How to Set Your Freelance Rate: The Ultimate Guide for Success

Congratulations! You've decided to take the leap into freelancing. And why wouldn't you? Now you can set your own hours, decide what you want to work on, choose your clients, and manage your time the way you see fit. The only problem is, you also have to set your freelance rate.

So here you are, probably with some idea on where to start, but not sure if you're being unrealistic. The last thing you want to do is overprice your services or, even worse, underestimate the value of your work. If this sounds like you, you've come to the right place. Let's set your rates up for success!

1. Define your goals

First things first: ask yourself what you want to accomplish by going freelance. At this stage, you're bound to get a mix of your wishes and reality, but don't worry about it - we'll sort that out later. For now, start by asking yourself the following questions:

• What is the ideal amount of money I want to make?
• How much money do I actually need to make?
• If I were a full-time employee, how much would I be making?
• Can I reach my financial goals without sacrificing all of my free time?
• How high is the demand for my skillset?
• How many projects can I comfortably work on at the same time?
• Is going freelance a side hustle or am I making it a full-time career?

Once you've answered these questions, you'll have a good starting point for determining your freelance rate. What's more, thinking about your priorities will help you decide what kind of projects to take on.

2. Research, research, and some more research

Now that you've done some soul searching, it's time to do some salary researching. Keeping the minimum amount of money you need to make and what you want to make in mind, head over to a salary comparison site. Here are some of our favorites:

Glassdoor

Known for crowdsourcing salary insights, Glassdoor has become one of the most popular comparison sites out there. Besides giving you salary data for specific cities and companies, it also comes with a salary calculator.

All you need to do is fill out a questionnaire and you'll find out your market value based on experience, location, and the state of the current job market. That said, you'll need to contribute before you get the data you need. Since Glassdoor relies on current and former employees for salary and career insights, you'll need to log in and anonymously:

• Leave a company review
• Submit the salary you received from an employer
• Add interview questions for your role at the company
• Review the benefits a company offers to employees

Payscale

Another great option for getting salary information based on industry, region, and job title. When it comes to sourcing income insights, Payscale relies on:

• Data collected from employees
• Current salaries at participating companies
• Payscale salary surveys
• Third-party salary surveys

Similarly to Glassdoor, Payscale will ask you to fill out an online form to provide you with a salary report. At first, you won't need to sign up - you'll go right into filling out information about your location, experience, skills, education, and so on.

To be honest, the form itself isn't the shortest thing in the world, so be prepared to spend some time on it. Granted, you could shorten the time it takes you to fill it out by skipping non-required fields, but that won't give you the most accurate results. No matter how you decide to go about it, you won't be done once you've finished filling out the form - you'll need to sign up for a free account to see the full report.

Salary.com

If you want to gain a big picture perspective of your industry, Salary.com is the one for you. Besides offering salary information based on job titles, it also lets you compare rates for similar jobs. To start exploring your freelance rate options, all you need to do is go to the Salary Wizard and input a job title. Once you've done that, you'll see a graph of salary ranges that you can further customize based on:

• Location
• Education
• Experience
• Performance
• Your position in your previous company's hierarchy

The best part? Salary.com won't make you sign up or give out a lot of information before presenting you with a salary range.

SalaryExpert

Once you've picked a job title and location, SalaryExpert will also require you to fill in a questionnaire. However, you won't need to sign up to get a salary report. Besides providing you with an annual salary estimate, the report also displays your current market rate and the national average rate.

What's more, the Salary Potential section will show you the anticipated earnings for your job title over the next five years. All this data helps you plan financial goals (and lets you prepare in advance for the day when you'll need to increase your rates).

Indeed

Although Indeed is mostly known for its job listings, it also offers useful salary research tools. When you look up a job title, it will display both average monthly and yearly salaries. In addition to that, Indeed is a great place if you don't like to do math because it also lists average hourly rates for each job.

3. Decide on a pricing model

When you're trying to set your freelance rate, there's no way around choosing a pricing model. Keep in mind that the way you decide to price your work is bound to have a significant impact on the future of your business. To make that decision easier, here's a breakdown of most common pricing models among freelancers.

Hourly pricing

While charging by the hour is common for freelancers, it can quickly backfire on you. With experience, you're going to get better, faster, and more efficient at what you do. At some point, you'll finish the job sooner than anticipated - what used to take you four hours now only takes two.

When you go with hourly pricing, this means you eventually start getting punished for being efficient. The number of billable hours goes down and you have to take on more projects to make up for the difference. If you're not careful, you'll either:

• End up earning less for doing more
• Fail to scale your business in the future

That said, hourly pricing is sometimes unavoidable. For example, if you were a virtual assistant, you might have a hard time quantifying your various daily tasks in anything other than time spent. At the same time, your daily hours vary based on your clients' needs. So how do you make sure your earnings match your workload and the value you bring to the client?

If you have to go with an hourly rate, at least do it right

Remember that your pricing should not reflect only the time you spend working. It should also reflect the skills you bring to the table and all the time you've invested in getting to this point.

