One of the most challenging decisions to make as an e-Learning freelancer is how much you should charge. If you charge too much, you may not be competitive against others in the industry; if you charge too little, you risk not making a profit and potentially going out of business. And if you’re just starting out as a freelancer, you have a lot of overhead expenses to cover (like computer hardware, software subscriptions or even bookkeeping fees)!
To complicate this decision even further, you may find that there are many other freelance e-Learning Designers charging rates so low that it’s hard to imagine competing. So this week, I’d like to talk about deciding what your initial rate should be, and how to position yourself to stay competitive with e-Learning “Hip Discounters,” the people in our industry who charge next-to-nothing rates.
Next week, we’ll tackle how to migrate from charging hourly to charging by the project, and why eventually it’s a good idea to sell value instead of selling hours.
Charging by the Hour: the Good, the Bad, and the Ugly
Charging by the hour is typically most useful for freelancers who are just getting started. When you’re first launching your freelance e-Learning career, you’ll need to start by answering a big question: How long does it typically take me to complete a course? This is important, because you’ll want to make sure that when you provide a client with an estimate that it’s as accurate as possible. If it takes you between six and eight hours to complete a course at first, you can then compare what you would make from building a course at various rates.
For example, if you know that a course takes you eight hours, and you were thinking about charging $20 per hour, you would essentially be getting paid $160 for one course. That may sound reasonable, but when you factor in all of the costs you incur as a business owner (remember, you’ll need everything from a business license to a hosted portfolio website), $20 quickly starts to seem unsustainable.
Unfortunately, there is no “magic number” for what you should be charging right out of the gate. You’ll need to determine your initial hourly number based on your own overhead, what your local market can sustain, how experienced you are, and the scope of work you’ll be taking on. To come up with your own number, I recommend doing some research into your local competition, as well as what the going rates are for other e-Learning Designers nationally. A good place to start is Christy Tucker’s article Instructional Design Hourly Rates and Salary, which provides some good suggestions, depending on what specific kind of e-Learning work you do—and notably, most of the recommended freelance rates start at a minimum of $50 per hour. It’s also important to note that freelance rates are higher than full-time job salaries, and that’s because most people understand that as a freelancer, you’re covering all the overhead of running a business yourself.
Charging hourly is useful when you’re getting started because you’re not only gaining insights about your own work pace, but you’re also getting paid for every hour you work. If a client has additional needs that require ten extra hours of your time, you get paid for each of those additional hours. This can be incredibly valuable at first, especially when you’re working with a project that has the potential for scope creep.
But eventually, charging by the hour will work against you, as you may find that as you get more experienced, you’ll deliver more per hour, but still make the same as when you started (unless you’re willing to raise your hourly rate, which can be a tough sell). Next week, I’ll talk about how to transition to charging by the project, but for now, it’s helpful to understand that an hourly rate is a good, if temporary, way to start.
Lastly, the big risk of charging hourly is that you’ll find yourself with a lot of underpriced competition. When you’re bidding on a project, you’re likely only being compared with a handful of other e-Learning Designers based on a specific project’s needs, but when you establish a rate, you’re communicating a static rate that will get compared with many other static rates—even if you bring significantly more value to the table than your peers.
So with all that in mind, let’s talk about one of the dirty secrets of the freelance e-Learning industry: You’ll need to know how to compete with the “Hip Discounters” of our field, and sell your value over someone else’s (who is asking for half of what you charge).
Community Advice on Dealing with “Hip Discounters”
I recently posted to Articulate’s e-Learning Heroes forum to get some opinions on the topic, and got some very interesting responses. This is what I wrote initially:
I was browsing a few of the freelance sites and came across several Storyline developers offering to design and build courses for $10.00/hour, $16.00/hour, and $20.00/hour.
Am I the only one who thinks this is crazy?
Pricing is not a sustainable competitive advantage. Someone will always come along and offer their product or service for a lower price than you! I realize that a client who selects some of the “low price” developers will “learn the hard way,” but what impact do you see for our industry in the long-term?
Are we destined to become the Walmart, the Target, or the “hip discounters” of the professional world?
The full discussion is here. I was happy to find that many others in the community shared my concerns, with most expressing their opinions based on a few consistent tactics:
Focus on Quality Over Price
Many in the community felt that the old adage is true: You get what you pay for. In our world, that means that in most cases, freelancers charging extremely low rates are more likely to deliver low quality work, or take significantly more hours than a seasoned freelancer to complete work of higher quality. (In many of these cases, clients who were at first dazzled by a low price tag come to find their money going toward content that doesn’t meet their expectations, or that their projects have essentially become money pits.)
