Setting rates is one of the hardest parts of being a freelancer. So don’t beat yourself up if you find it difficult at first. Often, freelancers have a hard time knowing what they’re actually worth. Or they don’t like the added pressure that a hefty invoice adds to their work.
For a freelancer, time is money, so what do you say we get right to it?
1. Know Your Numbers
If we assume 8-hour days and only 5 days in a workweek, then there are 2,080 potential work-hours in a year. But unless you plan to work on Christmas, never take a vacation, and never get sick, you’ll want to cut that number down to about 1,920. Still, of those 1,920 hours, most likely 30 percent of them will be spent doing nonbillable work: admin tasks, invoicing, client negotiations, etc.
Now you’re looking at 1,344 hours a year — or just 26 hours a week. So as you calculate your rate, keep in mind how many hours you’re actually going to be paid for.
2. Know Your Lowest Price
There are two rates you should always have in mind: your absolute lowest rate, and the rate you’re going to charge for a particular job. Knowing your Minimum Acceptable Rate (MAR) will give you the confidence that you aren’t pricing yourself out of business.
There are a couple of formulas you can use to calculate your MAR:
- (Personal Expenses + Business Expenses)/Hours Worked + Taxes
- Divide your on-staff yearly salary by the number of hours worked
Both of these results will land you juuuust above the break-even line and should only be used as a basic guideline. These are the rates you should never go below.
3. Work Backwards from a Goal
Before you can make a good decision about your hourly rate, you need to decide how much you want to earn this year. It sounds obvious, but most freelancers work the other way around. And then they’re surprised at the end of the year by how much they did (or did not) earn. Make the call right now: How much are you going to earn in 2015?
Using the above 26 billable hours per week average, here is the hourly rate you’d need to charge to make your desired amount of annual income:
- $50K/year: $37.20/hour
- $75K/year: $55.80/hour
- $100K/year: $74.40/hour
4. Time Is Your Most Valuable Asset
Selling yourself short costs you money. As tempting as it might be to undersell a project when a client balks, it’s in your best interest to stick to your rates. Your time would be better spent improving your skills, taking a class, or learning a new coding language than stooping to charge a rate beneath your MAR.
5. Know Why You’re Worth What You’re Worth
Why do you deserve $75 an hour when your competitor charges only $50? As nice as it would be to pull a salary from thin air, even in the freelance world you have to earn what you’re worth. Have you won awards? Been published in respectable publications? Made measurable improvements for your clients?
When you quote a price to your client, know why you are quoting it. Your client doesn’t care how many hours it takes you to do your work. They care about results. Price for the results you know you can provide, and then as your skills improve, raise your rates accordingly.
6. Sometimes a Lowered Rate Is Worthwhile
There are instances when it’s worth it to you to reduce your rate:
- If your client has clout and will improve your portfolio
- If your client is doing a good deed and your work is philanthropic
- If your client can send a significant amount of traffic your way
- If the project is such an interesting challenge that you can’t help but accept
In these circumstances, though, it is important to work as if your client is paying premium. The only thing more devastating than underselling yourself is creating bad word of mouth.
7. Your Rate Is Not Set in Stone
Setting your rates is important — but it’s not permanent. Rates are constantly in flux based on your clients’ situations, your situation, and the market’s situation. So don’t panic. It might take you a few tries to dial it in.
If you’re going to make a living as a freelancer, being honest about what your time costs is step one. It’s a form of humility to be honest with yourself about what you’re really worth. And when you find the right clients, they will be happy to pay it.