How to Calculate Your Freelance Rate
Determining how much and when you get paid.
One crucial step in setting up your freelance business is determining how much you can expect, and deserve, to make. It’s obvious you’ll want to get paid for the work that you’ll do, but there are a few things to consider in regards to determining the rate at which you get paid.
Calculate Your Rate
When thinking about the freelance rate to charge, there’s a bit more to consider beyond what you think your work is worth. As a full-time freelance worker, you will have to cover the costs of the day-to-day operations and consider parts of owning a business, like taxes and purchasing healthcare.
When determining your freelance rate, you need to be able to determine the following:
- Your target salary
- Account for the cost of living where you will be located
- Number of billable hours
- How many hours do you want to work per week and how many weeks per year?
- Remember to factor in holidays and any upcoming vacation time so your estimate is more realistic
- Overhead expenses including software, insurance, advertising, travel expenses…
Let’s work this into a real-life scenario for a freelance worker, taking into account a flexible schedule:
- I want to make $100,000 per year
- I estimate working 48 out of 52 weeks per year and maintaining a five-day work week, but only working six hours per day
- My overhead expenses as a freelancer amount to around $15,000 (co-working space, web hosting, software, marketing, phone bill, healthcare and self-employment tax)
|Target salary + overhead expenses||$115,000 (adjusted salary)|
|6 hours/day × 5 days/week = 30 hours/week |
→ 30 hours/week × 48 weeks/year
|1,440 billable hours/year|
|Hourly Rate: $115,000 ÷ 1,440 =||$79.86/hour|
If you do these basic calculations you can come to the conclusion that you should be charging around $80/hour in order to meet your desired target salary.
Of course, there are many factors that can contribute to items like overhead but this is a good general calculation to get started.
From here, check out sites like Salary Expert and PayScale to get a general idea of what the pay rates are for a variety of services to see where you stack up.
It’s best to do some research on what the current going rates are for the work you will be doing, especially if you do not have connections or have little experience in your field. Having a comparable rate to what others are making for similar services can help make you more competitive in your market
Choose How You’re Paid
Whether you’ll get paid hourly or per project is largely dependent on the type of work you’re doing.
Consider the following when deciding whether an hourly or fixed rate is best for you:
- Is it unclear how long the project could take? (Consider hourly)
- Is your client unaware of the time it takes to complete your work? (Consider project)
- Are you typically able to complete your task quickly? (Consider project)
- Do you prefer to be paid more frequently? (Consider hourly)
A big case for project versus hourly is that hourly limits your earning potential. Many would benefit from giving the value of the service provided upfront instead of sharing the duration of time it’s expected to take.
Track Your Time
Especially if you’re getting paid hourly, you’ll want to be sure you have an efficient way to keep track of hours for different clients.
Freework is a timesheet app system that allows you to easily start, stop and assign time spent working to a specific client, which is then saved to your workspace.
There’s even a geotracking feature you can activate that will automatically start and stop your time tracking when you enter and exit set locations, like a client’s office.
Even if you’re not getting paid hourly, you could benefit from knowing how long you can expect certain projects to take you, especially if it’s a repeatable task. The only person who will be reviewing your pay and deciding if you should get a promotion is you. Easily accessible timesheets could prove useful in requesting increased pay rates from your clients.
Remember that the rate you start at doesn’t have to be your forever rate. Asking for more is a reasonable request as you continue to gain experience, maintain a client base and the value of your industry grows