As a freelancer, deciding what to charge is difficult, stressful, and unpleasant. But if you want to be successful, you need to charge the right rate.
In this article,
So let’s begin and see what you should be charging per hour for your work.
But First, Two Words Of Caution
1) This article will discuss what your hourly rate should be. There are many freelancers who believe you shouldn’t charge hourly rates, and instead offer a flat rate for each project. This article isn’t about deciding if one is better than the other -that is for a later article I will be writing.
2) We are going to be calculating your hourly rate based off of what you need to make a living. You may find at the end of this article, what you should be charging is much more than you are charging; or you may find that it is much more. Either way, the number that is output is simply a suggested rate. You can adjust it as you see fit.
The Wide Range of Freelancer Rates
Take a short look at various freelancing rates, and you’ll see such a wide range of numbers, it almost seems comical. Go to Fiverr and you’ll find hundreds of freelancers willing to take on almost any task for just $5.
Then, go to a freelancing website like Upwork. Freelancers there charge anywhere from $3 to $100. Some of the top freelancers are pulling in $150 or more an hour. I’ve even heard of some freelancers who charge $500 an hour! So with this wide range of rates, how do you decide what to charge?
How Most Freelancers Decide Upon a Rate
Most freelancers (including myself) decide upon an hourly rate by looking at their competition. Most will decide to charge a similar rate to their competition (heck, if they can find someone to pay them that much, so can I). But others will try and price themselves lower (which just starts a spiraling price war).
But there’s a huge issue with pricing this way, and here it is:
When I got my start in freelancing, I charged about $40 an hour. It sounded amazing at the time, especially when my friends were making just $10-$15 an hour. But I soon realized for every hour of billable work, it required about an hour of non-billable work (emailing clients, scheduling, invoicing, etc). So now I was really only making $20 an hour. Then I had to take my expenses into consideration, such as the development software and my computer system. By the end of my calculations, I was probably making less than $5 an hour. Not too exciting anymore.
How Should You Find Your Hourly Rate?
The best way to find your hourly rate is to work backwards. First, decide how much money you need to make each year to “get by” (I use quotes because people have various definitions of what it means to get by).
Next, determine how many billable hours you’ll be able to work each year.
And from these factors, you can figure out what you need to be charging per hour. To make this calculation incredibly simple, I like using a freelance hourly rate calculator. I like this freelance calculator from Motiv.
You just input all your information: how many days a week do you work; how many vacation days do you want; how much do you want to put into a retirement account each year, etc. One question asks about billable hours, which can be hard to figure out. Freelancers Guide: Billable vs. Non-Billable Hours from Hourglass Blog is a great article to learn more about billable hours. I usually input between 50% and 75%.
You will also be asked about profit. Remember, profit is the money left over after expenses. In this case, it is both personal and business expenses. You’ll want profit to be able to reinvest back into your business.
And some questions may ask about an expense you only incur once a year. For instance, if you take one big vacation a year that costs $1,200, then say your monthly vacation expense is $100 ($100 * 12 = $1,200).
You don’t have to be 100% accurate with every answer. Just give a rough estimate.
To be safe, I will usually put a higher expense than I expect to spend.
And also, use this calculator as a way to plan for the life you WANT. For instance, if you currently don’t take any time off but want to, then input the number of vacation days you want to be able to take.
After you have input all information, you’ll be given your hourly rate and what your annual salary would be. You will most likely see a rate higher than what you expect it would be. And you will now understand why so many freelancers say, “You should charge more.”
What Do You Think?
Did you calculate your hourly freelance rate? Was it higher or lower than expected? What was your reaction? Please share in the comments below.