Pricing 101 – Here’s how to price yourself as a freelancer

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March 19, 2021
5 minute read

After finding clients, one of the hardest things to do as a freelancer is determine your freelance rates. You don’t want to price yourself out of the market, but you still need to be paid fairly for the time and effort you put into your work, as well as for your talent and skill. You also need to make a living! Remember, there’s only one thing worse than charging a client too much–not charging enough.

Freelancers can use different pricing strategies and rates to charge their clients. You could consider hourly rates or project rates, or you could consider more complex value-based pricing.

How to start determining your freelance rates

From developer to writing to designers, there are so many types of freelance work. Before you begin thinking about how to charge clients, find out what the market is paying for freelance work like yours. Ask friends or acquaintances in the same field what they are charging, and check out the websites of other freelancers. Compare your skills, professional experience, and portfolios. Check out freelance job sites like Upwork or fiverr to see how much other freelancers charge for the types of services that you provide.

This will help you make sure that what you decide to charge fits in with the current industry rates. You’ll also get an idea of what potential clients are willing to pay. If you belong to an industry organization they might also have a list of current freelancing rates.

In 2020, $1.2 trillion in earnings were generated by freelancers in America.
-Upwork

Figure out what you need to survive

Once you have an idea of what the going rate is out there for your freelancing work, it’s time to focus on your needs. What is the minimum amount of money you need to make from freelancing to survive? This includes your monthly rent or mortgage payments, utilities, food, transportation, and other bills.

You should also include any expenses you have as a freelancer, such as supplies, software, project management tools, Wi-Fi, insurance, and legal and accounting fees. If you are unsure about what your expenses will be, ask another freelancer. Your accountant will also know what expenses you can deduct.

While the first thing you need to take into consideration is the baseline amount of money you need to survive, that of course isn’t your main goal. By going freelance you choose how, where, and when you work, as well as how much you work. In theory, there really isn’t any limit to what you can earn.

The difference between full-time and freelance income

Don’t fall into the trap of thinking you can only make the same amount of money as someone who works full-time in your field. As a professional freelancer you can make more. This is partly because many full-time jobs come with health insurance or a pension plan as part of their renumeration. But the bigger reason is that clients hire you for your unique skills.

If they had an employee to do the work they wouldn’t be coming to you. Or, they may need someone freelance to work on a project right away, and their staff is too busy. Either way, you are supplying an important skill at an optimum time, which they will pay a premium for.

Sounds pretty great, right? Don't forget: That also means it's on you to keep improving your skills to continue to show clients how you can contribute to their success.

How to figure out an hourly rate


Many freelancers find that charging an hourly rate is the best way to get paid fairly for their time, as well as to figure out how to bring in their desired income.

To determine an hourly rate, add up all those baseline monthly living costs and business expenses that you need to survive as a freelancer. Don’t forget to include how much income tax you’ll need to pay, as you’ll no longer have an employer taking income tax off of your paycheck.

$20 is the median hourly freelance rate.
-Upwork

Calculating income tax

Ask your accountant how much money you should expect to pay in income tax. If you don’t have an accountant, it’s a good rule of thumb to expect to pay 25% of your earnings after you subtract your business expenses.

If you work at home, you may be able to claim some of your household expenses, like utilities. That’s another good reason to get an accountant. Figuring out your income tax will be more complex than when you were working in-house, so make sure you are taking advantage of all the deductions you are eligible for.

How many days will you be available to work?

Now that you have figured out your expenses, you need to look at how much time you will be able to work during the year. That means subtracting holidays and some time for sick days. And even though you may sometimes need to work on weekends, don’t include that when you calculate the days you are available to work. That should be over and above your regular hours. You're a person, and need rest.

Here’s a quick calculation:

There are 365 days in a year. Subtract weekends (104 days), statutory holidays (10), vacation (25), and sick days (5). The total comes to 221 days that you could work.

Even though a regular workday is usually 7.5 hours after time is taken off for lunch, not all that time can be billed to your clients. You need to set aside time for administrative tasks like invoicing clients, as well as time for calling clients and pursuing freelance work.

Let’s say you’ll end up spending 80% of your time working on projects that you can bill clients for. When you calculate 80% of 7.5 hours a day, it comes down to 6 hours per day. 221 days x 6 hours/day = 1,326 hours per year.

55% of freelancers have other full-time jobs.
- DDIY

Now you can figure out your M.A.R. – minimum acceptable rate

Your M.A.R. is the lowest rate you can work for. To figure out your M.A.R. you need to take your total expenses and add in the salary you want to receive. After all, to make a living as a professional freelancer you need to make more money than just covering expenses.

You may want money for traveling, office supplies, going out to restaurants and concerts, and to put away for a house or having kids. You also probably want to save money for retirement. No matter how you will spend your money, include your expected salary to your expenses.

