Becoming a freelancer can often be a liberating, exhilarating experience. This is especially true due to the fact that you'll likely be able to work when and where you'd like.
But, many people also have difficulty when it comes to setting their rates, as it's fairly easy to feel like you're charging too little or too much for your services.
Not sure where to start? Don't worry, we’ve got you covered.
Let's take a look at everything you need to know about how to set accurate freelance rates.
Before you begin determining your rate as a freelancer, you'll need to consider how much money you'd like to make within a 12-month period.
If you don't already have an amount in mind, take into account your overhead costs for your business, personal debt, the amount you'd like to save, taxes, etc. You can either include your expenses in this number or add them on top of it.
For clarification, let's assume the amount you'd like is $70,000 per year.
After calculating the necessary costs/payments you'll need to make each month, your yearly total for this amount is $25,000.
From here, you can either aim for $95,000 or $70,000.
Regardless, you would then break this number down into how much you would need to make each month or each week ($70,000/52 or $70,000/12).
In this case, you'd need to make approximately $5,830 each month to reach this number at the end of the year.
Next, you can determine how much money you need to charge per billable hour of work.
The formula itself is straightforward (monthly desired income/hours worked per month). But, it's more important that you're honest with yourself about how many hours you're willing or able to work.
For instance, it's likely not realistic to your annual goal if you frequently have trouble securing new projects or aren't able to work full-time due to other obligations.
As a general rule of thumb, your hourly rate typically works best if you're able to work at least 40 hours per week. Let's take a look at a quick comparison.
$5,830/120 billable hours per month = $36.43/hour
$5,830/60 billable hours per month = $72.87/hour
For those who haven't quite mastered their specific niche yet, it's going to be easier for you to work more hours per month right now to make more money as opposed to charging more per hour.
If you're unable to charge more money for your skill level and can only work a limited number of hours per month, consider adjusting your desired annual income. More often than not, you can get away with aiming for a lower amount if you're able to reduce your cost of living, tolerate having less personal spending money, etc.
Sometimes, it makes more sense to charge clients per project as opposed to the number of hours that it takes you to complete it. This comes with two major benefits:
To elaborate on this last point, let's assume that you estimate a particular project will take you 15 hours to complete. In order to make the most efficient use of your time, you'll need to complete the project within that window (or sooner).
If you're unable to, you'll make less money per hour than your intended target and then need to make up this amount later on in the future.
It's also essential that you accurately estimate your time of completion. For instance, some projects may be more mentally fatiguing than others, which can cause your efficiency to dip as time goes on.
Keep details like these in mind when determining how long a project will take to complete.
One of the biggest mistakes that new freelancers make when setting their rates is forgetting to factor in the time that they take off from work. If you only work 50 weeks out of the year, for instance, you'll need to adjust your hourly rate accordingly if you still intend on hitting your target annual income.
Let's take a look at a few more numbers.
We previously established that you'd need to make $5,830 per month if you're aiming to make $70,000 per year. Of course, this assumes that you're working full-time all throughout the year.
Let's say you plan on taking 30 days off during the year. This would leave you in a $5,830 deficit due to missing one full month's worth of work.
Instead of an hourly rate of $36.43/hour (derived from $70,000/12), you would now need to make $39.77/hour in order to make up for your time off.
While this number may not seem overly significant at first, it makes a difference of approximately $6,000 over the course of the year.
Although you don't have to take a full month off of work, it's highly recommended that you take at least two weeks of vacation time strictly for the mental health benefits it provides.
But it doesn't have to be.
With the above information about how you should go about setting your freelance rates in mind, you'll be well on your way toward getting the most out of your career. Keep your experience, taxes, and time in mind and charge clients for your expertise.
Want to learn more about how Hectic can help you take control of your freelancing? Get in touch with us today to see what we can do.