Are you new to freelancing? If so, you’re likely asking yourself the question: How much should I charge as a … web developer, web designer, photographer, graphic artist, or whatever it is you do?
There are multiple factors that come into play when considering your freelancing rates, such as your experience level, geography (both yours and your target clients), and demand for your services. Additionally, you’ll need to factor in things that you wouldn’t need in a salaried job, such as insurance, taxes, and retirement savings.
There are also many different approaches to pricing work. There’s hourly, flat-fee, time and materials, value-based, and so on. While each of those deserves discussion, for this post, I’m focusing on helping you figure out your freelancing hourly rate.
I’d suggest you start by asking yourself these three questions.
1. How Much Do I Need (or Want) to Make?
Forget the question of “how much can you charge doing XYZ.” Instead, you should be asking yourself how much money you need to make in order to survive (and thrive!).
That number is a combination of your actual costs of living, your financial stretch goals, and your responsibility to your government and your business.
Have a budget
So, how much money do you need to make? To figure that out, you need to know what you spend (on average) any given month and how much of that is your responsibility to contribute to your household.
If you don’t know what you spend per month to live, stop. Right there. You will never be able to manage finances for your freelancing business if you can’t manage your personal finances. That’s blunt, but it’s true. Freelancing isn’t for everyone.
Assuming you do have those expenses handy, use that as a starting point to create your personal budget. As your business grows, you’ll need a business budget, too, but just start with personal expenses for now.
Aside: If you’re looking for a tool to help manage your budget, check out Every Dollar, it’s a free tool offered by Dave Ramsey‘s company (he’s a financial guru).
Do the math
Let’s pretend your monthly budget is $2500. That number covers all your bills and leaves you a little wiggle room to cover an unexpected expense or maybe buy a new shirt.
There are 4 weeks per month, so let’s divide $2500/4 and we get a weekly income requirement of $625. You might think the next logical step is to divide $625 by the standard 40-hour work week to arrive at your hourly rate, but nope!
Running a business means there are a lot of tasks involved in your week that aren’t billable. Things like finding new clients, working on your website, growing your network, etc. You don’t get paid for operational tasks and other business overhead, so if you’re basing your rate on the assumption of a 40-hour paid work week, you’ll come up short.
A safer bet is to assume a 25-hour “billable” work week. So take $625 and divide by 25 hours and you’ve got your base hourly rate: $25.
Don’t forget about taxes & savings
You know how the saying “you don’t know what you don’t know?” If you’re a newcomer to running a freelance business, you might not know the laws around sales tax collection or tax liability.
I didn’t know that when I started out (or severely underestimated it, at least) and it bit me in the butt. I owed taxes and didn’t have the money to pay. Now you know! Take whatever amount you need to make and add 20% for taxes. I’d suggest going a step further and adding 5-10% more to savings. You’ll never regret having a buffer!
So, if your hourly is $25, add 20% ($5) for tax and 10% ($2.50) for savings. Now you’ve got an hourly rate of $32.50. That’s a little bit of a weird number (I’d probably round up to $35).
(Here’s a calculator you can use to “play” with the numbers)
Now, will people actually pay you that? That’s a question we’ll look at shortly, but you should always know how much you need to make for basic survival!
Pro tip: Every time you get paid for a job, take that money for tax and savings and put it in a different bank account. And then ignore it. It’s not your money to spend – you’re just acting as a holding tank until tax time. One of my favorite business books, Profit First, goes over some practical strategies for this.
2. How Much Do Other People Charge?
I’m not a fan of looking up around you, seeing what other people make, and then simply adopting that number as your rate. There are too many factors at play, such as their experience level and whether you’re making a true “apples to apples” comparison between your services.
That said, being knowledgeable about what other freelancers in your industry charge is helpful.
Know the “going rate”
If you have friends (or even friends of friends) who do what you do, talk to them. Ask them what they charge and ask how they arrived at a particular number.
If you don’t know anyone, turn to Facebook or other online networks and start making connections with people like you (ideally ones that are a little further along in their business than you). There are a lot of U.S.-based freelancer conferences and maybe even local meetups. Go research those groups, make connections, and network.
Finally, turn to Google. There’s a lot of data “out there” on salaries and rates for various types of freelancing gigs. Do some research. (And puh-lease don’t use Fiver for your baseline research – that’s generally a quick race to the bottom of the pricing pile.)
Figure out what the market will bear
I have a friend with deep experience in design and marketing. She was a creative director living in a metropolitan area and commanded a very impressive salary. She transitioned to a freelancer in that same market and easily charged $150+ an hour.
The problem is that she’s not living in that metropolitan area anymore. She’s in a small, coastal town where people balk at paying even half of that. Despite her incredible experience, the local market she’s in won’t support what she’s worth.
- Lower her rates to work with local clients
- Go after clients in other geographies that can support her rates
When it comes to the rate you charge, prepare yourself. It’s okay to get told you’re “too expensive” by some people (that’s actually a good thing), but you need to make sure you’re not pricing yourself out of range for the clients you want.
Which brings me to the third question you need to ask yourself.
3. Can I Deliver a Value that’s Worth My Rate?
You can calculate the actual dollars you need to make and even verify that it’s a reasonable amount based on the market, but are you worth it? Can you actually command that rate and feel good about it?
This is not a conversation about self-worth, this is a conversation about your skill level.
Learning a craft, be it web design, development, marketing, etc. takes time. The more time you spend at your craft, the better you get. The better you get, the more value you bring to the table for your customers. The more value you bring, the more you’re able to charge.
To be sure, charge what you’re worth. But don’t get too big for your britches, either.
Some final thoughts on choosing an hourly rate
It’s okay to charge one rate for one customer and something different for another. There are no freelance police that will arrest you for varying your fees. It’s this experimentation that can help you settle in on the best rate for your services. (That said, don’t ever change the rate for an existing customer without discussing it with them first).