Here’s another quick calculation:

  • Let’s say your expenses add up to $4,000 a month, and you’d like to make 25% more for your salary.
  • $4,000 a month x 12 months = $48,000.
  • 25% of $48,000 = $12,000 for your salary.
  • Therefore the amount of money you’d like to earn each year = $48,000 + $12,000 = $60,000.
  • Now divide that amount by the number of hours you can work each year: $60,000 divided by 1,326 hours = $45.00 per hour.

This gives you an idea of the minimum hourly rate you need to charge to cover your expenses and generate a yearly salary. As this is a simplified calculation it will not take into account other expenses you may discover you have as a freelancer, so think of it as a starting point.

If the hourly rate you have calculated is significantly lower than the going market rate for your type of work or experience level, boost it up. And remember: The idea is to increase your M.A.R. to make more money as you enhance your skills and gain more expertise.

58% of freelancers are paid a fixed rate.
- DDIY

The downside to charging an hourly rate


There are some downsides to charging an hourly rate, however.

The better you become in your field, the faster and more efficient you become at what you do. If you only charge for the time it took you to do the work, you are actually being penalized for all the knowledge and experience that has made you able to do great work in less time. You would need to constantly increase your fees to make sure you are being paid adequately, which is something your clients might not understand, or like.

This is especially relevant if you do a yearly or monthly project for a client. The more familiar you are with what the client wants, the faster you will be at providing excellent service. You should be compensated for that. An hourly fee doesn’t take your years of experience into consideration. If you can do a job twice as fast, why should you be paid half as much?

And what if the project turns out to take longer than the set amount of hours you agreed on? You could end up giving an extra unpaid amount of time to the project.

A daily rate could be the answer

If your client insists on a time-based rate, one way to help you get paid more of what you deserve is to offer a daily rate. If your daily rate is a bit less than what you would regularly charge for 7.5 hours, your client will get a discount, and you will be ensured a particular amount of money, even if you finish the work in less time.

One other downside to charging an hourly rate is the fact that there are only so many hours in a day. The only way you can increase the amount of money you earn is by working more.

Charging per project


Instead of keeping track of your time and charging hourly rates, you can charge an agreed upon project rate.

With this type of fee, the focus is on the result, instead of the amount of time you take completing the project. Try to take your experience, dependability, and speed into consideration instead of just using the amount of hours you think it will take when calculating your project fee. The client doesn’t need to know how you came up with your fee. They just need to know how much it will cost to get the job done.

An obvious benefit is the fact that you may finish the project faster than you thought. On the other hand, it could also take longer than you expected. What if the client changes their mind or doesn’t clearly explain what they want? The project could also become more time consuming with the addition of new elements or unforeseen challenges.

Create a pricing template

A good way to help ensure your fixed price stays fair is to create a pricing template that you can modify for all your freelance projects. Use your experience working on similar projects to determine what you think is a fair price, and show how much you charge if there are additional requests. And always make sure the price can be adjusted if the project changes scope or direction.

Approximately 33% of freelancers worldwide had their working hours reduced due to Covid-19.
- WebsiteBuilder

The advantages of value-based pricing

Value-based pricing is not the same as determining a fixed-rate fee for a project.

Instead of pricing the project by what it entails, you are actually pricing your services based on the value it will bring to the client.

This is a more complex way to charge clients, and it doesn’t apply to all types of freelance work. But it can apply if your work directly contributes to the profit a client makes.

For example, if the work you do could bring in a substantial amount of new business, you charge a percentage of that new business profit as your fee. It doesn’t rely on how much time or effort you put into the project—it is based solely on how much money the client makes from what you do.

Value-based pricing in action

Here’s a value-based pricing scenario. If the interactive product demonstrations you add to your client’s website are projected to bring in an extra $50,000 in sales, you might charge 20% of that, or $10,000, as your fee. Even though that might be more than you’d usually charge by the hour or per project for the same work, the client might think it is perfectly reasonable based on how much money they will make.

Of course you need to have a client who sees you as a partner, instead of a hired hand, and that takes a lot of trust and a lot of information sharing. Value pricing can only work if you have all the information you need to identify the value you can bring to the client’s business. It can also take a lot of time and effort to come up with the right pricing.

Most important, the client must be prepared to pay you the price you have agreed on whether that full amount of projected new business comes in or not.

But if you can offer your client something that others can’t, and if it will be of great benefit to them, value-based pricing is a nice way to make a living.

70% of freelancers work on 2-4 projects at once.
- And Co

Payment upfront and retainers


There are few things more anxiety-provoking than waiting around for a check to arrive or money to be deposited into your bank account when you have bills to pay. And your frustration can go through the roof if it’s for a job you completed months ago.

To make sure you don’t have to wait around to get paid, consider asking for part of the money upfront before you start a job. This is really assurance from both sides that the project is underway, especially if it is a large job. The client will know you are committed to the job, and you can focus on your work knowing that you won’t have to wait for months before any money comes in.

