Learning how to set an hourly rate as a freelancer or expert is often a mystery. Let’s talk about how to get paid what you’re worth.
This question is a part of my Free Q&A Series where I answer questions posed by entrepreneurs around the world on sites like Quora, Clarity, and various freelancing forums.
Original Question: I’m starting an influencer marketing agency. How much should my hourly rates for my services be?
Hi! And congratulations on starting your marketing agency.
You asked, “I am starting an influencer marketing agency. How much should my hourly rates for my services be?” First: you’re going about it backward.
Having an hourly rate is fine for internal purposes, but should not be on any external (client-facing) materials.
Pricing Your Agency Services
After completing this exercise, you’ll have two pricing structures for your marketing services. One for internal purposes (paying yourself, overhead costs, etc) and one for the client – or external purposes.
Why two sets of pricing structures? Well, one is what you charge for your time and one is based on the value for the client.
Let’s say that you do social media marketing and want to make $50 per hour. The client values the service at $2000 because they know a strong social media presence brings in more business.
Further, as you become more efficient at social media management, you can do more work in less time. Now, you are working against yourself. You are working faster – more efficiently – but getting paid less.
How do you handle this discrepancy in digital marketing services? You move away from hourly billing.
Let’s break it down more:
How to Calculate Your Hourly Rate
To determine what you need to make hourly (again, for internal reasons). Use the following formula:
- Determine the income you want to generate annually
- Determine how many work days you will have annually
- Determine how many hours per day you will work
- Determine your day rate by dividing your annual income by the number of workdays
- Determine your hourly rate by dividing your day rate by the number of hours you want to work each day
Hourly Rate Calculator [Example]
For example, let’s say you want to make $100,000 (pre-tax) annually.
- Annual desired income: $100,000
- Annual work days: 365 days total, minus 104 weekend days, minus 10 holidays, minus 15 days vacation leaves 236 days for work
- You won’t work 12, 10, or even 8 “billable” hours per day, it will be more like 4 or 6, on average. So we’ll use 5 for simple math.
- Your day rate ($100,000 divided by 236): $425
- Your hourly rate ($425 divided by 5): $85
Of course, this is a broad generalization not factoring taxes and other expenses. But you get the idea.
Your hourly rate of $85 is how you can determine if a job is worth your time. At a glance, you can use this figure to calculate your profitability. You can also think of this as a minimum hourly cost.
Digital Agency Rates & Fees
For the client side, I would encourage you to focus on value-based rather than an hourly rate.
With any creative service, you want to be viewed as an asset rather than a commodity. When you are hourly-rate focused, you are positioning yourself as a commodity. A hired hand that can be replaced with ease.
Next, you are competing with everyone who will do your job for $1 less. This results in a race to the bottom of the pricing barrel. Soon, you are justifying why you are worth $85 per hour when the next person will do it for $80. Or $40. Or $15.
Additionally, when pricing per hour, you are effectively limiting yourself to a fixed income. Let’s keep the $85 per hour from above, and let’s say that you magically work 10 hours a day, effectively doubling your annual income to $200,000. To earn more, you either have to raise your rates (again, you’re competing with the guys who will do it for less) or work more.
The Personal Side of Pricing
I don’t know about you, but I like my vacation days. And going to my kids’ school events. And not being tied to the computer for 10 hours per day, 5 days a week, 48 weeks a year.
Instead, when you price your services for value, you can charge almost anything you want. Let’s say you are THE influence marketer to the stars. Your services are so well respected people will gladly pay $5,000 or $10,000 or $25,000 for the privilege of talking to you about how to gain more brand awareness and influence. And let’s say that you can do this for a client in 10–15 hours of work (not factoring in the years and years you’ve spent learning your craft and developing systems). Even at $5,000 for the service, you’ve essentially made $500 per hour.
Could you lead a conversation with your client if you started with $500 per hour? Not likely. Remember, the other guy only charges $40 per hour. But you have sold the client on the value of what you can provide. Not just trading time for money. You’ve traded knowledge for money.
Finally, the more efficiently you can niche yourself, the more of a pricing premium you can demand.
Premium Pricing for Premium Service
Again, congratulations on starting your new marketing agency. By now I hope you realize that there is a lot of pricing flexibility in the marketing industry.
It is up to you to position your value to the client and set your agency fees to be what you are worth.
All the best,
-Shaun
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