how much should i charge for my freelance services

8/10/2019 How Much Should I Charge for My Freelance Services

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7/14

Dear Lifehacker,

After years of working as a corporate slave, I've decided to make the jump and strike out on my own

as a freelancer. I already have some people interested in my work, but I'm not really sure how much

to charge. Do I set my rate based on what other people are charging? Or how do I come up with the

best price to charge?

Thanks,Bitten by the Freelance Bug

Dear Bitten,

Congratulations and welcome to the exciting world of working for yourself. Putting a price on your

services is one of the biggest challenges freelancers face. You don't want to set your rate so low that

your business won't thrive, and it'll be hard to raise rates later when your business becomes more

established, but you also don't want to set them so high you scare off clients. Here's some advice on

establishing what to charge. Whip out a pencil and paper, because we're going to be doing somemath.

1. Calculate How Much You'll Need to Cover Operating Costs

Salary : How much do you want to earn (pay yourself)? You might take a look at your current salary

or check out a site like Salary.com (http://salary.com) to find comparative wages. Let's say, for

example, you want to take home $45,000 a year. (If you were to hire someone to help you, also add a

line for that employee's salary, but for the sake of this example we'll just stick with one staff member you.)
http://salary.com/


8/14

Taxes : When you're self-employed, you'll need to cover your own taxes. The IRS has helpful

information on self-employment and taxes

(http://www.irs.gov/businesses/small/selfemployed/index.html), including a worksheet (PDF)

(http://www.irs.gov/pub/irs-pdf/f1040es.pdf) for calculating estimated taxes. As a rule of thumb,

though, you can simply add a factor of 15% to your salary to cover tax contributions. In our example,

15% times the $45,000 salary is $6,750. Adding these together, our new salary with taxes is $51,750.

Monthly overhead : Overhead costs are those that you'll incur just in running the business.

Depending on your situations, these may include:

Rent

Utilities

Office supplies

Postage

Advertising or marketing

Telephone fees

Insurance

Auto leases

Tally these all up and multiply by 12 to get your yearly overhead. Then add in any yearly costs, such as

computer or software purchases. In this example, we're going to say it's $12,000.

2. Figure Out Your Average Billable Hours

Next, find out how many working hours you'll have each year. You could take 40 hours a week and

multiply by 52 weeks to get to 2,080, but you should also account for holidays, sick days, and

vacations. Cameron S. Foote in The Business Side of Creativity suggests 1,920 hours, accounting for

48 working weeks.

Then you need to subtract non-billable timetime that you'll spend each week doing things like

hunting for new clients or filing paperwork that you can't bill to a client. 20% is a good rule of thumb

for those non-billable hours, so multiply that by your annual hours above. In our example, the total

billable hours is now 1,152.

3. Add Operating Costs and Divide by Billable Hours

Now add your salary and overhead costs together. In this example, it's $51,750 salary with taxes plus$12,000 overhead, for a total of $63,750.

Dividing $63,750 by 1,152 billable hours gives us an hourly rate of $55.34. But we're not done yet!
http://www.irs.gov/pub/irs-pdf/f1040es.pdfhttp://www.irs.gov/businesses/small/selfemployed/index.html


9/14

6 60 Reply

4. Factor in a prot margin

You'll also want to add in a profit margin of between 10% and 30%. The profit margin helps you build

a reserve for when business slows. You might think you don't need to add in a profit margin because

you'll be drawing a salary, but the additional profit is essential for future growth and also for

obtaining loans.

Let's say we want a 20% profit; 20% of $55.34 is $11.07, so your new, final hourly rate is $66.41. Youcan definitely round that out to $66 or $67.

Charging by project : If you don't want to invoice clients with an hourly rate, all you need to do is

estimate how much time you'll spend on a project and then multiply by your hourly rate to get a price

you can quote your client.

Think the Rate Is Too High?

Keep in mind that calculating your rate precisely this way is really important if you want your

freelancing business to be successful, because it's based on your actual costs and needs. While you

may see others with lower rates than you (you'll also see much higher ones too, no doubt), avoid the

common new freelancer mistake of pricing your services so low that you'll soon be scared back to the

old 9 to 5 corporate world.

Other Methods

You can try several other methods for setting your rate, such as marking up your current salary (e.g.,

if you now make $15 an hour, charging double that, or $30) or just dividing how much you want to

earn by how many hours you'll work, but I wouldn't recommend them because they're not realistic;

they don't take into account your everyday expenses or account for long-term success.

And this is what we wish you. Good luck with your new endeavor!

Love,

Lifehacker

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10/14

The following replies are approved. To see additional replies that are pending approval, click Show Pending.Warning: These may contain graphic material.

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2

iain010100 (http://iain010100.kinja.com) Melanie Pinola8/22/11 10:42am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?co

(http://iain010100.kinja.com)

This article from Ramit Sethi has some useful info. The author writes blogs and books on

finance and business. He wrote "I Will Teach You To Be Rich." Korney title but it was one of the

few books on personal finance I read that isn't a one trick pony,

[earn1k.com] (http://earn1k.com/privatelist/setyourprice/?awt_l=61Ajk&awt_m=3gDpgKWwYlLPabn)

One thing he talks about above is D3Zero (Drop Three Zeros) hourly rate. Take what you want

to earn per year, say $50,000, drop three zeros and you get $50. If you are running your own

business, that's what your hourly rate should be ($50/per hour). If you're going on salary, cut

the number in half ($25/hour).