How much should you ask for upfront?

Some freelancers charge up to half their payment upfront before starting a job, but you should ask for the percentage you feel comfortable with.

How do retainers work?

If a client has offered you a consistent amount of work over a specific period of time, you may want to ask for a retainer fee. This is an advance payment that acts as a down payment on the future work you will be providing to your client.

Retainers usually work on a weekly or monthly basis. It’s a great way for freelancers to count on a certain amount of work and income, as well as schedule their time effectively. On the client side, they are guaranteed that you are reserving a certain amount of time each week or month to work on their projects.

To determine the amount for your retainer fee, you specify the number of hours each week or month you will work in exchange for a fixed fee. You still need to keep track of your hours, however, and charge extra if the work takes up more than the agreed upon number of hours. If the project widens its scope or needs more work, your client can also add another week to your retainer.

How to charge for rush jobs


There are inevitably going to be times when a client asks you to work on a rush job. It could mean working over the weekend, or meeting a really tight deadline that requires you to cancel plans or stop work on your other freelance projects until you complete it.

These types of urgent jobs should be priced at a higher level than your regular work. They are often quite stressful and are almost always inconvenient. The client is asking you to go above and beyond your usual working conditions, so they realize they need to pay a premium for your services.

First of all, decide if you want to do the job. Is the money really worth missing your friend’s birthday party? If it’s for a client that treats you well, or that you want to curry favor with, it may be worth it, especially if you need the extra work. Hopefully your friend will understand.

But make sure the rush deadline is reasonable. If it involves working day and night for three days straight you might want to decline. It may be tempting to accept all jobs that come your way, but freelancing is a marathon, not a sprint. It's more important to find the right jobs when you're starting out.

If you're still okay with doing a rush job, think about what additional fee you would like to charge. It is common among freelancers to charge 25% more than usual for a rush job, although you could charge up to 50% more if you will be majorly inconvenienced, such as giving up a summer long weekend to work on the project. Remember that all businesses charge a rush fee for a faster turnaround, from printers to plumbers. That means you should too.

Increasing your rates

If you have gained substantial experience, are working faster, and offering even better quality work, it’s time to raise your rates. Otherwise, the better you get at what you do, the less money you will make.

On top of that, the cost of living regularly goes up. So do the wages of your full-time colleagues. Why shouldn’t your rates increase, too? Too many freelancers are hesitant to raise their rates because they think it will turn their clients off.

If you give your clients a few months’ notice of your rate increase, and explain that you haven’t raised your rates for three years, they should understand.

Also, you really need to raise your rates if you have been getting busier and busier. That means your skills are in demand. A 5% raise is well deserved. Your clients are used to rising costs, and many probably raise their own fees or get a salary increase each year. You'll be surprised that most clients won’t even comment on your fee increase.

Take a rate increase out for a test drive

If you are worried about losing regular clients if you raise your rates, try out a higher rate on a new client. If it goes over well, gradually introduce the higher rate to the rest of your clients, giving them lots of notice before the new rates kick in.

Although you hopefully checked the going freelance market rate when you first set up your rates, take a look at them again. You might find you have not kept up with the increases.

Keeping track of your time

No matter how you decide to charge your clients, you should always keep track of how much time it takes you to complete a project. Of course you need an accurate record to invoice your clients if you charge by the hour, but even if you charge per project, or have ventured into value pricing, knowing how many hours you have put in will help you estimate charges for future projects.

Although keeping track of your hours with a pencil and paper works just fine, there are also several apps out there that can help. Some are free, such as Harvest and Toggl, and others may have a small monthly fee.

41% of the American workforce freelanced in 2020.
- Website Planet

Be flexible with your rates

It really comes down to this: It's best to make your freelance rates flexible in order to fit the different types of clients you have, and the many kinds of projects you take on. After all, there’s no law that says you need to charge all your clients the same fees or use the same method.

The work you do for some clients might be best suited to an hourly fee. For repeat projects, a fixed rate might be better. And if what you do has a direct relationship with how your client generates revenue, taking a percentage off through value-based pricing might make the most sense.

There are also those times when you might lower your project fee to woo a valuable new client, or to give a break to a loyal long-term one. Conversely, you might hike your hourly rate for a difficult client, or one that you know from experience will constantly change their mind. A higher fee might help you cope with the chaos.

You should also charge extra for rush jobs, especially if it’s a major inconvenience, or you have to cancel plans.

If you are getting steady work over a certain period of time, think about asking for a retainer. It can bring in some consistent income and help you schedule your time. And if you are taking on a large project, ask for a percentage of the payment upfront so you won’t be working for months before you get paid.

Your fees are fluid. They should increase as you get better at what you do, as well as to help you keep up with the rising cost of living, just like everyone else.

And finally, keep an eye on what other freelancers are offering. You want to be competitive, but you also don’t want to be known for your "cheap and cheerful" work.

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