This is a question that every new person considering freelance should be aware of. The solution already provided is true in a sense but does not fully cover what should be done. I will use Sitepoint's post from 2002:
To determine how much to charge for your services is often one of the biggest challenges for a new freelancer. If you charge too much you’ll have trouble landing a job, but if you charge too little you’ll starve.
How much do you want to earn?
To begin, figure out what you want your annual salary to be. You might want to pay yourself what you earned as an employee, or take a look at salary.com to find out what the average salary is for your profession.
Next, you’ll need to figure out what your overhead is. Overhead is an expense that can’t be found billable to a client — it’s simply a cost incurred in running a business. Fill out the following form to work out your overhead. If you aren’t sure of the figures, simply look back on last year’s bills and bank statements.
There are duties that must be completed for each client that are not productive towards completion of the project. Figure out the actual work hours that you spend on the following duties. You’ll need this total later, so keep the number handy.
Next you’ll need to figure out how much profit you wish to make. Profit is the amount that you make after expenses. I’d suggest that around 20% is an acceptable profit margin. Profit is necessary for a successful business, so make sure to factor it into your formula.
There are always variables that you will need to take into consideration when you’re figuring out what you’ll charge. You might consider:
- What does your competition charge?
- What’s your niche?
- How many years’ experience do you have under your belt?
- What skills do you have?
- What types of clients do you want to attract?
- Are you working online or local?
There are five formulae you can use to ascertain your hourly rate.
Formula 1 – The Basic Method
Follow these steps to figure out what your hourly rate should be.
- Subtract nonproductive time from Annual Hours to get Billable Hours.
- Add Salary and Overhead Together
- Multiply Total By Profit Margin (10% – 20%)
- Add Total (1) and Total (2) Together
- Divide Total (3) by Billable Hours (the amount from #1)
For example, if the following is true:
Salary = $30,000
Annual Hours = 2,080
NonProductive Time = 500 hours
Profit Margin = 20%
Overhead = $15,000
Then this is how you figure out the hourly rate:
1. 2,080 – 500 = 1,580
2. $30,000 + $15,000 = $45,000
3. $45,000 X 20% = $9,000
4. $45,000 + $9,000 = $54,000
5. $54,000 / 1,580 = $34 / hour
The Bottom Line
The bottom line is that you want to make a decent living. If your hourly rate seems too low then raise your rate until you feel comfortable with it. If several clients are too eager to hire you as a freelancer, you might want to rethink your hourly rate. On the other hand, if clients are very interested in you at first and then stop communicating with you after they hear what your hourly rate is, then you need to lower your rates. In other words, feel customers out to see whether your fees are appropriate or not.
If you have determined that your fees are too high, you might need to lower your overhead in order to lower your fees. Try cutting some of your unnecessary expenses in order to make ends meet. When you make enter the world of freelancing, sometimes there’s a little suffering at first. Don’t worry — it doesn’t usually last long if you know how to save when times are good.
Check back next week for Freelance Pricing Part 2 – Quoting to Win! where we look at applying your freelance rate in a pitch or proposal.