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Calculating your hourly rate is one of the most daunting first-steps for a newbie freelancer.
Set your rate too low and you will work harder to juggle multiple low-paying projects, but set your rate too high and you risk scaring off new clients.
What is the best way to go about it?
Charging More Than Survival Rate
When you are beginning your freelancing career, you may be tempted to charge as little as possible to net new clients and show up as a more attractive alternative. Unfortunately, this kind of pricing is nothing more than a “survival rate.”
When you are not sure of the ebb and flow of work in the future, working for low rates can be an extremely risky proposition.
Low pricing has some initial benefits in getting you started. However, it has its own set of disadvantages: You may be classified as a cheap contractor, a name disproportionately seen to quality, and the worst of all, you run a risk of career stagnation.
Low freelance rates mean you’ll struggle to meet your bare minimum needs, which leaves no scope for business growth.
On the contrary, when you charge enough to survive and thrive, you are better placed to find good clients. It is as simple as that.
How Much is Enough?
How do you find out how much is enough to survive and thrive?
To begin with, it may help to start with your target annual salary. How much are you trying to make annually? Have you thought of a figure yet?
As a self-employed person, you have got to deal with all of your overhead expenses on your own. When calculating your annual income, do not forget to factor in new and overhead expenses as well as tax obligations.
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Cost of doing business
Now that you will be working from home or a makeshift workspace, you will have to bear all the expenses on your own.
So do not forget to reflect upon the cost of working space, Internet charges, invoicing & accounting, marketing expenses, and project management tools, among other miscellaneous expenses. You don’t want to leave any unaccounted expenses that would come up as a surprise later.
As a solopreneur, you are your own employer and thus will be responsible for meeting all of your cost of living expenses, including employment tax - half of which your employer would cover when you were working full time.
Think of all the expenses that you expect to pay annually and work out your total expenses.
Most professionals simply jump into freelancing hoping for better returns, without first assessing the overall cost of doing business. As a result, they end up with frustrations later!
Adjusting your new annual salary
Now that you have got an idea of all the expenses you would be covering working full time as a freelancer, adjust your annual salary expectations accordingly.
You will see that your expectations have increased after including all the expenses. Now this is the figure you should be targeting in order to be a successful freelancer, who not only survives, but also thrives in the industry.
Moreover, you are turning to a freelancing career for more reasons than one. You have fallen for a freelance career with a hope for a flexible work schedule, more vacation time with loved ones, and more family time.
So now is the time to calculate your working hours per year. How much time do you plan to spend working annually?
While calculating your freelancer rate, keep 20% of your time for non-billable activities, such as making phone calls, signing new clients, emailing, performing administrative tasks, and marketing your services on different on-demand freelancer marketplaces.
By dividing adjusted salary by billable hours, you will get an hourly rate. Congratulations, you have got an idea as to how to determine your freelancer rate!
Pricing Your Freelance Services
When I jumped into the freelancing industry, I had no idea how to calculate freelance rate. I worried about looking greedy, but I also didn’t want to ask for too little and then be underpaid or undervalued.
Finally, I realized that I had to see the bigger picture and set a rate that would keep both me and my clients happy! When it comes to setting an hourly rate for your freelance services, it will help to understand how your services fit into your client’s budget.
In most cases, clients want solutions to their problems, and budget comes second.
Spend some time understanding and assessing your client's thought process. Doing so will add clarity to the value you wish to provide your clients and how much to bill. Remember, you need an hourly rate that will promise you a thriving career and build lasting engagements.
Value Your Own Time
You need to charge a fee that will motivate you to produce exemplary work. But this does not mean you should overcharge clients.
You need a balance between what you are willing to offer your services for and what the client expects to pay. It will help to see what other freelancers in your industry are willing to charge for the same services.
But this does not mean you should base your quote on the market rates. Assessing competitors’ rates will only help you determine your best rate, depending on your services, expertise, competence, and demand.
Switching careers can be tough. If you are looking for a start, you may be interested in Peer Hustle – where you can save marketing time and meet prospective clients who are happy to pay for your services and make long-lasting relationships.
Ian Balina is the CEO and Founder of Peer Hustle, an on-demand freelancer marketplace for the sharing economy.