How to Calculate Your Freelance Rate Like a Pro

This article was produced by AND CO, the app that automates freelancers’ administrative tasks.

You’ve heard it before: time is money. As a freelancer, there are two ways to squeeze more profitability out of your business, and both are important. On the one hand, you can lean on processes and technologies to streamline your operations so that you can spend more time on paid work, and fewer hours on non-billable tasks. AND CO provides a great solution for this.

The second way to increase profitability is to establish a rate and a cadence of work that will get you to the lifestyle you deserve. Not only do you have to make sure your income covers your overhead, but you should also be thinking about saving for retirement—and you always have to factor in taxes when you figure out how much you should aim for per hour.

Getting to a point where you are comfortable negotiating for an acceptable rate takes a few steps, which we’ve outlined below.

Step 1—Be honest with yourself about your skill level, and do your homework.

Your experience level and your track record for success largely dictate how much you get paid. Newcomers might have to work their way up to higher rates, whereas a proven expert who has been independently consulting for more than a decade likely will not. That said, having a portfolio that showcases your successes is critical to getting the rate you deserve. For most industries, clients are far less interested in the number of years worked than they are in the quality of a freelancer’s output.

Once you’ve taken an honest stock of your experience and track record, you can do some digging to find out what the going rates might be. The beauty of the hourly rate is that you can ask around without potentially offending people since an hourly rate won’t necessarily reveal a freelancer’s full income. There are also great sources online, such as message boards like Quora, where you can connect with people in your industry in various markets.

Step 2—Determine how much you need to earn to cover expenses.

If you are freelancing full-time, then you need to make enough money to not only pay all of your bills, but also to save for retirement, pay for health insurance (unless you’re on a partner’s plan), to save plenty, and, ideally, to have some money to have fun with. Freelancing can be hard work, and at some point, you’re going want a vacation.

One hack to quickly estimate your revenue target is to use a crowdsourced compensation tool like Comparably to find out what a person working in your role full-time, with your level of experience, in your market, would earn in a year. To calculate a comparable freelance rate add the value of benefits (like health insurance) to the FT salary and divide by the number of working weeks per year x 40 hours. That will give you a full-time hourly rate. From there, increase the rate by 40% to cover for freelance expenses.

Step 3—Estimate how much your work is worth to a client.

There is no scientific process to this step—even your client might not know what your work is worth to them. One article that goes viral and leads to $50,000 in profits is worth, well, $50,000, even if you were only paid $250 for it. But the other ten articles that you wrote, which you were also paid $250 for, but which only generated $100 in profits each, are worth -$150 each. Of course, there is no way to predict these outcomes until after you do the work—but still, having a track record of successes will help you to determine what your work is worth.

The tricky part about estimating a freelance rate based on a FT role is that FT positions generally contain a mix of high value, medium value and low-value tasks. If you’re in a project-based role, you should assess how much of the project falls into each category to estimate a fair rate for the actual work. For example, if the project is strategic—perhaps creating a marketing plan from scratch for a product relaunch–your rate will be higher than it would be if you were merely executing on a single piece of that plan.

Step 4—Decide whether, for the type of service you provide or the kind of client you are working with, it is better to charge an hourly or per project rate.

Part of this is feeling out what would work best for the client you are working with, but part of it also is determining what works best for you. There is also significant variability between fields—it is common for writers to earn a certain amount per article or per word, which is closer to a per project model of billing.

Web designers might charge a particular set rate for designing a website, but additional fees for add-ons, continued maintenance, or for outsourcing things like graphic design or copywriting.

If you are working with a client on a long-term basis, juggling multiple projects all at once, it might be best to have a set hourly rate, simply because it is easier to track than to negotiate different rates for different-sized projects; you might wind up spending more time trying to figure out what you’re charging than you actually spend working.

The most important thing to keep in mind when it comes to payment structure and schedule is to iron out all these details with your client, in writing, before beginning the work. Resources like The Freelance Contract from AND CO and The Freelancers Union make it easy to make work terms official without losing an afternoon.

Step 5—Negotiate

This is not the time to be meek. You’ve spent time working on your skills, determining how much you need to make to survive, estimating what your work is worth to a client, and thinking about whether you should bill that client hourly or per project. Now it’s time to ask for what you want, or, if you’re feeling bold, maybe even for a little bit more than you expect you will get.

This is also the time to highlight all of the added skills you might have that will benefit a client. Citing these added values will help you to seal the deal with a prospective client, earning the rate you’ve determined you deserve. Even without the ability to say you have additional skills that clients desire, however, you still need to ask for enough that makes accepting the work worthwhile to you.

AND CO shares some important advice in a recent post: Remember that negotiation isn’t about “winning.” It’s about both parties walking away with an agreement that speaks to their needs and leads them to their individual goals.

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Determining your freelance rate can be daunting, but you have to go through the process with open eyes. If you don’t have a clear sense of your true value to a client, of how much you need to earn, and of how much a client might reasonably pay for your service, then you will not be able to negotiate effectively. Spend some time thinking these things over, then go into negotiations with confidence.

Please share your thoughts in the comments below, or tweet @Workfrom using #FreelanceRates.