Pricing 101: How to Set Your Freelance Rates
One of the hardest things to do as a freelancer is to set your rates. One on hand, you don’t want to sell yourself short and charge a super low rate, which means you’ll miss out on valuable income. But on the other hand, if you price your services too high, you could potentially miss out on jobs with clients who have smaller budgets.
But don’t worry, we’re here to help! Get ready for a crash course in freelance rates. First, we’ll take you through a few different ways you can structure your pricing. Then we’ll walk through how to calculate your hourly rate.
Hourly rate vs. project rate
There are a couple of ways you can price out a proposal for a project. One way is using an hourly rate—this means that you’ll determine a rate depending on your experience and the type of project you’re working on. Then you’ll track your hours as you work on the project and calculate your final invoice based on the number of hours you’ve worked multiplied by your hourly rate. More on how to calculate your hourly rate below…
Another way to charge is by using a project rate. This works best if it’s a project that you have a sense of how much time you’ll be putting into it before you begin. So you can estimate how many hours you will work, then multiply it by your hourly rate and give the client one large sum they’ll owe once you deliver the project. Make sure you factor extra time into your estimate, as most projects end up taking more time than you initially imagine.
Using project rates might help you get a higher than average hourly rate, since clients don’t see the hourly breakdown of what you’re proposing to charge per hour. For instance, a client may think a homepage design that took you 2 hours is worth $200, but they would scoff if you proposed a rate of $100 an hour.
Tip: Factor in revisions
When you create a project rate, make sure to include a specific number of revisions you’ll make—otherwise you could end up working a lot more than you anticipated, and still get paid the same amount at the end of the project. Oftentimes, freelancers using a project rate will stipulate how many rounds of revisions they are willing to make before additional costs begin to incur. This makes sure that you’re not working endlessly for one locked in rate.
How to figure out your hourly rate
Here’s one method for deciding on an hourly rate—work backwards from a yearly salary. Start by researching what someone with your experience would earn as a yearly full time employee, then add on the cost of expenses like a 401K, health insurance—even office supplies and Internet! For instance, if a full time salary would be around $60,000, and additional expenses come out to around $12,000, then the amount you’ll actually need to make each year is $72,000.
Next, estimate the hours you’ll be billing over the course of the year. Start by multiplying a traditional 40 hour work week by 52 weeks per year, and you get 2,080 possible billable hours.
But…you’ll want to factor in time off. In this example, let’s give yourself 18 days vacation and 10 holidays—that means 28 days off during the year. So if you multiply 28 days off x 8 hour workday, you get 224 hours you’ll be “off.”
So we’ll subtract the 224 hours from the possible 2,080 billable hours and basically that means your yearly hours would be 1,856.
Now it’s easy to figure your rate—divide your annual salary ($72,000) by 1,856 hours. Or $38.79 an hour.
Keep in mind, this rate is the minimum rate you should ask for in order to create a salary where you will be paid at market rate, plus cover your additional expenses. Which brings us to our next point…
Tip: Always negotiate
Don’t be afraid to negotiate. Every salary negotiation is a conversation, a give and take. If you give a client a fair rate that’s out of their budget, they will usually let you know and ask if you’re flexible, rather than instantly walking away from the negotiation.
Tip: Get everything in writing
Ultimately, the most important thing to do before you start working on any project is to figure out the details with your client, and get everything in writing with their approval. This will help level-set exactly what you’ll deliver, and will extremely valuable at the end of the project, when it’s time to invoice.