Setting your own price is one the most significant advantages of working for yourself. While there is an advantage here, there is also much confusion and undermining that happens when you price your service/skills.
Speaking with potential customers about your pricing without having done your homework can seem like a daunting, and awkward endeavor. If you’re convinced and calculated, there is no scope of getting ripped.
If you’re here, we are guessing you’re at one of these 2 stages.
- You just started your freelance journey. You are pricing yourself for the first time, and you want to ensure that you position yourself rightly.
- You are a seasoned freelancer who is revising his/her pricing because either you’re working hard but not making the money you desire or you’re repositioning yourself in the market with new services and bundles.
If you’re either of these 2, we have compiled 6 tips to help you decide on your freelance hourly rate. But before that, let’s set some things straight.
Tips To Decide Your Freelance Hourly Rate
1. Know Your Value
You can’t just randomly decide how much your time is worth. It’s important to understand what your skills, experience, and strengths are so that you can use that information to find the right freelance hourly rate for yourself.
- Based on the value you offer the client, anchor your price point.
How do you value the information you have gathered, the talents you have honed, and the services you provide to customers? Examining your work portfolio, experience, and skill set will help assess your value.
- Knowledge is an expense, not a cost.
You may charge more for your time with more and more experience. An independent web developer with ten years of expertise will be able to capture more than an independent web developer with only two years of experience.
- Know your industry
Your pricing strategy will also be influenced by the scarcity and complexity of your skill set. A freelance programmer with the same degree of expertise in three coding languages will be able to charge more than one with the same level of proficiency in just one. You’ll be able to charge more for your services if you can prove the quality and ROI of your efforts.
2. Use This Formula To Get A Ballpark Estimate
There are multiple ways to calculate the freelance hourly rate for you, but we’ll talk about one that’s sure to get you the best estimate.
This formula will tell you how much money an employer is willing to pay per hour:
- Calculating Net Expenses:
Assume for the purposes of this calculation that you want to earn $100,000 by working 40 hours per week and that you want to determine the freelance hourly rate that will both pay your expenditures and keep you profitable.
Let’s now move past the fundamentals and discuss your profits. A nominal profit margin would be in the range of 10% to 20%. To determine your profit margin over and beyond your base annual revenue, let’s assume that your profit is 10%.
- Estimating Profit:
$130,000 × 1.10 = $143,000
- Calculating the Hours of Work
|Sick leave||8 days|
|Business travel||5 days|
After taking into account the hour you spend eating lunch and the hour and a half you spend on other administrative activities like managing calls, emails, and meetings, you now have 5.5 hours per day, or 27.5 hours per week, of billable work finished.
27.5/week* 52 weeks = 1,430 Hours
1430 hours – 33*5.5(186 hours) = 1,244 hours
This demonstrates that you will work 1,244 hours in a year.
- Calculating the Hourly Rate
You may determine your minimal freelance hourly rate now that you have all the necessary information available.
Therefore, given that your entire business expenses come to $130,000 and that you charge for 1,244 billable hours per year, your minimum hourly rate is as follows:
$130,000 ÷ 1,244= $105/hour
So, this is how you can compute your freelance hourly rate. This formula can be applied to any profession. Also while you price yourself as per your aspirational income, make sure your skill set matches the caliber.
3. Utilize the Resources At Your Disposal
A practical hourly rate calculator is a quick and simple method to get the information you require about your rate.
For instance, if you’re offered paid work, a calculator for hourly salary will help you figure out your monthly take-home income so you can be sure you can cover your expenses.
Jump right in and use the free calculator below to convert your income to an hourly estimate to figure out what your freelance rate has to fulfill your financial goals.
You can use a range of tools to help you determine the best freelance hourly rate, including:
Check out the smart ways to increase your freelance productivity.
4. Other Client Factors to Consider
The amount of money you want to make depends on other factors besides your project or hourly rate quote.
Equally important is having a complete understanding of your client list, including their needs, characteristics, and suitability for longer-term work.
Some customers, for instance, are challenging, demand perfection, and keep requesting changes and revisions. As a result, your work doubles, and you should thus charge more for these clients.
Check out how to deal with frequent client revisions.
On the other hand, if you happen to come across a laid-back client with a straightforward project that you can complete quickly and does not call for you to work under tight deadlines, it is OK to make a small concession to your prices and continue working.
As a result, you should consider where your client is coming from and the highest amount they are willing to give you in terms of income and brand value.
Given the vast differences in the types of revenue that startups and multinationals generate and the resulting differences in their respective budgets, it is feasible for startups to pay $3000 for a project and multinationals to pay $13,000.
However, quoting a low price to a large organisation is not cool because it suggests that you undervalue yourself.
Therefore, consider these important client factors before determining the freelance hourly rate.
5. Hidden Expenses
Being your boss is fantastic! In theory, you can work wherever you want, set your hours, and focus on clients and projects that interest you.
However, working for yourself also means forgoing holiday money, paid time off for illness, and other standard perks of employment. When you work for yourself, you are responsible for paying all the hidden costs that an employer would often cover, like equipment, software subscriptions, health insurance (depending on your region), and many more.
Remember to factor in all of these factors when determining your freelance rates.
Moreover, you can also use Refrens Expense Management Software to keep track of your expenses.
6. Keeping Your Eye On The Big Picture
The best way to keep your eye on the big picture is by knowing what you want to accomplish. It’s important that you are realistic about your goals and stay honest with yourself when making decisions, as well as be flexible to make adjustments along the way. It would be best if you were also prepared for changes so that they don’t throw off your plans or make them seem unrealistic. Finally, open your mind and try new things! You’ll always get better outcomes and opportunities if you try new things. It will help you become aware of your skills.
Check out the top 10 tips to become a successful freelancer.
That’s all there is to it! We hope you found this article helpful and that it will help you get started on your journey of figuring out what freelance hourly rate you should be earning. It can be tricky, but we’re here to help with any questions or concerns you might have about your compensation. So please don’t hesitate to reach out!