With that in mind, let's go back to pretending you're a virtual assistant trying to set your hourly rate. Right off the bat, you're going to encounter three main issues:

• You have to manage multiple clients at the same time
• The tasks you'll be doing vary in complexity and importance
• Some days you won't have a full-time workload

Luckily, you can solve all these issues with just two things: retainers and minimums. Think of retainers as insurance for both you and your client. You guarantee a client that you'll be available to work 20 hours per week and they guarantee to pay you for those 20 hours. Whether or not they had enough work for you to fill out those hours is on them. That way, you're not sitting idle, worrying how a lack of tasks will affect your income.

Minimums, on the other hand, are here to protect you from yourself. As you get more skilled at your job, you're bound to finish tasks sooner than you did when you were first starting out. To avoid selling your skills short, set a minimum amount of time to bill for a task.

For instance, a client might ask you to check their inbox and reply to any emails that come in. Depending on the day, the amount of emails, and your skills, this could take you anywhere between two minutes to two hours. By setting a minimum billable amount of time for this task, you're making sure the client pays you for the value of your work, and not the time you spend doing it.

Project-based pricing

A project-based freelance rate might be a bit more tricky to figure out than an hourly one. While it's the default in fields like design, it requires you to be experienced in estimating the project scope. Keep in mind that, with this type of pricing model, your client agrees on a budget before you start working.

If you get the estimate wrong, you'll end up working more hours without billing them or upset your client by going over budget. However, if you get it right, you'll be making more than you would if you were charging by the hour. The more experienced you get, the more projects you'll be able to take on without sacrificing the quality of your work. In the long run, project-based pricing frees you from racing against the clock and helps you earn more.

Value-based pricing

If you thought project-based fees might be hard to figure out, prepare to be blown away. The idea behind value-based pricing is to completely forget the hours you'll spend working. Instead, you need to determine how much value your work will bring to the client and charge a percentage of that value.

For example, if you're redesigning a client's website, you'll need to get an estimate of the revenue coming in after the redesign. Let's say you've asked the right questions during your discovery call and figured out your work will result in $13 000 in sales every month. In this case, it's not unreasonable to charge the client 5-10 % of that amount. After all, they will be getting the value back within the first month after working with you.

4. Don't count with 40 hours per week

Keep in mind that, as a freelancer, you're also a business owner. Rather than spending all 40 hours in a week working on projects for clients, you'll have to dedicate some of that time to running your business. When determining your base freelance rate, you'll have to start thinking in terms of billable and non-billable hours.

Billable hours, as the name suggests, represent the time you'll spend working on client projects. On the other hand, non-billable hours include tasks you need to do to make your business run smoothly. This includes, but is not limited to:

• Finding work
• Invoicing
• Drafting proposals
• Client meetings
• Revenue analyses

Let's say all these non-billable activities take up 10 hours of your time per week. Seeing that you're now left with 30 effective working hours, you should take that into account while figuring out your base freelance rate. In addition to that, you probably won't be working for all 52 weeks in a year, so you should also account for vacation time.

Let's break this down

In order to calculate your base freelance rate, first find a base salary for your job title using one of the comparison sites above. Then, decide how many weeks of vacation you want to take in a year and deduct that from 52 (total number of weeks in a year).

For this example, we'll stick to a $50,000/year salary. We'll take 4 weeks of vacation, which leaves us with 48 working weeks. Finally, we'll have 10 non-billable hours per week, leaving us with 30 hours/week for client projects. To calculate our base rate, we'll divide the yearly salary by yearly billable hours :

48 weeks x 30 billable hours = 1440 billable hours/year

$50 000 / 1440 billable hours = $35/hour base rate

Keep in mind that the base rate is not what you should be aiming for - it's only a starting point. Find out why in the next paragraph.

5. Don't forget to factor in the expenses

If you thought the amount of time you'll spend working was the only thing to consider, you're in for a surprise. Being a freelancer, you'll come across a whole range of expenses full-time employees don't need to think about. You're responsible for your own:

• Taxes
• Insurance
• Retirement savings
• Equipment
• Software subscriptions

And that's just to name a few. To break even, you'll have to factor in all additional yearly expenses. If those add up to $10 000, your base rate calculation looks like this:

$50 000 + $10 000 expenses = $60 000 minimum/year

$60 000 / 1440 billable hours = $42/hour base rate

Now that you have your actual base rate, you have a good idea of how much you'll need to charge to cover costs. But if you want to make a profit, your rate needs to increase according to the market. To get an idea of how much that should be, you can always check the rates in your field on freelance websites.

Wrapping up

While being your own boss sounds great on paper, it's not all sunshine and rainbows. Remember that you're not just a freelancer - you're a business owner as well. Setting your freelance rate is a part of that and the first step towards being paid what you're worth. Make sure you're not underselling yourself by forgetting to factor in your skills, experience, and hidden expenses. At the end of the day, your goal is to make a profit, not just to break even.