Why your starting-out fees for freelance or consulting are not so crucial

The biggest roadblock to getting started as a freelancer or consultant is deciding what to charge.

If you charge too much, potential customers will walk away. If you don’t charge enough, you are leaving money on the table. Obviously, not good.

So you fret and worry. Are you charging as much as the market will bear? Are you charging so much that you lose desirable projects that don’t pay all that low? How do you know if you have charged as much as you can?

You want the client to say “yes” when you present your price. Or truly, you want the client to say yes but to wince. And how do you know if the wince is real or if it is to prevent you from raising the price later because you think you are at the brink?

Just thinking about this is enough to give you a headache.

And when you are writing an actual proposal, it’s enough to add upset stomach to your health woes.

Now that I’ve set the stage, here is the number one reason that what you charge is not all that important:

Each client stands apart. No one knows what any other client of yours has paid so you are not setting a precedent in pricing jobs for future clients. (I assume you have not publicly posted rates on your website or elsewhere.)

Granted, there is still the sticky issue of how to raise the price on existing clients. But if you are starting out, existing clients are by definition but a fraction of your future customer base. Furthermore, there are ways to address this issue later on when it becomes a problem.

But your pricing headache will soon start throbbing if you worry years in advance. Today’s challenge is snaring your first few assignments.

Our attitudes about pricing have been shaped through corporate employment. So let’s get on the same page about how corporate salary administration works.

When you accepted your first job offer out of school you didn’t feel you could bargain much for a higher salary because your work experience was limited. You took what was offered and found out later that in the sophisticated U.S. career market, smart applicants negotiate their entry salary like they’re shopping for a sombrero at a tourist trap. Compounding the problem is that some of us unknowingly (or even knowingly) experienced gender or other discrimination that further depressed starting pay.

Then ever after, employers administer your wage by percentage increases. So if you start low, the increases increment from a lower base, resulting in significant (but secret) pay disparity among coworkers over time.

It’s like if one person invests $1000 in a bank passbook savings account and another invests $1000 in a bond paying 10%. After 30 years, the second person has a lot more money (unless the company goes bust).

Currently, employers want to maintain past disparity among new hires. Some hiring companies insist upon learning your past salary in your application cover letter. And some require past pay stubs before making an offer.

This is unconscionable, obviously. The valid question is what are your services worth to the new employer, not what the past employer got away with underpaying you.

Freelancing and consulting are not like this. Though I list many of my past clients at my freelance website, no one has ever asked me what I was paid for these assignments. Nor has anyone ever asked me for a contact at past clients so they could verify what I was paid.

No one has ever asked me. And if they did, I wouldn’t tell them. Ah, now I remember why I freelance and consult.

The objective of freelancing and consulting is to have enough different clients that you never feel as powerless as when you wed yourself to a single full-time job and forsake all others.

Each freelance or consulting client is a new day, a fresh start. This makes each proposal you prepare much less of a life-altering event.

I’d like to end with a funny story from Tim Ferriss, author of The 4-Hour Workweek. There’s much in that book that I don’t believe would work for most people (starting with the fundamental premise that we can make all the money we need to live a pleasure-filled lifestyle by working only four hours a week). But some of his ideas are intriguing.

Now for the story.
Ferriss recommends approaching local offices of big-name companies and offering them your services in a small way. For instance, call the area service office of IBM and propose a brown-bag luncheon program on time management. No matter how little you are paid (or even if you do it for free) and no matter how few people show up, he says you can legitimately claim you have consulted with IBM forever after.

Food for thought.

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One response to “Why your starting-out fees for freelance or consulting are not so crucial

  1. As an IT trainer with private clients and agency clients, I found this article very interesting…. It’s also an unwritten “law” that trainers don’t discuss their fees with other trainers. Also, if you work through an agency, as I do at times, there is no negotiating power – it’s either take it, or leave it! IT training agency fees haven’t changed upwards over the past 4 years, and are not likely to change for a little while yet.

    I loved the Feriss story! Excellent point!

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