7 Step Guide To Strategically Decide Your Freelance Hourly Rate
Freelancer is a term used for a professional who is self-employed and works with clients on a project basis instead of committing himself or herself full-time to a particular employer.
Freelancing has become all the rage and is surely the future of work as it provides flexibility, adequate work-life balance and not having to restrict yourself to one cubicle or workplace for 9+ hours.
Freelancing is for the brave as it is a real challenge to find good clients, deal with an erratic payment schedule and handling different client requirements all at once – however, the biggest catch here is the freelance hourly rate that you charge your clients, which, if not negotiated the right way, may make freelancing not so worthwhile.
There are numerous websites where you can register yourself and find projects that you’d like to work on and can deliver on time. Such websites pay you on an hourly basis, and deciding upon the correct freelance hourly rate is really hitting the bull’s eye.
However, many Indian freelancers are not acquainted with a system which comes with hourly rates which would be paid in dollars, since they are used to charging rates per word. But, fret not.
Here’s a 7 step guide to help you decide your freelance hourly rate:
1) Rome wasn’t built in a day, take it easy, folks
Just like a fresher in a full-time job in any domain would be paid relatively less than an experienced professional, the same goes for the freelancing business. When you are just starting out, you are in a learning phase and therefore, can quote a price as per your limited skillset only.
Like they say, first, learn, and then remove the L! This is not to imply that you should settle at the lowest price possible. The best way to gauge yourself and your value in the market is to find out what your contemporaries are charging at the beginner, intermediate and expert levels.
You can go to top freelancing websites like Freelancer, Upwork, Guru, Odesk among others to both get freelance projects and find out the prices quoted by your counterparts. Ensure you have a kickass profile made on these websites which have links to your portfolio and showcase all your skills.
Clients don’t really care for the years of experience you have, but rather how good are you at your work, your commitment to the task and meeting deadlines.
2) Calculate the monster, err, monthly expenditure
It is good to charge reasonably for your projects, however, your freelance hourly rate should be covering your monthly expenses and leaving you with a little, if not more, savings as well.
Since you are using the freelancing way to supplement the income you would have at a regular 9-5 job, you must ensure it covers all your necessary expenses and has you covered for a rainy day as well. Therefore, you have to charge your clients being mindful of your expenses.
Some expenses to be considered before quoting your price are:
- Rent, wifi, mobile bills
- Fees (if continuing education)
- Office supplies/equipment
- Memberships (if any)
- Legal and accounting fees
- Marketing/Advertising costs
- Website hosting
- Workers’ compensation
3) Tap your potential: Estimate your worth
Needless to state, but your worth as a freelancer and the value you will be delivering to your clients go hand in hand. You should not be paid in peanuts if you are delivering quality work on time, but your client also deserves to have his requirements met so as to pay you your due with a smiling face.
So, what do you do?
You make yourself worth every penny that you are being paid.
Let us assume you are a freelance copywriter who charges anywhere between INR 2500- 3500 per assignment. However, you would be inclined to charge more if you are writing an ad campaign, copy, jingle or tagline for a renowned brand, as they would be garnering huge revenue by running the campaigns or utilising copies written by you.
Therefore, remember your own place and the quality you are delivering and do not hesitate to charge more for a project or an assignment which requires a lot of detailed research or which belongs to a renowned client or brand.
Articles you may like:
- 11 best apps for freelancers to stay productive & organised
- Top 9 disadvantages of working from home that freelancers should know
- List of blogs that every freelancer must follow to up-skill themselves
4) No free lunches
I have a lot of respect for people who do sales and do it well, because the most difficult work in this world is to get money out of someone’s pocket. So, businesses, big or small, all want people who can deliver good quality work on minimal freelance hourly rate, because why spend extra bucks when you can save them with a little effort?
As a freelancer, you would be asked to work on an assignment for free so they can gauge if you are fit for the role they are offering you, or you may be asked to work on cheaper rates initially which would be revised after a certain period of time.
Or you may simply be asked to tone it down for your introductory rates, which basically translates to ‘hey, since we are taking a chance on you, you ought to cut us a feasible deal.’
However, this sugary trap is easy to fall into, and many freelancers give in to this trap thinking if they provide free samples initially, they would eventually be eligible to receive lucrative projects later on. Or just because it is hard to find decent clients and they want to take a chance on the clients all the same.
This approach is extremely wrong for a lot of reasons, because almost none of the professions operate this way. Imagine asking a food joint to give you free food, and that you would be ordering in bulk if you like the food. Or a plumber asking him to fix your pipe and leakages for free, and you would be calling them for a lot more work down the road if you like their services.
Therefore, be it any profession and mode of work, full-time, part-time or freelancing for that matter, remember that work is worship and refuse to entertain any requests asking for free work samples or projects.
If one business or client doesn’t want to pay you for what you are worth, someone else will because it is an open market and there is no dearth of opportunities.
Subscribe to our newsletter and get the latest updates on freelancing and remote working delivered right in your inbox!
