Setting Rates as a Freelancer: What You Need To Know to Get Paid

“How much should I charge as a freelancer?”

It’s one of the most frequently asked questions by freelancers, and also the most important. You want to make sure you get your money’s worth for your time but also offer competitive rates.

Finding an answer isn’t always easy, and can differ depending on several factors, including:

  • Experience: the number of years you have spent freelancing.
  • Type of work: programming, writing, marketing, SEO, graphic design
  • Quality of work: the level of polish and mastery exhibited by previous work.
  • Expected completion time: the number of hours or days until a project is complete

But there is an easy way to figure out how much to charge as a freelancer. I’ll cover everything you need to know in this article.

Types of Freelance Rates

Most freelancers tend to charge through these ways:

  • Per project: Paid at the end of a major project, such as the completion of a website or e-book.
  • Per hour
  • Per word: Typically applies to copywriters or content writers.
  • Retainer: Paid at the beginning of contracted services.

While each one has its advantages and disadvantages, I recommend charging per hour.

Why? For one, it’s easier to use hours to measure your effort (i.e. how much you need to work) and the amount you’re owed.

Second, charging per word (specifically for writers) forces one to write pages of fluff just to receive your desired payment amount. More words do not necessarily equal better quality.

Finally, once you calculate your hourly freelance rate, you can use that to charge for projects. Simply estimate how many hours you expect to work on a project, and multiply that by your rate.

A quick google search of “how to set rates” will bring up countless results, each one varying in solution. Some rely on rule-of-thumb rates, while others use complex equations.

I’ll explain a step-by process for calculating a rate that best works for you.

How to Calculate Your Hourly Rate

Step 1: Calculate your cost of living

Instead of using some random number recommended online, start with the amount of money you need to make each month.

Here’s a list of typical living costs and how much of your monthly salary should be devoted to each one:

  • Rent or mortgage – 30%
  • Groceries and restaurants – 15%
  • Utilities and Internet- 10%
  • Outstanding debts (student loans and credit card payments) – 10%
  • Savings – 10%
  • Clothing – 5%
  • Entertainment – 5%
  • Insurance (auto, life, home, pet) – 5%
  • Transportation (gas, rideshare, public transportation) – 5%
  • Misc. expenses (gifts, vacation savings, etc.) – 5%

Note, these are estimates and not hard figures. Each category may vary slightly. Let’s assign a few figures to each one, using average rates for examples.

  • Rent: $1,000
  • Food and groceries: $510
  • Utilities: $250
  • Debts: $400
  • Savings: $320
  • Clothing: $120
  • Entertainment: $140
  • Insurance: $280
  • Transportation: $140
  • Misc. Expenses: $140

Total living expenses: $3,300

Once you’ve factored in all your living expenses, the next step is to calculate your business expenses.

Step 2: Calculate business expenses

How much does it cost to run your freelancing business? Here are a few categories to consider:

  • Website hosting
  • Office space
  • Phone, computer, printer
  • Promotional material (ads, flyers)
  • Invoicing, accounting and project management software
  • Additional help from other freelancers

Since these figures vary between each person, it’s hard to come up with an average rate, but just for example’s sake, let’s say your total business expenses are $1,000.

Step 3: Calculate the number of billable working hours each year

Now measure the amount of time you’ll actually be working. Keep in mind that as a freelancer, you probably want to spend more time with friends and family.

If there are 40 hours in a typical work week, and 52 weeks in a year, then there are 2,080 hours each year.

Now if you factor in holidays (about eleven for both U.S. and Canada), that’s 88 hours.

Then take into account sick days or off days. Let’s say seven days each year. That’s 56 hours.

Finally, you may want to go on vacation for a total of three weeks. That’s 120 hours.

Add those up and you have 264 non-working hours. Subtract that total from your total working hours and you have 1816 hours. This is your total working hours.

Keep in mind that you’ll also be doing some admin work- that means communicating with clients, reaching out to potential leads, advertising, following-up and putting out fires. Set aside 25% of your time for this.

So take your total work hours (1,816) and multiply that by .75 (the amount you’ll actually bill clients for). That gives you 1,362 hours, your total billable working hours.

Step 4: Divide annual expenses by total billable working hours

Here’s where we put it all together. Add your living expenses with your business expenses. Using the same example, we add $3,300 to $1,000 and get $4,300. That’s our total expenses per month. Multiply that by 12 and you get 51,600, your total annual expenses.

Divide total annual expenses ($51,600) by total billable working hours (1,362). That gives you $37.89 per hour.

Step 5: Factor in taxes

We’re almost there! Whether you live in Canada or the U.S., a portion of your earnings will be given towards taxes, so set aside about 20%.

Take your rate ($37.89) and multiply it by .2 (20%). That gives you 7.58. Add that to your rate and you get about $45.47. Congratulations! You just calculated your hourly freelance rate.

So let’s revisit that final equation:

Freelance rate = ((Living expenses + Business Expenses) / (total billable working hours)) * tax rate. Click To Tweet

Additional Factors In Your Freelance Hourly Rate

While you can use this rate to provide a reference for your clients, some other factors may affect how receptive they are to the figure.

Experience

Is this your first time freelancing or your seventh year? Do you have a portfolio to show off your past work? What are some of the high-level brands you’ve worked in? These are just a few questions that clients will ask in their head when they determine your worth.

Starting out you’ll have to take lower rates just to build your portfolio. But as you progress, you’ll have greater power in rejecting clients that don’t accept your rates.

Competition

Check forums, subreddits, and community boards on the rates similarly-experienced freelancers are charging. How does it compare?

Typically when you see an opening for contract work with a client, others will hop on that chance too. Some will have more notable clients, others will have cheaper rates. How will you stand out?

Quality

If you’ve ever been on some freelance marketplaces, you’ll notice clients requesting insane amounts of work for unreasonable payment (30 pages of writing for $40!) that’s because the lower the quality of work, the more competition there is.

There’s no point competing with people from overseas. The writing will be poor quality anyway, and the clients will not be the ones you want to work with. Go for quality, not quantity.

Client Reputation

Some clients are better than others. They’re better known in the industry, are more lenient, and generally pay higher than the industry average. While they may be hard to find, these are the ones worth chasing.

You may not like it, but at times you may have to accept a lower rate just to work with the best. There are some invisible benefits though- you can cite them as an example to future clients, they may provide you with more work, or they could even put you in touch with other people.

Project Scope

Finally, make sure both you and the client have an understanding of what is assigned. The best way to do this is with a SOW, a document signed by both parties agreeing to the rate and the deliverables.

Not only will you avoid headaches and arguments, but you’ll also avoid additional work that you won’t get paid for.

Increasing your rate over time

This rate is what you should offer now, but in the future, you may have to increase it. As you progress, develop experience, and build your portfolio, you’ll have greater bargaining power with your talents. Use that to your advantage.

If you don’t get at least 30% rejections because your rate is too high, your rate isn’t high enough. Don’t be distracted by clients trying to save money. You want clients who can afford to look out for your basic needs and expectations.

Most importantly, learn the art of negotiation. Since no two clients or projects are the same, it only makes sense that you can adjust your rate accordingly. Some will expect more work, others less. Strike a fair and careful balance.

Start here and work your way up. That’s how you progress as a freelancer.

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