All freelancers have something in common when starting their business: trying to figure out how much to charge clients. Most new freelancers undervalue themselves when setting prices and end up in a financial position that does not offer their desired quality of life. While no golden rule addresses this concern, some basic tenets will prevent you from making rookie mistakes when setting your rates.
A new freelancer may want to consider setting a minimum acceptable hourly rate. This is one of the easiest billing strategies that you can implement. A lot of professional freelance services use this method where you bill clients based on the number of hours you spend on their project. You should, however, consider three major factors when determining your hourly rate.
1. How much do you want to make in a year?
The first step in deciding your hourly rate is to determine how much you will spend per year. Write a list of all your expenses and overheads. These may include:
· Rent or mortgage
· Internet, telephone, and utilities
· Office equipment, office furniture, and supplies
· Web hosting, software subscriptions and online services
· Advertising and marketing costs
· Professional memberships and certifications
· Legal and accounting fees
· Travel expenses
· Insurance/benefits, workers comp, salary
· Vehicle expenses
· Personal expenses
Let’s say you have $100,000 in expenses; you already know that’s the figure you need to break even. You must also think about the profit margin that you want for your freelance business. Let’s say you to earn a 10% profit.
$100,000 x 1.10 = $110, 000
Therefore, the amount of money you will need to make per year to cover all expenses and turn a profit is $110,000.
2. How much of your time in billable hours is available per week?
Whether you are a full-time freelancer or your gig is a side-hustle until you gain enough income and experience, you need to figure out how much of your time is billable each week.
Let’s assume that you’re freelancing fulltime. Even if you’re working forty-hour weeks, all that time will not be billable. You might spend one hour per day for lunch and two hours per day on administrative tasks, meetings, emails, and phone calls. That leaves you with five billable hours per day or twenty-five billable hours each week.
3. How many weeks off do you need per year?
While there are fifty-two weeks in the year, you’re going to need time off for vacation, sick days, holiday celebrations etc. else burnout will become a reality. How many days do you think you will need away from your business to recharge and refuel? Let’s assume that you’ll be taking two weeks’ vacation, ten holidays off, and four sick days. This gives you four weeks off per year.
So, now you have three key figures to work with to determine your minimum acceptable rate. Plug them into this resource to calculate how much to charge. In my example, where you need to make $110,000 from twenty-five billable hours per week given four weeks off per year, your hourly rate would be $183.
Always remember that your hourly rate is not cast in stone. You can decide that you want a larger profit margin for your freelance business. You may decide that you want to increase your salary because you want a higher standard of living for yourself. Whatever the case may be, remember that you’re absolutely within your rights to increase your rate as time progresses. Just keep working on your craft and offering as much value as possible to your clients.