5) Project Rate vs Hourly Rates
Once you get hold of good clients, there is the eternal dilemma commonly faced by the freelancer community – charge by the project or by the hour? Both the modes work and to each his own, but there are pros and cons to both which you should be aware of.
For example, if you charge $500 for a project which requires 35 hours of time, you are only clocking in $14/ hour. However, if you charge $35 for a project which takes 3 hours to finish, you would feel ripped off, especially if it is a project which needs to be high quality for a renowned client.
This can also become an issue if you are trying to juggle and divide your time among multiple parallel projects.
As you become more experienced and your work becomes more refined, you will be having bigger clients who do not care about the time you invest in their project, but rather the value you deliver.
So, if you can push a beautiful website in only 2 hours, you will still be paid $2,500, which means you made an astounding $1,250 an hour!
This explanation should guide you to charge on a project basis instead of freelance hourly rate, taking into consideration the time it will take you to finish a project and how valuable is the said project to your client.
6) Other factors to consider
Besides quoting prices on a project or hourly basis, there are other factors which largely determine the amount of money you want to churn out.
It is of equal significance that you thoroughly understand your roster of clients, their requirements, nature and whether they are meant to be worked for a longer period of time.
For example, there are clients who are difficult, demand perfection and repeatedly ask you for revisions and adjustments. So, this way your effort becomes manifold, and therefore, you should set a higher quote for such clients.
On the other hand, if you chance upon an easy-going client with a simpler project which takes you no time at all to finish and does not require you to work on strict deadlines, it is okay to compromise your rates a little bit and get on with the work.
Also, like they say, size matters. So, you should also weigh in on where your client is coming from and what is the maximum they can pay you, in terms of their brand value and revenue.
It is fairly reasonable for a startup to pay $4000 for a project while a multinational to pay $10,000, as there is a huge gap in the kind of revenue they produce and hence, the difference in their respective budgets.
However, it is not cool to quote a low price to a big corporation, since it gives out the impression that you devalue yourself. Also, a key factor that comes into play here is that unlike small clients, corporations aren’t paying you from their own pockets. Therefore, they can easily shell out top dollars for top-notch work.
Articles you may like:
- Importance of networking for freelancers & how to create one
- A step-by-step guide on tax for freelancers in India
- Manage you time with these 9 time-tracking apps for freelancers
7) Formula to calculate your freelance hourly rate
Now, calculate your ‘billable’ hours – the actual hours you will work in, minus the distractions, the fixed holidays in a year, any leaves that you intend to take etc.
You can also resort to time-tracking apps to count these hours. Replace the total number of hours with the actual billable hours, add up all your expenses and combine the same with the annual salary you want to earn.
Let’s do the math here itself:
Net Calculation of Expenses
Let us assume that you intend to make $100, 000 by working 40 hours per week, and want to calculate the freelance hourly rate which covers your expenses and keeps you in profit as well.
Let us assume your overhead expenses to be: $20,000
Salary: $100, 000
Total expenses: $132,000
For any unforeseen expenses, you can reach out to your industry contacts and ask them for ballpark figures for planning.
Now, let us go beyond the basics up to your profits. A nominal profit margin would be anywhere between 10%-20%. Let us, however, take 10% as your profit and then calculate your profit margin over and above your basic annual income.
Calculation of Profit
$132,000 × 1.10 = $145,200
Calculation of Number of Hours Worked
Vacation: 14 (Tentative)
Sick Leave: 8 days
Business Travel Days: 5
Now, considering you spend around an hour for lunch and roughly over an hour for other admin work like handling phone calls, emails and meeting, you are now left with 5.5 hours a day or 27.5 hours a week of billable work done.
27.5/week X 52 weeks : 1,430 hours
1,430 hours – 296 hours = 1, 134 hours
This shows that you will not be working for 2, 080 hours but rather 1, 134 hours.
Calculation of Hourly Rate
Now that you have all the required facts and figures at your disposal, you can calculate your minimum freelance hourly rate.
So, since your total business cost amounts to $145,200 and the total number of billable hours of work per year is 1,134, your minimum hourly rate is as follows:
$145,200 ÷ 1,134 = $128/hour
Now, you would be thinking as to why we have done all these intense calculations instead of just quoting a price as per ‘industry standards,’ or the previous basic calculation of $50 per hour?
Well, we have adopted this alternate rather complicated yet accurate approach because the first approach of setting an hourly rate without considering the days not worked, external expenses and profits is incomplete.
And, anyone who wants to take up freelancing as a career must be aware of the entire process of setting up freelance budgets and payments.
The Pricing Bottom Line
Be it a business, agency, or a full-time job, no one signs up for work to remain underpaid or be bound like a slave. If you know how to put your skills to good use, you deserve to earn a ‘fair’ fees, which should also in tandem with the services offered by you. And once you get that ball rolling, there is no stopping you.
Remember, you are not being paid to finish the job in 30 minutes. You are paid for the 10 years you spent in doing that friggin’ job in 30 minutes. So, your client owes you for the years, not the minutes. #KnowYourWorth
Liked it? Read more on freelancing here:
* Get the latest updates right in your inbox!