How Much Should You Charge As A Freelancer?
Your professional monetary value can be difficult to dial in
As a contractor and freelancer, the conversation with a prospective client will inevitably turn to the big R-word. Rate. Your rate is, at its simplest, the monetary value of your professional work.
However, it is a lot more than that. (We’ll get into that shortly.) Any client you speak to, whether it is a referral, a cold-call, online video chat, etc., will want to know what you charge at some point during the conversation. After all, that’s why this conversation is taking place — the client has work they need help on and wants to know if you are the person for the job and a person they can afford for the job.
During those introductory calls and meetings, if the rate wasn’t discussed early on, you’ll be expected to provide a rate when asked. (It is ok to say that you’ll evaluate the meeting and get back to them soon, too, in my experience.)
It can be very challenging to arrive at the number you define as your rate. I won’t pretend to be an expert at this; merely, I hope to provide some insights from my process that I hope can be beneficial to others as they work to establish or refine their rate.
Determining Your Base Rate
One of the biggest challenges is figuring how to arrive at a rate. There are several elements that you need to consider in the rate. The first of which is, what is your revenue goal? It’s easiest to start with an annual number.
Let’s use this basic calculation as a starting point.
Let’s say you’re aiming for a $50,000/ year salary. Here is how you calculate an hourly rate.
- $50,000/ year (before taxes)
- Working 40 hours/week (5 x 8 hour days)
- 20 days off (4 weeks) for vacation, sick days, and other time commitments
= 48 working weeks x 40 hours week = 1920 working hours
= $50,000 / 1920 hours = ~$26/ hour
This is your starting point. If you want to work fewer hours per week, have more vacation, cost of living (if you live in a bigger city, it costs more), etc., adjust the calculation as needed.
Billable Hours
Here you are thinking you’d dialed in a rate… sorry, a quick twist here. You’re going to have to do another calculation — Billable vs. nonbillable time. Billable time is when you’re actively doing work for a client, this is when you get paid. Nonbillable is the administrative work, and this is unpaid. Nonbillable could include writing your blogs, expense reconciliation, backend web work, and all other sorts of things you’ll do that don’t make you money directly.
Let’s call it a 60% billable/ 40% nonbillable time breakdown for the sake of this argument.
Go back and rerun your calculation. For the sake of our example, here’s the new rate breakdown at 60% billable hours.
= 1920 hours x 60% = 1152 billable hours
= $50,000 (goal salary) / 1152 billable hours = ~$43/ hour
Determine Your Expenses
Now that you’ve got a billable hourly rate, you have also to consider your expenses. I know this is getting more complicated than you may have thought.
We’re going to assume that you have $5000 of annual expenses. Those include the cost for your computer, website, hosting, car payments and insurance, professional insurance, gas, some client meals or coffees, and other unpredictable expenses.
Add that $5000 of expenses to the $50,000 annual salary.
Running the same calculation from the billable hours step:
= $55,000 (salary and expenses) / 1152 billable hours = ~$48, rounded up.
Determine A Fixed Rate Project
Now that you have your hourly rate, you can calculate fixed-rate projects for clients who prefer that. This is a bit trickier as you need to guess how long a project will take you.
Quick scenario: A client wants help updating their website for written content, making it more SEO friendly, making some adjustments to layouts, and adding more images.
Your project guess: Probably 5–10 hours of work.
Your predicted fixed rate: In my experience, it’s better to bid somewhere in the middle of expectations. If you think it could take 5–10 hours of your time, bid at a guess of 8. If you work faster than 8 hours, you’ll make a higher hourly rate. You could, of course, run into issues, and it could take over 8 hours, at which point your hourly rate goes down.
But that’s the challenge of a fixed rate. You don’t want to price yourself out of consideration, but you also want to give yourself some breathing room for the inevitable hiccup with any project.
The rate: $48/ hour x 8 hours = $384. You can round up to $400 for the project if you like.
Track Your Rate
For the sake of this section, I am assuming you’ve been in the game for a while. I also think that you’ve had a few clients you’ve worked with and with different types of rates.
Why does this matter? Because you should be tracking your rates historically. If inflation costs are rising, then you need to increase your rate. On the other hand, if you are charging the same rate you did two years ago, the odds are that your experience has increased, your professional credibility, expenses, and monetary inflation.
Below is a screenshot of my historical tracker. While this is not a comprehensive list (even I forget to keep this current), it is a decent list for historical purposes. (From 2017–2019, I left the freelance game for a full-time job.)
As you can see, over time, my rate increased from 2016 to 2019. This ties into professional development within my career, and it reflects a significant increase in services that I now offer in my work.
You can also see that my rate varies for different clients. The reason for this is that I adjust my rate when needed for budget and scope. For some of these clients, I’m doing writing only. For another, I was consulting just for technical support.
When I am offering a combination of my services, I charge my full $125/ hr rate.
Final Thoughts
This post is certainly not the final word on how you should calculate your rate. It is merely a place to start. You may find that as you adjust your rate and continue to grow, you’ll price yourself out of some client work. Adjust your rate as needed to continue your pursuit of self-employed happiness.
A professional recommendation is to use good tools for task management, invoicing, and accepting payment. One that I use extensively is called Bonsai. I reviewed it here if you want to learn more.
Good luck, and of course, I am always happy to answer questions or comments about this and my personal experience.
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