Setting your rates as a freelancer can be a daunting task when you’re getting started. In fact, it can be tricky even if you’ve already had several clients. However, it’s important to be thoughtful about your rates. This helps prevent you from spending too much time on the wrong clients. It also ensures that you pick the jobs that allow you to support your goals. Work through these exercises to figure out what rates work for you.
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Understanding rate types
When setting your rates, there are two approaches: hourly and per project. You might stick to one, but usually, you’ll choose a method based on the project itself.
Hourly rates are good for when you or the client doesn’t know the full scope of the project. For example, if you expect changes to the deliverable as the project goes on, choose an hourly rate. You may also want to use hourly rates if you can’t come up with a good estimate of how long it will take you. This is because your hourly rates still determine your per-project rate. Once you know how many hours a project takes you, you can use hourly rates to calculate your per-project cost.
Finding your hourly rate
So, now the question is, what should your hourly rate be? Well, it’s fairly simple depending on your goals. Let’s say that you want to earn $70,000 per year. That breaks down to $5,833.33 per month or $1,458.33 per week. Now, let’s say you want to work 40 billable hours each week. Your hourly rate should be no lower than $36.50. You can use this free rate calculator to estimate your hourly and fixed rates here. (To use the calculator, make a copy for yourself to edit the input values.)
It’s important not to lower your price below your minimum hourly rate to win a client. Doing so takes away time that you can spend working for clients with the ability to pay you at your rate.
Understanding competitive rates
The question then becomes, is your hourly rate reasonable? Are you earning as much as you can? How do you find the sweet spot between meeting your income goals and staying competitive?
This is where benchmarking comes into play. It’s advisable to regularly check-in to see where you stand amongst competition. You should be doing a competitive analysis (even a basic one) once a year to make sure that your rates are right for you. Take into consideration your years of experience and any specialization.
One great place to start is by finding a salaried job that does the same work you are doing freelance. You can salary averages for your area on salary.com and then take those and calculate an hourly rate. (Here is a freelance rate calculator you can use to find hourly rates from annual salaries.)
You can also check freelance sites or craigslist to see how much people are paying for the projects you want to do.
Tracking time for hourly-rate projects
When you are charging an hourly rate, you should get in the habit of tracking your billable hours. This is something you can provide your client so they understand the work they are paying for. Upwork has a built-in time tracker, but you can also use tools like EverHour, Timesheets.com, or Timecamp. Many time tracker sites offer individual or basic plans for free. If you want extra insights or billing features, you may eventually upgrade to a paid plan.
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