Whether you’re an engineer, a copywriter, or a marketing expert, all freelancers have one challenge in common: setting a reasonable hourly rate. Beginners in particular often have a hard time deciding their hourly rate. Read on to avoid making rookie mistakes when it comes to setting your freelance rates!
Oftentimes, freelancers undervalue themselves and offer their services for cheap – especially at the beginning of their careers. They fail to consider the operational costs of their business and/or the ability to cover their monthly expenses throughout the year. In addition, some of them are still stuck in the “employee” mindset.
According to our freelancer study, one thing is certain: high qualifications and years of experience equal higher hourly rates. However, good communication and negotiation skills can also affect freelancer rates.
Finding it difficult to perform realistic calculations on how do you calculate your hourly rate?
- How to calculate and work out freelance rates?
- Freelance rates by industry
- Pricing projects as a freelancer
- General tips on how to price yourself as a freelancer
How to calculate freelance rates?
Firstly, your hourly rate calculation should take into account any and all monthly costs and expenses that you as a freelancer might have. This includes both private expenses (e.g. rent, food, clothes) and professional ones (e.g. office space, working materials, taxes).
According to our last freelancer survey, the average freelancer rate among IT professionals in 2019 is $93.24/hour. While your own rate may differ, you can use this value as a basis for your own calculation.
Later on, we’ll take a closer look at the profiles of the freelancers who answered the survey – predominantly working in SAP, consulting and management, IT infrastructure, development, engineering, graphics, content, and media.
#1 Calculate expenses
The first, most crucial part of defining your freelance rate is to calculate all your expenses.
Take into account any and all costs from less obvious ones such as internet fees, website hosting, and software costs to more general costs such as rent, utilities, office equipment, legal and accounting, taxes, insurance, etc.
📖 Interesting read: What insurance do you need as a freelancer?
Make a list of every little expense you incur as a freelancer.
It can be easy to forget small things such as the cost of office supplies, certifications, travel, marketing, branding, etc, so make sure you make a note of these expenses as well.
In addition, your salary should be counted as an expense. Think of what would be your desired income and add it to your expenses.
Tip: If you’re unsure about what some of the expenses are going to be yet as a new freelancer, reach out to freelancers within your industry and get talking!
Please note income taxes change a lot from country to country.
As an example, freelancers in Germany can expect to pay between 8% to 42% on income tax rates depending on the total income.
#2 Calculate working days
Now, it is advisable to determine how many days per week, month, or year you are looking to do freelance work.
Even if some freelancers often work through the weekend, this should not become the norm – especially if you have a family waiting for you!
Additionally, friends that work as full-time employees usually only have time to meet up on the weekends, so it’s important to have this time off for socializing (at least occasionally!)
In order to calculate how many working days you have available per year you must consider potential sick days, days you’ll invest in further training, vacation days, etc.
In most cases the number of days you get from your calculation will fluctuate.
To be on the safe side, we recommend you include a few extra days off rather than overestimate your working days. This allows you to make smarter financial choices.
Tip: Freelancers should not neglect office work, such as completing tax returns and bookkeeping, communication with clients, etc.
How to calculate the number of days of work available:
|Total working days||221|
As a result of our calculation, you have 221 days free for work each year. Considering an 8-hour working day, that would be 1.768 hours/year.
But as a freelancer, you must also consider the time pursuing new clients, phone calls and client communication, administrative work, etc.
Let’s say you can only spend 80% of your time actually working. That would be 6.4 hours a day.
221 days x 6,4 hours / day = 1.414 hours
#3 Calculate your Minimum Acceptable Rate (MAR)
Once you’ve calculated your expenses and working days, it’s time to set your MAR – or minimum acceptable rate. This is the absolute lowest hourly rate you would be willing to work for.
By analyzing your costs and workdays, you can calculate the MAR that best works for you.
While we do not recommend working for your MAR, this is a good starting point for freelancers looking to get a foot into the freelancing world.
How do you calculate your MAR?
((living costs + overhead business costs + salary) / (hours worked a year)) + tax
Let’s run an example:
Expenses: $7,000 x 12 months = $84,000
Profit margin (salary): 25% = $21,000
Cost of doing business = $84,000 + $21,000 = $105,600
MAR: $105,000 / 1,414 hours = $74 per hour
This equation gives roughly your minimum hourly rate. As mentioned above, this is a good starting point but it can always be hard to take into account all the different factors.
As you develop your freelance skills, you may increase your MAR to reflect your skills and knowledge.
