Even if you've been freelancing for a while, it can be tricky determining your rates. Some freelancers massively undercharge by miscalculating their expenses and billable hours and others accept clients’ budgets without negotiating. Here's a step-by-step guide to help you figure out how much to charge.
1. Determine your desired income.
The first thing you need to do, before whipping out a calculator to determine your rate, is to decide what your goals are for your freelance business and lifestyle. That way, you can build your rates that will actually fit your needs.
What is your desired yearly income? Whether you’re a student looking to make some side cash or an established freelancer looking to scale your business, getting clarity on your income goal is the first step to strategizing around it.
2. Calculate your expenses.
It’s easy to underestimate your expenses, so be sure to make a comprehensive list of the ones you anticipate and add 10% more for incidentals. Make sure that you are thorough, you might budget for an office rental or co-working space membership, utilities, supplies, software and hardware, health insurance, phone bill, professional development, mileage and gas, advertising and marketing and a bookkeeper or accountant -- whatever you might need to keep your freelance practice running smoothly.
Once you start adding it all up, you may be surprised by just how much money you’re spending to work Don’t feel guilty for including these costs in your budgeting!The point is to face them so that you can prepare for them properly.
3. Determine your billable hours.
How many hours would you like to work per week? How many days off would you like to take? Consider vacations, sick days, personal days, religious and civic holidays and anything else you’d like to account for. Want to take your birthday off? Go for it. Prefer not to work on Fridays? That's alright, as long as you incorporate this in your calculation of how many billable hours you will have.
Some freelancers choose to charge on a project basis rather than hourly. If you’re going to take this approach, it’s still advisable that you do a personal calculation of how many hours you anticipate a project to take so that you have a rough hourly rate, even if you don’t share this with clients. This will actually help you determine your project rates.
5. Do the math.
Add your desired annual income with your projected expenses for the year. This is the number you’re going to work with as it more accurately reflects all the costs involved in your freelance business. Once you have this number, divide it by the number of billable hours you have in a year. This equals your hourly rate.
For example, if you’d like to make $70,000 and you anticipate $10,000 of expenses, you’ll need to divide $80,000 by the 1920 hours you plan to work annually (40 hours per week with 4 weeks off), your hourly rate will be $41.60.
When you have this number, you can cross reference it with the going rates in your industry. You can find online guides by various associations that outline pay ranges for various work. For example, editors can turn to The Editorial Freelancers rate chart or audio producers can look to AIR’s podcasting rate guide.
Whether you’re new to freelancing or you’re a seasoned pro, following the above steps will help you determine if your income goal is realistic based on your billable hours. Be sure to be generous with your budgeted expenses and billable hours in order to avoid being overworked and underpaid. You can also repeat this exercise annually with your updated goals and be sure to give yourself a raise, or at the very least, to account for inflation.
Looking for more tips on how to build your business the right way? Click here to learn how to build freelancing success for the long haul.