Reply

Meetloaf13 (http://meetloaf13.kinja.com) Melanie Pinola8/17/11 10:19am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?com

(http://meetloaf13.kinja.com)

LIFEHACKER...this is a GREAT article.

One thing I will stress, b/c in the CPA profession there are people that undercharge and wonder

3 years later why they aren't making very much.

You have to sit down and ask yourself, "how much do I want to make"? Have to. Then after

looking at what you describe above, it's a simple question, let's say for tax returns.

Price x Quantity

I know that's a simplification, but really, if you don't have a goal of what you want to be

making, then really it is tough to valuate what you are worth. And if you don't know what

you're worth, you might end up thinking you're worthless =]

Another thing I learned with my wife doing wedding cakes on the side. She was always so

worried about the price, and low-balled for quite some time. This only let her frustrated and

making $5-6/hr on her work (which is ABSURD). Remember, if you never have a prospective

client/customer tell you "No, that's too much", then you aren't charging enough.

Reply

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11/14

TheFu (http://thefu-old.kinja.com) Melanie Pinola8/17/11 11:06am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?comm

(http://thefu-old.kinja.com)

Professional and errors and omissions insurance may be required depending on your industry.

You may find yourself paying for unemployment insurance for yourself since some clients might

demand you be paid via W-2 even if you are the owner of the company.

That can become an added $5-$10K/yr you didn't expect to spend.

Reply

The Dave! (http://thedave.kinja.com) TheFu8/23/11 5:09pm (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-service

(http://thedave.kinja.com)

When I pursued E&O for my industrial control consultancy, it more than tripled the cost of my

services.

I.E. I went from being profitably and paying my consultants wages and my own at $100/hr to

$300/hr and reducing the margin.

After some research, I found that general liability with my customer named as beneficiary was

much cheaper and equally acceptable.

Reply

NoyzMaker (http://noyzmaker.kinja.com) Melanie Pinola8/17/11 10:27am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?com

(http://noyzmaker.kinja.com)

Actually most companies will use 2120 hours for a year to budget for salaries of hourly

employees. This is to include a week vacation at minimum throughout the year.

This may help on item #2 (http://lifehacker.com/2/).

Great breakdown though to determine an hourly rate. Much better than my out of thin air

process I used in the past.

Reply

redfood (http://redfood.kinja.com) Melanie Pinola8/17/11 5:44pm (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?comme

(http://redfood.kinja.com)

This article really should be tittle "How little can I charge for my freelance services" The answer

as to how much you SHOULD charge is as much as the market will support. Work for less and

you are selling yourself short. And, if the market won't support the minimum as calculated then

don't freelance.

Reply

arvana (http://arvana-old.kinja.com) Melanie Pinola8/17/11 10:51am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?com

(http://arvana-old.kinja.com)
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12/14

1

I've worked freelance for 15 years, and while I think it's a useful exercise to go through these

calculations, my experience is that they don't relate much to reality. It's not how much you want

to earn that dictates your rate, it's what the market will bear. Unfortunately there is a seemingly

endless supply of new or offshore freelancers who will work for next-to-nothing to "break into

the market". Employers know this, and take advantage of it.

If you want to earn a decent rate, you have to differentiate yourself from cheap alternative

services, by offering outstanding professionalism and, above all, results improving yourclients' bottom line. If you can inspire your clients' confidence in your ability to do that, you can

charge a high rate. If not, you either have to take crappy rates until you've built your experience

and portfolio, or live without a lot of work.

Reply

The Dave! (http://thedave.kinja.com) arvana8/23/11 5:10pm (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services

(http://thedave.kinja.com)

This too is sound advice. If you can express your service in terms of your customer's increased

profits, you can charge almost anything.

Reply

1

blew1500 (http://blew1500-old.kinja.com) Melanie Pinola8/17/11 8:13pm (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?co

(http://blew1500-old.kinja.com)

Way too complicated. Here's a simpler route, will end up at about the same place:

* Take what you want to earn before taxes (your overall "salary," if someone else was paying).

* Triple it one third salary, one-third benefits, one-third marketing/downtime costs.

* That's what you need to bring in (your "gross").

* Divide by 220 to get a daily rate (that's about the same as the "48 weeks", same rationale 2-

3 weeks of vacation, 9 days of Federal holidays [assuming you're in U.S.]).

* Divide by 8 to get an hourly rate.Now negotiate up or down as needed. Has worked for me for 30+ years.

A book recently recommended to me on the topic is "What to Charge: Pricing Strategies for

Freelancers and Consultants," 2nd edition, by Laurie Lewis (2011).

Reply

dazrin (http://dazrin-old.kinja.com) Melanie Pinola8/17/11 10:15am (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?com

(http://dazrin-old.kinja.com)

You need to check your math on item 2...1,920 hrs *0.8 (to subtract 20%) = 1,536 hours, not

1,152. You took off 40% instead of 20%. This reduces your hourly rate from $66-67 to $49-$50.

Having a rate below $50 would be a fairly substantial "pucker factor" reduction when you
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InAnimateAlpha (http://inanimatealpha.kinja.com) Melanie Pinola8/17/11 12:17pm (http://lifehacker.com/5831776/how-much-should-i-charge-for-my-freelance-services?comment=41920904#comments)

(http://inanimatealpha.kinja.com)

Can al ways count on LH to read my mind. Thanks.

Reply

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