The following post comes from Danielle of ThisQuarterLife.com. I know a lot of bloggers (and even non-bloggers) indulge in the fine side hustle of freelancing, but we all deal with one awful question: how do you set your rates as a freelancer? Danielle offers some advice, and a nice mathematical equation, for our problem.
Whether you’ve freelanced before, or you’re just starting out, establishing a rate at which you agree to work for can be a difficult thing to decipher. According to career expert Jill Jacinto, a major shift has begun toward a freelance economy. “Many people with full-time jobs still have passions that they want to pursue,” Jill says, “and one of the ways to do that is to hone those skills through freelancing.”
If you’re making the jump for the first time, or want to make sure you’re on the right track with what you’ve been charging, read Jill’s advice for establishing your rate as a freelancer.
1) Get in touch with the industry
Before you speak with any potential clients, find out what the industry norms are for freelancers in your region, and for your particular skillset. Visit LinkedIn, take a look at the groups they have for your field of work, and see if you can connect with someone who is established in the line of freelancing that you’re interested in, and could speak to you about hourly rates for that field. Searching sites like Elance or TaskRabbit will give you a good feel for what number would make sense for you to charge.
2) Follow the equation
Full-time freelancers can use an equation to figure out what to charge their clients per hour.
You’ll need to know:
Annual salary: The salary you were making when you were employed full-time (or a comparable full-time salary to what someone at your experience level would make in the industry you are freelancing in).
Annual profits: Which should be 10% to 15% of your annual salary.
Annual billable hours: Meaning, the hours that you work per year. Take 365 days, minus vacation and sick days, weekends off, and the time that you’d spend doing administrative tasks (such as billing) and then multiply that by the number of hours you would work per day.
Annual expenses: Things that are not provided to you by a company anymore now that you’re a freelancer, such as internet and health insurance costs.
Then follow this equation: Your annual salary + your annual expenses + annual profits / by annual billable work hours = basic hourly rate
3) Weigh the pros and cons of charging hourly vs. charging per project
When you’re deciding whether or not you should charge an hourly rate, or if you should ask for a flat price for the project, look at the pros and cons. Working hourly may be great because there is no ceiling, but if you can’t finish the project in time, it’s going to reflect poorly on you. However, charging a flat rate could mean that you end up doing much more work than you had anticipated. Be realistic about the time that it’s going to take you to complete a project before you choose whether to charge hourly or per project.
4) Don’t undervalue your work
You need to think about what a livable wage is for you, especially if you’re freelancing full-time. Your rates are going to be different depending on the size and caliber of the company you’re working for (ex: an article you write for the New York Times won’t pay the same as an article for a smaller publication), but that doesn’t mean that you should just accept any rate your client offers you. When you’re setting your rate, think of yourself as a business, evaluate how much your time is worth, and how much of your time is going to be spent on your assignment. Based on that information, come up with a smart number to ask from your client.
Note from Erin: For those of you looking to find freelance gigs, go check out this post about Asking For the Order! Or if you want to hear me talk about the financial ramifications of a quarter life crisis, click here.
About ThisQuarterLife: Does your Google search history include phrases like “tricks to assembling Ikea furniture,” “the right time to ask for a raise,” or “how to tell if something is microwaveable?” Then visit us at ThisisQuarterlife.com — we’re here to help you navigate all the hard parts of this awkward phase of pseudo-adulthood.
32 responses to “How to Set Your Rates as a Freelancer”
Thanks for this advice! I’ve always been flummoxed over whether to charge by the hour or by the project. Hourly seems like a better solution since I’m a time optimist and always think it’ll take me less time to get stuff done. There just aren’t enough hours in the day!
So glad to help! I’ve also struggled with charging hourly vs by project, but this formula has worked well for me so far!
Equations are awesome, thank you!
Happy to help!
Love this, because it makes sure that you value your time and don’t go after projects that aren’t really worth it to you. I think I might need to take a closer look at what I am signing up for with freelancing, because I do make a very good salary…
Exactly! If a freelance project is going to take you definitely want to take a look at what your time is worth before agreeing on a rate.
