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Calculating Your Freelance Rates - Part 2 | Freelance Sprout | Find, Start, and Grow Your Dream Freelance Business
Read the six part series on creating a freelance business plan
 

Calculating Your Freelance Rates - Part 2

Date February 13, 2008


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The first question you need to ask when you’re trying to determine your rate is: What are you worth?

Not “net worth” more like “salary worth”. Determine what someone with your same skill level would make in a full-time, salaried position. The Web is full of sites that catalog salary levels, most notably Salary.com (www.salary.com).

Monster.com (www.monster.com) is another great resource. Monster helps you narrow down jobs to specific locations. If you don’t live close to a large city, pick the nearest small to medium sized location.

Not all listings will give accurate salary data. But even one or two will give you a feel for common salaries. If you’re bold, apply to a few positions and ask for an interview. They will ask for your salary requirements—another “weeding out” factor. If you can’t find anything worthwhile online, try your local newspaper classifieds.

Sometimes calling will net you a gold mine of information. Beware, though. Word can spread fast if you start job shopping with no intent of actually getting a job. There’s a good chance you might bump into someone at the grocery store—especially in a small town.

Once you have a good salary figure, divide that number by the total yearly staff hours—2,080—to compute an hourly rate. This figure is standard and is used by corporations and government agencies to determine hourly rates.

Once you’ve divided the yearly figure, should you use this as the hourly rate for your business? Probably not. The figure doesn’t include profit and it doesn’t take into account the hours you will spend marketing, bookkeeping, and other administrative tasks…tasks you will be performing yourself in the startup phase.

To account for benefits like health insurance, office overhead, vacation, and sick leave, adjust the rate you calculated above. When I determined my hourly rate, I adjusted it up by 30%. To get a rate “range”, I also looked at my rate with a 40% markup. You should do the same. Multiply your hourly rate by 1.3 and 1.4 respectively.

For example, if I calculated a $35 hourly rate, multiplying by 1.3 and 1.4 gives me a range of $45 to $49 per hour. Not too bad. But, we still have three more questions to answer.  Remember these vary and are part of your marketing.

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Related posts:

  1. Calculating Your Freelance Rates - Final Installment
  2. Calculating Your Freelance Rates - Part 1
  3. Calculating Your Freelance Rates - Part 3

7 Responses to “Calculating Your Freelance Rates - Part 2”

  1. Niklas said:

    Hi, I actually wrote some about this topic as well - but from another point of view. I normally buy freelancer time, not sell them. So since I’m a fairly big buyer and have been for the last 18 month I must say that because of the interest in freelancing there have been an enormous inflation in the economy. Freelancers rate per hour have more then doubled in 12 month.

    Read more here
    Nickeluli

  2. Andy said:

    Your calculations are too low. I normally tell new freelancers that they need to take the salary they used to make and divide by 1000 to get their rate.

    As a self-employed person, in addition to having to cover for health care, vacation, sick time, retirement, and office overhead, you also have the extra taxes that come with being self-employed. In the US, you pay an additional nearly 7% of your salary for social security taxes. You also have the additional headache of more complicated taxes and contracts, so you need to also take into account the need for a good accountant and a good lawyer. Add in the unpredictability of cash flow when some clients pay slow, and the need to make more than 30-40% above your original salary becomes important.

    And, as you allude, there are other things to consider, like your market and your skill set.

  3. Laura said:

    This is a great discussion! I agree that these rates are a little bit on the low side. I have hard time believing the first commentator, that rates have doubled in the last year.

    The whole thing is basically a question of supply and demand vs. what you want or need to make. If rates are really going up, that means demand is going up or supply is going down.

  4. Jerret said:

    Yes, these are all great comments. My formula is probably a little on the rudimentary side.

    I wanted to give a good starting point for the person who asks, “OK, I want to start doing x on a freelance basis, how do I know what to charge?”

    And, of course, you have to look at the outsourcing factor. I live in a smaller town so most people here prefer a hands on person. It really depends on your market and what skills you’re bringing to the table.

  5. Shane said:

    I have to agree, $45/hr looks low. Course it depends on how competitive your particular market is.

    One of the best things you can do is define a generous rate for yourself, figure out how much time the job will take and then specify a flat price AND a specified time commitment to the customer. This is good especially when you’re dealing with customers who can’t wrap their heads around $100/hr

  6. Jerret said:

    Yes, I agree. Figuring out your rate is only half the battle. Even $45/hr can scare away a smaller client.

  7. » Pricing and Positioning Your Rates Amongst Other Freelancers and Businesses - Blog for Freelancers and the Self-Employed said:

    […] Rates Freelance Writing Rates Based on Ability to Pay Calculating Your Freelance Rates - Part 1 Calculating Your Freelance Rates - Part 2 Calculating Your Freelance Rates - Part 3 Calculating Your Freelance Rates - Final Installment […]

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