How to Set Your Freelance Rates

Calculating your rates is as important a topic as any in the world of freelancing and small business.

That's why we're appalled to see how many people have no idea how to do this.

We understand that, for most, starting a business is not exclusively about money.

However, being consistently underpaid is not sustainable and your business (and personal life) will suffer as a consequence!

Let's take a look at how to correctly calculate your rates so that you can charge what you're worth and build a career that has long-term potential.

P.S. There is a form at the end of this article to grab our FREE rate calculator. Feel free to use it to help you do all the math quickly and easily!

You Know You Need to Make Money, But How Much?

The simplest way to figure out how much you need to charge for your time/work is to start subtracting from the year all the time that you don't work.

One year is: 365 Days

Subtract weekends and that's: 260 workdays

That's our starting point. Let's go!

1 | Holidays

If you're like us, you don't live to work and like to take time off.

Subtract four weeks of vacation and you have: 240 workdays

Need those sweet, sweet vacations

2 | Public Holidays

Every country has public holidays and most of us enjoy taking these days off to see family and friends.

Subtract 10(ish) public holidays and you're left with: 230 workdays

3 | Sick Days

Unless your immune system's level is over 9000, you probably get sick.

Subtract ten (hopefully not but who knows) sick days and you get: 220 workdays

What's worse than being sick?
Knowing you can't afford to be sick because you didn't budget correctly!

As you can see, we've already shaved two months off of the calendar year.

If you're a freelancer, paid vacation & paid sick days don't exist unless you factor them into your rate calculations!

Following this logic, we need to earn in ten months what we actually want to have for the entire year.

But we're not done yet....

Businesses Don't Run Themselves

If you run your own business, that means you have a huge list of tasks that no one is directly paying you for but that nonetheless need to get done.

We're talking bookkeeping, answering email, invoicing, customer acquisition, etc...

Expect those tasks to take up at least 25% of your time.

That suddenly leaves you with only 165 workdays!

165 workdays = only 7.5 months of actual "someone is paying me for what I'm doing right now" work.

Totally agree with her on this one

And that's a bare minimum in our book.

That doesn't even include things like coaching, courses, or any other activities you might pursue to improve your skills and increase the value of your services.

Based on these numbers, if you wanted to earn just $40k a year, you need to be charging a minimum of $22.5/hr for your time.

If you weren't considering how many days of the year are actually not work days, you might think $15-20/hr is totally fine.

IT'S NOT!

But wait, there's more...

Do you want to make money as a freelancer but don't know where to begin? Our FREE course - Freelance Foundation - will show you all the essential skills and knowledge you need to start and scale your freelancing business. Sign up today!

Having a Business Costs Money

Most people know what they're paying for their fixed costs like rent, food, transportation, etc...

But you're a business. Businesses have expenses, too!

1 | Overhead

You probably pay for things like your website, an office or studio space, maybe a tax consultant because ew taxes...

Even if you're a lean, mean, business machine and work from home, $100/month could easily be flying out of your pocket for the various software and services that keep your business running.

However, it's likely waaayy more than that.

2 | Your Equipment

And what about your gear? Things break and need servicing.

And, of course, you'd like to slowly improve your services with new tools.

Add another $100/month minimum for taking care of and upgrading your setup (probably not enough but it's easy to calculate).

That new gear... Can't live with it, can't live without it

3 | Events/Marketing

Do you like events? We like events.

They're a great place to meet new people, find potential clients, and stay up-to-date on the industry.

But they can be expensive.

If you go to just two that aren't amazingly cheap and located in your hometown, that can easily be $1000/year.

4 | Taxman

If you forget about the tax man, you're gonna have a bad time.

Unfortunately, freelancers often have a heavier tax burden than employees.

Consult with your financial advisor and get acquainted with your country's tax code before you make a costly miscalculation.

Your Bottom Line

Bounce back to our hourly calculation and suddenly you can't dip below $30/hr without hurting your bottom line.

Since we've been very generous several steps of the way, we'd guess more like $32 - $35/hr is a must.

With this, you can now estimate how long it takes you to finish tasks for your clients and work from there.

Don't forget, that's one finished deliverable item - depending on your industry that could be a logo design, one podcast episode production, a wedding cake, whatever...

That includes being introduced to the project, onboarded in the team, meetings, revisions and edits based on feedback, etc...

If one deliverable item takes you one day to complete, charging any less than $240 is going to leave you unable to pay your bills.

Bye-bye money

And don't forget, we haven't even included any profit for savings, investing in a retirement account, or anything else.

These are the numbers you need to hit in order to barely make ends meet assuming average overall expenses and taxes of about $40,000/year.

If you want to save up for a house, start a family, or buy some Bitcoin (we're not judging), you'll need to charge even more than we've calculated thus far.

Takeaway

“You must gain control over your money or the lack of it will forever control you.”

Dave Ramsey

If you're like us, you love freelancing but you also love not being constantly broke and having what feels like no control over your financial situation.

Getting paid what you are worth (or at least what you need to get by) starts with understanding just how much you really need to charge to make your desired wage.

Don't shoot yourself in the foot by not considering the points discussed in this post when calculating your rates!

If you want a helpful tool to make this process easier, you're in luck!

Fill out this form to get our own personal rate calculator completely free:

Simply make your own copy of the spreadsheet you'll receive and edit the green cells to find out exactly what you need to charge for your freelance services!

P.S. After you figure out what to charge for your work, find out How to Charge Clients as a Freelancer in this related post.

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