Freelance market rates: How much should you charge in your industry?
When working out how to price your work as a freelancer and deciding what would be your hourly rate, you must also analyze your niche and industry.
Look at the competition: How much do fellow freelancers charge? What are their hourly rates?
Some freelancers post their rates online (or price their freelance services packages). Others you could just ask, keeping in mind they might have an interest to over- or undersell themselves.
But it’s not just important to know what the freelance competition gets, more so why it gets it. Find out what they are charging for similar work and for similar ideal clients.
Compare yourself to those working in your field and determine how your experience and work stacks up to theirs.
This outsider information will ensure your freelance rate fits in with industry standards. Moreover, you’ll get an idea of what potential clients are ok paying.
Of course, you can help yourself with average salary and hourly rate research conducted online. So here are the insights gathered on freelancermap and our freelancer survey.
How much do freelancers charge per hour?
|Consulting & Management
||Engineering||Content & Media
|freelancermap index, Aug 2020||$90||$90||$79||$71||$67||$51|
You can research freelance rates for specific skills on your own. Using the freelancermap’s directory, type in your keyword using the “Advanced search” option to perform a search.
Here is an example trying to figure out a web developer hourly rate in Austria and comparing it with Belgium:
For example, while freelance web developers in Austria are charging $84/hour, the same profile in Belgium is charging only $76/hour.
Looking for your next project?
Pricing Options for Freelance Projects
You have now calculated your minimum desired hourly rate and while it’s good to know what your hours are worth, charging for your projects by the hour is normally not the best option for freelancers.
There are different pricing strategies you could use to price freelance projects:
#1 Hourly / daily billing
Hourly billing is not good for profit or for efficiency. It requires you to estimate and track every single task and it’s a methodology that doesn’t work for experienced freelancers.
Having the experience and expertise will make the freelancer perform the task quickly but this doesn’t mean the knowledge only costs 10 minutes.
10 minutes It is what it took the freelancer to complete the task but not what is worth it.
We recommend running away from this pricing strategy because it simply does not take into account years of knowledge and experience. If you have a client looking for a time-based price, you could offer daily billing instead.
Please note your daily rate doesn’t have to be an 8h x hourly rate. The number of hours you work is solely up to you and it allows you to adapt and modify the rate for bigger or smaller projects.
When billing your project daily, you can sell a package of several days at a cheaper rate. However, we’d recommend you limit your weekly availability to 3 – 4 days as this allows you time for other projects.
#2 Fixed-price per project
Fixed-price pricing is the preferred option for freelancers as it’s based on the value provided.
With this pricing, the freelancer guarantees the client that the job agreed to will be completed. As a freelancer, you price your work based on the value of the work instead of pricing based on time.
Ideally, you should show the client that by doing X for them, they will get Y leads or Z% increase in revenue. In essence, show them why your work is priced the way it is.
Tip: Always sign a contract and ask your client to pay a deposit upfront before you start working on the project.
Freelance Retainer agreements can be a great safety net for freelancers as these guarantee a certain amount of work for a client for an agreed amount of time.
It tends to be on a weekly or a monthly basis and it helps freelancers with having a consistent income. As the work to be done is discussed upfront, it allows freelancers to schedule their time ahead and it can be great for productivity.
If the client has consistent work during a period of time you might want to suggest signing a retainer agreement to the client.
General tips on setting your freelance rates
- Your rates flexible, adapt them as you gain experience
- Choose different pricing strategies for different clients
- Talk to other freelancers to get real market insights
- If you reduce your price, it’s because you reduce project scope
- Increase prices for rush projects (See how to use rush fees)
- Always ask for a deposit for fixed-projects
- Don’t only pay you, make sure you make a profit to grow your business
- Trust your value even if there are cheaper freelancers out there
In conculsion, setting up rates and deciding how to price a project for a client is a complex decision. It’s important you understand the client’s needs and the pros and cons of the different pricing options.
Once you understand the project, you will be able to choose the best pricing method. And this doesn’t have to be the same choice for every engagement.
Even with the same client, you might want to use a different methodology for a different kind of project. So, select the pricing strategy that works best for each particular project.
One last thing you shouldn’t forget – rates change, just like people do. Don’t forget to reassess what you are worth now and then and check in on the market developments regularly.
58% of freelancers calculate their rates new for each new project.freealancermap’s Freelancer Survey 2020
With time you will get better at understanding how you work (hours needed) and pricing new projects. Practice does, indeed, make perfect!
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