When I took on my first client, I had no idea how to set my freelance rate.

This post originally appeared onRyan Castillo’s blog.

Most Freelancers Fail to See the Big Picture

But first I had to learn the hard way.

Well, as it turns out, thinking this way is wrong.

Most freelancers fail to see the big picture.

You may know your client’s budget, but not how they came up with their budget.

What is the relationship between the budget and what you are working on?

The Acme Corporation Has a Problem

A quick story will help illustrate my point.

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.

Sally decides to make a tough decision: it’s time for them to move off of Jeroku.

Sally wants this done right away.

This is where the freelancer comes in.

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.

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 knew it was costing $10k/month to stick with Jeroku.

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.

Gather Data for Your Freelance Rate

Let’s revisit the Acme Corporation.

What is the budget to solve the problem?Simply ask: “What is your budget?”

If they don’t have an answer for this, it’s a red flag.

You don’t need to know the exact budget number, just a ballpark.

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.

Knowing their budget is $10k, you offer to get the work done for $8k.

All because you thought about the problem from the client’s perspective and inquired about their budget.

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.

Image adapted fromThatsaphon Saengnarongrat(Shutterstock).

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