How to Calculate Your Hourly Rate as a Freelancer
September 26, 2015
September 26, 2015
If you are considering quitting your full-time job for a freelancing career, you are probably thinking about your freelance rate. What figure should you set in order to thrive in the industry and grow your business? Remember, it’s not merely for survival!
Set your rate too low and you will be working harder and getting struck with low paid projects, and set your freelancer rate too high and you risk attracting new clients.
What is the best way to go about it?
Figuring out your hourly rate as a freelancer can be a pain. You may be wondering whether you’re over- or undercharging and whether clients would be drawn toward you at that price. Then the next moment you start wondering whether your rate is sufficient enough to guarantee your survival, with a promise of good life.
True, calculating your hourly rate can be the most difficult of your tasks at hand!
Charging More Than Survival Rate
When you are beginning your freelancing career, you may be tempted into charging as little as possible to net new clients and show up as a more attractive alternative. The thoughts of making up for your low rates by sheer volume start flooding your mind. Unfortunately, this kind of pricing is nothing more than a “survival rate.”
When you are not sure of the ebb and flow of work in the future, working for low rates can be an extremely risky proposition. Of course, you don’t want to be dealing with a disaster shortly after beginning your freelance career!
Low price has initial benefits in getting you a start. However, it has its own set of disadvantages. You may be classified as a cheap contractor, a name disproportionately seen to quality, and the worst of all, you run a risk of career stagnation. The growth trajectory may not be as you have dreamed of.
Since you would be struggling to meet your bare minimum needs with such a low freelance rate, there is no scope of business growth.
On the contrary, when you charge enough to survive and thrive, you are better placed to find good clients. It is as simple as that.
How Much is Enough
How do you find out how much is enough to survive and thrive?
To begin with, it may help to start with your target annual salary. How much are you eyeing to make annually? Have you thought of a figure yet?
As a self-employed person, you have got to deal with all of your overhead expenses on your own. When calculating your annual income, do not forget to factor in new and overhead expenses and tax obligations.
Cost of doing business
Now that you will be working from home or a makeshift workspace, you will have to bear all the expenses on your own. So do not forget to reflect upon the cost of working space, Internet charges, invoicing & accounting, marketing expenses, and project management tools, among other miscellaneous expenses. You don’t want to leave any unaccounted expenses that would come up as a surprise later.
As a solopreneur, you are your own employer and thus will be responsible for meeting all of your cost of living expenses, including employment tax – half of which your employer would cover when you were working full time.
Think of all the expenses that you expect to pay annually and work out your total expenses. Most professionals simply jump into freelancing hoping for better returns, without first assessing the overall cost of doing business. As a result, they end up with frustrations later!
Adjusting your new annual salary
Now that you have got an idea of all the expenses you would be covering working full time as a freelancer, adjust your annual salary expectations accordingly.
You will see that your expectations have increased after including all the expenses. Now this is the figure you should be targeting in order to be a successful freelancer, who not only survives, but also thrives in the industry.
Moreover, you are turning to a freelancing career for more reasons than one. You have fallen for a freelance career with a hope for a flexible work schedule, more vacation time with loved ones, and more family time.
So now is the time to calculate your working hours per year. How much time do you plan to spend working annually?
While calculating your freelancer rate, keep 20% of your time for non-billable activities, such as making phone calls, signing new clients, emailing, performing administrative tasks, and marketing your services on different on-demand freelancer marketplaces. However, you can save some time promoting yourself on platforms like Peer Hustle, where it is easier to meet clients and land in jobs.
By dividing adjusted salary by billable hours, you will get an hourly rate. Congratulations, you have got an idea as to how to determine your freelancer rate!
Pricing Your Freelance Services
When I jumped into the freelancing industry, I had no idea how to calculate freelance rate. Yes, I never wanted to portray myself as greedy, nor did I want to ask for too little to be underpaid or undervalued.
Then I realized that I had to see the bigger picture to set a rate that would keep both me and my clients happy! When it comes to setting an hourly rate for your freelance services, it will help to understand how your services fit into your client’s budget.
In more cases than one, clients are looking for solutions to their problems, and budget comes second. While trying to find out the budget of the client, do not forget to consider their exact problem. How serious they are to solving the problem. Are they happy with substandard work? Or are they looking for a 5-star performance from a contractor?
Find answers to these questions before setting a rate for the project. Spend some time understanding and assessing your client’s thought process. Doing so will add clarity to the value you wish to provide your clients and how much to bill. Remember, you need an hourly rate that will promise you a thriving career, besides helping build lasting engagements.
Your Minimum Acceptable Rate
How much are you willing to let go off to ascertain the lowest equivalent hourly rate you can work for? However, setting a precise minimum acceptable rate will not help much, as you can expect too many variables to perfect the MAR anyway.
If you use the above calculation, it will be a good starting point when you are switching your career and transitioning into the freelance industry. But of course, there should always be some room for flexibility – all expectations will not remain the same, nor will the expenses! As you develop your career as a freelancer, your rate may increase, depending on your future expectations, as opposed to what you need.
Value Your Own Time
You need an amount that will put you in the right mind-set and motivate you to produce exemplary work. Getting anything less will not inspire you to deliver quality work. You may not produce the highest quality work for clients that don’t value your time. Unfortunately, this may not help your freelancing career, and you may end up damaging your reputation.
It is important to value your own time first in order to set a rate that keeps you motivated to produce high value work that creates brand loyalty for your services. Don’t feel tempted into undercharging your services, because you have jumped on to the freelance bandwagon to pursue your dream career and do what you are good at doing.
But this does not mean you should be overcharging clients. Doing so would be a wrong move, and you could end up with failures in the business. After all, why would clients come to you if you overcharge them for your services?
You need a balance between what you are willing to offer your services for and what the client expects to pay. It will help to see what other freelancers in your industry are willing to charge for the same services. But this does not mean you should base your quote on the market rates. Assessing competitors’ rates will only help you determine your best rate, depending on your services, expertise, competence, and demand.
True, it is important to see your services as a high value asset for your clients and your competence as an indispensable tool to help customers grow their business. Quote what your efforts and work are worth. This can have a huge impact on your bottom line and enjoy the fruits of your labor.
Switching careers can be tough. If you are looking for a start, you may be interested in Peer Hustle – where you can save marketing time and meet prospective clients who are happy to pay for your services and make long-lasting relationships. It was never so easy to share your unique skill sets! Use your saved time to earn some hourly dollars!