’ll be reliable in paying you? You don’t need to know the exact budget number, just a ballpark. Jason Fried of 37Signals has an excellent tip on this:

When they tell you they don’t have a number say, “Oh, ok. So a $100,000 solution would work for you?” They’ll quickly come back… “Oh no, probably something more around $30K.” BINGO: That’s the budget.


You have already migrated 8 or so Rails apps off of Jeroku so the switch for the Acme Corporation shouldn’t be a problem. You offer to get the work done for $8k, knowing their budget is $10k. Plus, you guarantee the work will be done in time thereby assuring their savings of $10k next month.

Compare this to Bill’s quote of $3.7k, and you’ve doubled what he would have made for the same amount of effort. All because you thought about the problem from the client’s perspective.


I was Bill for a long time, each client engagement was just someone paying me for the hours I worked. Then I realized clients only care about solutions.

You should keep this in mind whenever working with clients. Understanding your client’s thought process will add clarity to the value you are providing and how you bill. Most importantly it will help build lasting engagements. Give it a shot.

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11 Comments Stop leaving money on the table with your freelance rate

  1. ed rosenthal

    Nice article, well said. So based on this way of thinking, it should also be true not to place any prices or way of calculating the cost of a website for visitors? Or perhaps it would be ok to do that, if the caveat is stated that it is an estimate only? I’d like to hear your thoughts.

    1. Ryan Castillo

      Actually you could charge the cost of a website based on visitors. For instance, lets say a website is getting about 1,000 visitors a month. Of these 1,000 visitors they get a 5% conversion rate for whatever the website is selling. If you could double or triple the number of visitors while maintaining the 5% conversion rate then you’re essentially doubling or tippling the bottom line generated by the website. With this kind of guarantee up front you could easily justify a rate that is reasonably comparable to however you’d be moving that bottom line.

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  5. ian

    So it’s like we want part of the money they get from the business? How about if the companies are smart enough, they have the IT guy who knows the rate per hour and said to their boss the normal cost.

    1. Ryan Castillo

      Ian – We do want part of the money. Remember the whole purpose of having employees is to help your business make more money. If you pay yourself $75k/yr and your business makes $85k/yr it doesn’t make sense to hire an employee for $50k/yr unless they’re somehow increasing your bottom line by an additional $50k.

      Regarding the “normal cost” there is no such thing. Sure there may be an average of rates but those shouldn’t factor in how you determine your own rates. Your rates should be determined by how much YOU need to make, how much YOUR client is willing to pay, what YOUR availability is, what YOU’re offering YOUR client, YOUR expertise, etc.

      At the end of the day if a client says no to your rate you decide if you want to negotiate or move on to the next client. Personally I’ve always chosen to move on and focus my energy on finding people willing to pay my rates.

  6. Jesse

    This seems great in theory, but my problem is that rarely do clients ONLY come to me for a quote. If Bill is quoting hourly and solving the same problem why would Sally not go with Bill over the other guy who wants to charge 8 grand for the same thing?

    1. Ryan Castillo

      Jesse – that’s a great point. At the end of the day it’s up to Sally to make the choice. And it is true that price is a big factor in Sally’s decision making. But let’s pretend for a second that Sally works for a large business where money isn’t as a big a factor. What do think Sally cares about most?

      1. That she hires someone who understands her problem.
      2. That she hires someone who has expertise in solving her problem.
      3. That she hires someone who can deliver the solution for her problem.

      You see, someone who charges hourly only considers the estimated hours it’ll take to solve a problem. A true consultant can look at the problem from their client’s perspective and because of that they will have a stronger pitch than just estimated hours + hourly rate.


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