How to Set Up Your Freelancing Rates
This is the most common question among both new and established freelancers.
How much should I charge?
There are many factors to consider while setting up your rates. Some of them are: your experience, your location, cost of living etc. Setting up and negotiating your freelancing rate seems like one of the most complicated and frightening things in freelancing.
However, that need not be the case.
Even though the majority of our clients need services such as marketing or advertising, we believe that the following practices are applicable to any freelancing-based business.
Calculate Your Minimum Acceptable Rate (MAR)
Minimum acceptable rate is the lowest rate you will accept while working on some project. You can set your MAR by preference; however, the expected return may vary. If you are just starting with your freelancing career, here is your formula:
((personal expenses + business expenses) / hours worked) + Tax
Now we will use this formula and make a calculation of your MAR. Let’s say your personal expenses (i.e. total cost of living) are $20.000, and business expenses are $3000. Most freelancers do not work 8 hours a day (some of them work even more), but it is up to you to figure out how much time you want to spend working. In this case, let’s say we plan to work 6 hours a day, 46 weeks of the year (roughly 1380 hours).
((20000 + 3000) / 1380) + Tax
Your minimum accepted rate will be $16.66 + Tax.
Another way to calculate your MAR is to take your current (or previous) salary, and divide it by the number of hours you plan to work on your freelancing projects. This is the formula I used to calculate my hourly rate after I quit my full time job. Although I’m not the biggest fan of this formula, it could be a good starting point for new freelancers.
Fixed Price Minimum Accepted Rate
While most freelancing jobs are paid by the hour, there are many clients that rather use “fixed-price” modules for payment. Before accepting any fixed-price job, it’s really important to think about how much time you will need to finish it.
Don’t let your clients pay you less than your work is worth!
If you prefer working on fixed-price projects, that is fine, as long as they have a well defined scope. For large projects you should break them up into smaller milestones and treat each milestone as a project for itself. Most freelancing websites, such as UpWork (formerly oDesk) already offers the possibility of breaking down your project into smaller milestones.
Separating your projects into milestones helps you keep track of things, and avoid surprises. In most cases, freelancing websites do not guarantee payment for fixed-price jobs.
Clients posting fixed-price jobs are predominantly limited by project budget, and are therefore not able to pay you by the hour. Freelancers working on fixed-price projects should ask themselves these questions:
- Am I ready to work for them?
- Did I calculate my MAR on this fixed-price job?
- Do I know how much time I will need to finish the task?
- Is it worth applying for this job? (This question is really important if you are limited by the number of connects on your freelancing platform)
Ask yourself the above stated questions. Make sure you know the details of your new job. Do not accept projects if you can’t determine how much time (Approx.) it will take you to finish it.
Once you know how much time you’ll need to finish a certain project, you can calculate your MAR. Minimum accepted rate (MAR) for fixed-price jobs looks a little bit different, and simpler:
Project price / estimated hours needed = hourly rate
Hourly rate * estimated hours needed = project price
On the other hand, most of the established freelancers prefer to work on fixed price jobs. They have full confidence in their skills, and they know exactly how much time they need to complete a given task. Consequently, this is how they earn more money.
What goes without saying is the following: an experienced contractor normally completes a project in less time than someone still climbing the learning curve.
How much you charge is closely related with how much your competitors charge.
What are they charging? Find out. Take some time and research a bit.
Feel free to check profiles and websites from people offering the same services. Try to understand their skills and their feedbacks from past clients. Are they good at what they are doing? Are they better than you?
Compare their experience with your own.
Now, the question is: Where do I fit in this competition? Well, it’s up to you to find out.
All of the above mentioned doesn’t necessarily mean that you have to start your career with MAR. Start with the rate you feel comfortable with. You can always increase your rates, as you gain more and more experience throughout your freelancing career.