There are a lot of perks that come along with freelancing like creating your own work schedule, picking and choosing the projects you work on and the ability to set your own rate to ensure you’re getting paid what you deserve. However, taking home your ideal salary is dependent on what you charge your clients for your time and your work.
The question is, how do you determine the appropriate amount to charge?
Setting your rate isn’t always easy because what you should ask for is rarely apples-to-apples to what you’d request doing the same job as a traditional employee. There are several key differences to consider that will ultimately affect what you actually take home as a freelancer.
Setting appropriate rates
With any job, you should do some research before requesting and accepting a salary. You want to be sure you’re earning what you deserve based on your experience and industry standards. This rule applies whether you’re working as a traditional employee or a freelancer. So, your first step to setting your rate is to look around online to find out what the average yearly salary is for someone in your field with your level of expertise.
Once you’ve determined the average annual salary, divide it by 2080, the standard number of hours a full-time employee works over the course of a year (assuming a 40-hour week); this will give you an idea of the average hourly rate for your role. Keep in mind, though, that this rate is assuming you’re working as a typical W2 employee with benefits including help covering the cost of insurance premiums, retirement account(s), paid time off and more.
Do some more research to determine the average annual amount an employer pays in benefits for a typical full-time employee and then divide it again by 2080 to find out how much that would add to your hourly rate. This may make a really big impact, however, it could also add too much to your hourly rate which would make it difficult to find clients willing to pay that much.
You want to make sure your rate is competitive without selling yourself short, so doing a little market research is a good idea at this point. Join an online community of freelancers in your industry to get a feel for what they charge their clients based on the work and their experience. You might find that they request less than the final hourly rate you came to, or they could possibly ask for more, so this will help you determine an appropriate range you’ll want to stay within.
Things to consider when you’re fine-tuning your rate
That final range you come up with after all of your industry research could be really wide, so you’ll want to narrow it down even more to determine the minimum amount you need to charge to cover your expenses as well as the appropriate amount to charge individual clients (because it’s not always the same for every project).
Here are some personal factors to keep in mind when setting your rate:
The amount of money you have to set aside for state and federal income tax (a safe amount is usually around 25%)
How much you need to take home to cover your personal expenses in a given month (make sure to include a buffer in case you unexpectedly lose a client)
Client-specific factors to consider when setting your rate:
How much time you’ll spend on the project; if you’re spending 30 of your 40 hours a week on this client your rate needs to be higher than if you are only spending 5 or 10 hours
Your level of experience; if this project has you working within an aspect of your industry that you haven’t worked in before it might be worth setting a lower rate to gain the experience
How interesting it is; if it’s a really fulfilling project then that is a form of compensation in and of itself so taking a little less than normal could make sense, whereas if you find the work boring you might want to set the rate higher to make it worth it
One drawback to freelancing is that you don’t usually have a guaranteed review with your boss and/or annual merit increases, so increasing your rate is a little trickier. You want to make sure you’re staying within the appropriate market range, and if you’re asking an existing client to pay you more you may be required to defend your request and/or be willing to negotiate.
When to increase your rates
You’ve gained more experience in your industry and an increase simply seems appropriate (there is no perfect timeline for this, it might be six months, a year, or five years)
The amount or type of work you’re doing for a client has changed; if you’re having to allocate more of your time to complete their projects and/or they’ve changed the scope of the work
An existing client is a clear outlier; for an example, if all of your other clients are paying you $50 an hour, but one is only paying you $30 for similar work then you should renegotiate
A client is renewing your contract; a new contract means you can create new terms, so if you’ve increased your rate for new clients this might be a good time to negotiate with your existing client
Things to consider with existing clients
Length of the relationship; asking for an experience-based increase three months into a project likely won’t go over well whereas six months or a year might be more reasonable depending on the work
Your actual relationship with the client; a good reliable client that you enjoy working with can be hard to find, so it might be worth it to wait a little while longer to ask for an increase to avoid the risk of losing your contract
How much you enjoy the work; if this is a project you dread working on every week then a bump in pay may help you stay motivated, likewise, if you love the work then you might feel comfortable waiting to ask for a raise or even keeping your current rate
Know your worth
The key thing to keep in mind when setting your initial rate with a new client is what you think you’re worth. You might be inclined to set a lower rate to get more clients or even dismiss some of your experience, but you would be selling yourself short. Part of being successful as a freelancer is being confident in what you bring to the table, and your pay rate will serve as a direct reflection of that confidence. Aim high, because you are great at what you do.
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