When you decide to freelance full time or to take on a side project, the first reality check you’ll encounter is setting your freelance hourly rate.
Too high? You price yourself out of your client’s budget and you risk losing work. Too low? You run the risk that it won’t be worth your time in the end, making your work-life balance no better than working a 9-5.
The solution is to figure out your freelance hourly rate based on your needs, wants, and availability. Here’s how:
The Formula to Figure It Out
Let’s pretend we live in a perfect world in which you get to decide where, when, and how you work. That’s the assumption this formula will work off of, so please adjust according to your needs.
First, decide how many hours of billable work you would like to accomplish each day. For example, if you plan to work six hours on billable hours and two hours on personal projects and promotions, you would start with the number six. Then, multiply by the number of days per week you plan to work.
Multiply this number by four to get an idea of how many hours you need to bill per month. Hold onto this number
Now, calculate the monthly income you need to make to cover your expenses, pay your taxes, pay for health insurance, and make a profit (keep in mind all of those small business things, like savings and business investments).
Divide the second number by the first number (the income you need divided by the number of hours per month you would like to work). This is your ideal hourly rate, the minimum that you should state if you are looking to share your rates with clients.
A Real-Life Example (Just Not Mine)
For example, here’s the formula I might have used if I were looking to replace a salary of $3,800 per month. That includes rent, bills, utilities, gifts, health insurance, business taxes, etc!
Ideally, I would like to work six hours per day, four days per week. Here’s how that would break down in our formula:
6hrs per day x 4 days = 24 hours per week
24 hours per week x 4 weeks per month means approximately 96 hours of working each month
Remember that monthly income we’re trying to replace? Divide that number by the number of hours you’d like to work each month.
If I am trying to replace $3800 per month by working 96 hours per month, I want to make sure I am billing a minimum of $39.58 per hour. If I am not sure if I can find 96 hours of work per month, I’ll need to charge more, or spend more time seeking new clients.
But It’s Not That Simple
Here’s where the analysis comes in: if there’s no way you can bill almost $40 per hour for what you do, you need to lower the rate and work longer hours, or lower your income needs to suite the schedule you’d like to work.
Play around with that number so that you can do work you love and still cover your costs and plan for your future.
If your hourly rate comes out on the high side of your industry, don’t fret! Many clients are open to paying more to work with freelancers they trust and who are skilled. Help them make the decision by preemptively including information about what makes you worth it.
If you’re a graphic designer, do you have an eclectic or specialized approach that is highly desireable? If you’re a copywriter, do your posts come Search Engine Optimized and formatted perfectly? Shout it from the rooftops to make it clear that you’re a professional who is worth the up-front investment.
Do you freelance? How did you decide your freelance hourly rate?
The two big determinants of initial impressions of quality in the consumer’s mind are 1) brand, and 2) price. I think the idea is to develop a brand that evokes quality, and to then charge a commensurate price. Any other strategy has the potential of leaving money on the table–charging a client less than it would have been willing to pay–and no self-employed person should aim to do that. Sure, your price has to be perceived as competitive, but that doesn’t mean in line with others in $ and cents terms only. It means providing competitive value to the customer. Clients will pay more if they perceive they’re getting more. See the price difference between Coach and JCPenney bags, for example. Just my $.02. 🙂
A great point, Kurt! I can definitely see that in my recent experience, too, how leaving money on the table can hurt the client relationship in the future because you won’t be as excited or available for working with them as you might be if you set your rates higher.
A lot of people are willing to pay a lot more than $40/hr for guitar lessons, but that makes sense since I put in my 10,000 hours many times over and have a Masters in Music Ed. I compared my rates to music stores and other instructors in the area, then set my prices a bit above average. As the years passed, I felt comfortable enough to charge top rate since I was getting dissatisfied students from several instructors in the area. Great article, Daisy Flower!!! Have a dilly of a Tuesday!
Thanks CJ! It definitely makes sense to increase your rate with the demand — especially when you can guarantee a good experience for the client.
Thanks for this post! I’m planning to develop some side hustle in the next year with the ultimate goal of becoming self-employed. I agree that you either need to charge more or reduce your living costs to adjust and the latter is a good tactic before going self-employed to see how you can live on less.
Thanks for your comment, Ava! Before I went freelance, I had a “freelance budget” in my Google Docs for a few months. It helped to see what would have to go in order to afford to do the kind of work I was interested in.
I actually started at a low rate when I began freelancing. It was really taking a lot of my time so that I can catch up with my monthly financial obligations. But I eventually slowly increase my hourly rate and I only work four days a week and I get to spend three free days for my family.
I think that’s the most natural way to progress. I’m in that boat myself! That’s one of my favorite self-employment perks — you really can decide how much you need, work to meet that goal, and get the rest of your life back to spend time with family!
I don’t really have a “freelance rate” I usually charge per article or post. I still think this is good advice though. When I first started offering freelance writing, I way under valued my time because I was just happy to have paid work.
Per article or post is a great way to go! I think that makes billing and invoicing much easier.
Figuring out your hourly rate is not that simple. This is one of the tricky parts in freelancing. This post will be very helpful especially to those who are just starting out.
Thanks! When you’re first starting out, what you really want is a solid starting point. From there, we all make our own luck!
I think this is a great formula for getting an idea of what you would ideally like to earn/charge per hour. But like you mentioned, if you are just starting out, you might not be able to earn $40/hr so you either have to work more hours or accept less per hour. Hope shouldn’t be lost though, as you should make earning $40/hr your goal so that one day you can work 6 hours per day, 4 days per week.
Yep – it definitely just gives you a good goal to shoot for!