Exactly! If a freelance project is going to take you a while, you definitely want to take a look at what your time is worth before agreeing on a rate.
I would say that the best ways of billing also depend in part on the industry one works in. With some I would bill a monthly retainer basd on a long term contract and with others it’s on a per hour or project basis. The important thing as you noted is to quantity and justify the amount you are charging.
Great advice Kassandra
I think the other hard thing is raising your rates. For example, when I started freelance writing a year ago I was happy to get a job that paid $30 for a post. Now I’ve been paid between $300-400 for several posts elsewhere. Sure, I don’t expect to be paid that every time, but $30 isn’t really in my range any more either.
I’ve encountered this problem also. It can be hard to cut ties with a site that you’ve written for for so long, or to ask for more money. Youu might want to try asking if they have any other sections or opportunities that offer a higher rate. Sponsored content, where a company pays the site to write a piece that aligns with their brand, is becoming more and more popular these days, and because the site is being paid to write it, they’re willing to pay their writers more 🙂
I would avoid looking at sites like taskrabbit for rates as they are WAY lower than industry standard. Totally agree though on weighing the pros and cons of hourly vs project based. If you’re not careful you could really screw yourself in that area. I do a lot based on projects…it lights the fire under my ass to move quickly. 🙂
That’s a great way to look at project-based pay!
Great advice! I think not undervaluing yourself is the most important. I stuck around way too long in a gig that was paying me almost a fifth of my average. Not worth it!
Glad you recognized this and got out of there! Good for you.
Great post! I struggled with this when I was freelancing but ultimately some trial and error when bidding for jobs helped me set appropriate rates. The back and forth felt awkward at first but it was great to figure out what the market would actually pay.
Having a back and forth about pay can definitely be awkward, but having resources to back up what your time is worth will settle things pretty quickly 🙂
Thanks for the advice. I think a lot of freelancers undervalue their work. I would have to say that for myself at least. I also don’t want to overvalue myself as well because that’s not fair for the other person as well.
Exactly! Knowing what your work is worth is key.
When I got my first freelance job I wasn’t sure what to ask for a wage, especially since I had no employment experience. I didn’t do the math, but other than that, I pretty much followed the advice you laid out here.
You were ahead of the curve! Awesome.
This is great information to know. I’m not a freelancer yet, but I think I might start trying to get some freelancing work soon.
Go for it! It’s a great resume builder, and having a few extra bones in your pocket is nice too 🙂
I have definitely set my rates too low in some cases and screwed myself. I am slowly starting to increase my rates as I gain more experience. It’s important to evaluate everything on a case-by-case basis and try to have a high profit margin — because you are paying your own taxes, admin time, research time, etc.
Right! Taking all of the expenses into account that you incur when you aren’t at a company full time is key to setting your rate.
I set rates based on what I feel my time is worth for a particular job. For example, I’ll take less for posts that are blog-style because they are fun to write and take less time. I generally charge more for posts that require research or posts on controversial topics. Some of my jobs are paid per word and others I price by the hour. I generally will not work for less than $40 per hour.
I do the same! The crowd sourced articles that I write take me no time at all and are fun, so I’m willing to write for much less than when I’m researching a big topic with a longer word count.
I was waiting for this type article and I have gained some useful information thank you.Some of the largest factors include experience, location, costs in your area, time of year, and volume. If there’s a shortage of work, this can cause a bidding war for freelancers that may cause hourly rates to dip
There is need to value your work appropriately…too low and you won’t make ends meet. That formula is awesome in getting somewhat of a base rate on where to start.
You say take “a comparable full-time salary to what someone at your experience level would make in the industry you are freelancing in).” But what if you don’t know what a comparable salary is? No way I would be paid equivalent to my full-time salary, which is why I choose to remain employed for now. But when I no longer need as much income, I will reconsider. Do you have a resource for reference salary information? Thank you.
Good advice. I think knowing the typical rates paid to freelancer for such a job is really helpful. That’s the time you rate yourself considering also your experience which is a big factor.
Setting the rate at first is not a good idea. Forget the rate and think about getting some jobs. Your rates will come automatically!