Calculating your rate as a freelancer can be one of the most difficult challenges. You don’t want to undersell yourself (which will just leave you feeling dissatisfied), but equally you want to offer a price people are willing to pay.
Per hour or per project?
This is often the most fundamental decision freelancers will make when deciding how much to charge. Are you charging an hourly rate or a lump sum for a whole project? This probably won’t be set in stone either and might change depending on the project. Both have their pros and cons.
– An advantage of an hourly rate is that it’s often simpler to figure out. A pretty surefire way of calculating it is to figure out what you want your annual salary to be. From there, you should decide how many hours you plan to work a week. You can then work from those figures to set an hourly rate. But make sure you consider other factors too – for example, you’ll probably want to take a holiday (or four) at some point. If you’re not going to be working those weeks, you shouldn’t include them in your calculations. So, you need to increase your hourly rate to accommodate this. And don’t forget that basic rule of personal finance – you should always be saving some of your income. If this is all starting to sound very complicated, this calculator will do the maths for you.
– Hourly rates tend to make you more money on a long-term project than per-project rate would. If a project will take a year to finish, you’ll probably underestimate just how much work will be involved. It’s easier to avoid scope creep with an hourly rate. If the client makes the project bigger, you’re not going to have to renegotiate the entire price as you can just bill them for the extra hours.
– An hourly rate can be better for new freelancers who might find it more difficult to estimate the price of a project upfront. Plus, – in theory at least – they’re easier for your client to get their head around. However, you need to give them a realistic ballpark figure of how many hours a project will take. Otherwise, payment could turn into a nightmare. Picture this scenario: your client is buying a logo from you and you’re charging £50 per hour for your services. You know all the stages that go into creating a logo – research, sketches, conceptualisation…And all this is before you’ve got a design ready and after that your client is likely to want revisions. Compare this to what your client is picturing – you sat at your computer throwing something together on Photoshop. You know you will be billing them for at least 15-20 hours work – that is, somewhere between £750 – £1000. They think it’s going to take an hour or two – i.e £50 – £100.
The bottom line? They’re going to get a very nasty shock when you send the invoice.
– However, an hourly rate is going to come with extra admin. You need to find a way to track your work effectively. You can’t really charge your client for three hours if you spent the entire time watching Netflix.
– A per project rate is nearly always better for short and mid term projects. This is even more true for experienced freelancers. As you work more, you’ll work faster. This means you’ll actually end up getting less money if you stick to an hourly rate!
– A per project rate will also give you more flexibility to charge what a project is worth. When calculating, there are a couple of things you need to figure out. An hourly rate can give you a baseline to work from, if you’ve got an idea of how long a project will take. However, just sticking to this can lead to you undervaluing the project. For instance, say you offer a price of £4000 for a marketing video. You reckon it’ll take you about a month and it’s pretty straightforward so you’re feeling pretty good about that budget. But if you’re working for a big company, that quick video is going to bring them a lot more than that in returns. £4000 is probably way under budget for them! So you’ve actually massively undervalued your work. Context is important for a project based rate.
– Another benefit is your client knows exactly what to expect, so you’ll probably have fewer complaints on invoice day. However, the flip side of this is you’re vulnerable to the nasty monster that is scope creep. This is where a project grows in size when you’re working on it. For example, your client decides that black and white illustration actually needs to be coloured. Or, they want more effects on a video than they originally said. It can also take the form of excessive revisions, which can add a lot of time on to a project. These problems can be avoided by setting up a watertight contract, which clearly states that if the client changes the scope the price will go up. Similarly, you should decide upfront how many revisions are included in the cost.
Other things to consider
The market around you
Check the average rates for your city or country when deciding on prices. Obviously, this can be more complicated if you’re working remotely. In that case, you might want to check the rates where your client is based. You could find a project isn’t worth your time in this instance. If you’re used to New York City rates, you might find it’s not economically viable to work for a client who lives in rural Nebraska. The cost of living is cheaper there and they probably won’t be willing to pay as much. This won’t work for you, as your income needs to match your own cost of living.
Your level of experience
Put simply, the longer you’ve been working the more you can charge. If you’re just starting out, you need to be realistic about your position in the market.
Admin and overheads
Are you renting a desk in an office? What about travel costs? Software subscriptions? Don’t forget to consider these factors when setting a rate, as they’re unavoidable expenses.
You also need to consider the hours a week you spend on things like invoicing, accounting and taxes. These are hours you won’t be working for clients. Make sure your rates cover these lost ‘non-billable’ hours too.
It’s simple enough. If you’re handing over all the rights to a project, you should charge more.