It’s important to note here that most businesses who understand quality won’t even consider hiring an e-Learning Designer with rock-bottom rates; they typically consider this a sign of inexperience and opt to work with more experienced freelancers. Think of it this way: If you were looking to cook a gourmet meal, you might be more inclined to shop at an upscale grocery chain like Whole Foods, and you’d almost certainly never do all of your shopping at The Dollar Tree.
Also, keep in mind that this is one of the key areas where you can put your portfolio to work for you. By making sure that you’re including high-quality samples that truly show off all that you can do, you’re creating a buffer between yourself and the “Hip Discounters” by showing potential clients why your work is worth paying more for.
Highlight the Services You Provide
Others in the forum mentioned the value of understanding business needs, and how business and analytical skills can be a big differentiator between you and cheaper competition. To do this, you need to learn to focus on the business needs, and not yourself: Learn to frame conversations around “These are the problems you’ve communicated that I can solve for you” instead of “These are the cool things I can do for you.” Part of what clients are paying for is the relationship you’ll have, which relies on you having a keen understanding of their business language, their culture, and their pain points. By understanding your clients at this level, you’re adding much more value than a “Hip Discounter” could ever add.
Filter Out Clients Who Underpay
One of the benefits of encountering clients who expect to pay “Hip Discounter” prices is that you’ll be able to spot “bad clients” before getting involved with any. If a client’s only question up front is “How much do you charge per hour?”, consider that a giant red flag—they’re probably not a client you want to work with in the first place.
Remember That Business Sense is Important
You’ll likely find that when it comes to “Hip Discounters,” many have good e-Learning development skills, but very few demonstrate good business sense. As you’re doing a competitive analysis, when possible, pay attention to the way they introduce themselves, how they present their own value, and how they handle themselves on client calls. Inexperienced e-Learning freelancers tend to over-commit themselves and often have difficulty estimating time on a project. You may also find portfolio samples that are underwhelming.
I have nothing against “Hip Discounters,” but my aim here is to show you how you can stand out amongst them while still turning a profit. Make it a point to present yourself and your ideas clearly, even if it means triple-checking an email you’re writing; make sure your estimates are based on actual math; and again, invest time in getting your portfolio in strong shape. At the risk of tooting my own horn: If you’ve been following along with the Succeeding as an e-Learning Freelancer series and keeping up with the advice in each article, you’re very likely to have a significant advantage over the typical “Hip Discounter.”
Staying Ahead of the Competition
At the end of the day, you need to set a rate that you feel reflects the quality of work you do. While it’s tempting to set as low a price as you can, especially when you’re starting out and want to attract new clients, you must always remember that undercharging is the number one reason most freelance businesses don’t survive.
So when you’re setting your hourly rate, make sure you’re taking into account:
- The local economy (for example, freelance e-Learning Designers can charge more in San Francisco, California than they can in Topeka, Kansas).
- National norms for similarly qualified professionals (it’s always worth it to get some data from GlassDoor.com)
- The level of skill you’re bringing, both in terms of Instructional Design and business experience
- The amount of money you’ll need to make to cover your expenses, invest further in your business, and pay yourself a living wage
Whenever possible, make sure you’re not basing your pricing on factors like:
- The lowest rate you see advertised for other freelance e-Learning Designers
- Picking an amount out of the sky with no data to support it
- The amount the client has stated they’re willing to pay without understanding your rate or your value
And lastly, in order to stand out in a sea of “Hip Discounters,” you must:
- Identify where your competitors fall short, and fill those gaps
- Build rapport with clients early on
- Understand your clients’ industries and how your services provide value in that context
- Be authentic
- Be consistent with customer service
Ultimately, your success as an e-Learning freelancer over the long term depends not on having the lowest prices, but rather offering the best value to your clients. It takes confidence and patience to get paid what you’re worth, but the health of your business depends on it! The sooner you evolve your mindset from “hired gun” to “business partner,” the sooner your clients are going to recognize your worth and pay you accordingly.
Always remember: If you focus on price alone, you’ll never win! I encourage you to focus on the value of your products and services and to make that value a key part of your brand. The sooner you focus on that, the sooner you’ll be able to move to charging by the project instead of by the hour, which can be much easier and more lucrative—stay tuned for more information about that, because next week’s article is all about making that transition!
How did you go about setting your own freelance rates? What were the biggest challenges for you while helping your clients understand your skills and value? As always, I love hearing from readers like you and I enjoy your comments, tweets, and emails. I invite you to join our private Facebook group, or chime in on the conversation on Twitter with the hashtag #eLearningBiz!
Editor’s note: This post is part of my ongoing 2017 series, “Succeeding as an e-Learning Freelancer,” a comprehensive look at the ins-and-outs of working independently in the Learning and Development industry. All of the previous posts in the series can be found here.