The consensus seems to be that we freelancers should charge what we are worth. However, how do we determine what we are worth?
Some suggest looking at the competition. In practice, that’s not easy. My competitor writers may number in the millions globally, and yes, I do have international competition.
Some suggest looking at rating guides. This can be useful, but so many specifics are involved that guide rates may be difficult to apply.
Some suggest evaluating our qualifications. Nah, not really. Qualifications are features, not benefits, and everyone knows that it’s juicy benefits that count. Anyway, some organizations that coach budding freelancers claim that anyone can quickly master their new calling. Qualifications are so old school.
Some suggest looking at our living expenses and adding in desired profits. Does this mean we owe it to our clients to slash our rates if we move out to the sticks and downsize our home?
Note: I’ve really pissed off some of my readers in the past who claim that I don’t care if freelancers can afford to live. Not true. What’s really in play here is that I am simply not interested in the rates people accept at the lowest end of the scale. People who write 20 articles for $100 are not on my radar. They can do as they wish, I don’t care. Clients looking for such low rates would never consider hiring me. I focus on the other end of the pay spectrum—I am fascinated by how freelancers commit to specific higher rates.
And then there’s looking into one’s own heart and naming our price. By that process, I’ve determined my fair rate is $997 per hour. That’s what I am worth, aren’t you?
Seriously. I can waver for days between $80 and $85 per hour. But $997 really resonates with me; my body relaxes into the figure and it feels just right. Sit back and give it a try.
Note: I haven’t yet quoted this rate to a prospect. No plans to do so.
Here’s my formula to calculate freelance rates
- Take the current salary your service would pay as a full-time job. My book, Real Skills, Real Income: A Proven Marketing System to Land Well-Paid Freelance and Consulting Work in 30 Days or Less, recommends choosing a freelance specialty that corresponds to your last good job. If you have done this, start with your pay at that job. Or increase it if you believe you were underpaid. Example: Let’s start with $50,000 per year.
- Take the annual salary and divide by 1,000. Note that there are approximately 2,000 hours in a work year but we are calculating based on 1,000 hours. That is because a full-time freelance practice consists of 20 to 25 billable hours per week. The remaining time is for marketing, administrative tasks, continuing education, and other nonpaying activities. Example: $50,000 divided by 1,000 equals $50 per hour.
- Benefits represent a third of salary. So multiply by 1.34. Example: $50 per hour times 1.34 equals $67.
- Multiply by 1.5 or even 2 (or even more) if you work quickly, specialize in your highest paying skill or otherwise want to raise the figure. As a self-employed person you don’t have to waste billable time on “other duties as assigned.” Remember that a billable hour may be more intense than a regular-job hour, justifying a higher hourly rate. Example: $67 times 1.5 equals $100.50; $67 times 2 equals $134.
How to adjust your initial figures
Increase for taxes. Some people recommend this. On the other hand, your full-time salary is not adjusted for taxes so this adjustment would be apples to oranges. One exception may be the self-employment tax for Social Security and Medicare in the U.S.
Increase for unusual expenses. For instance, if you own and maintain video equipment, your rate should incorporate a rental component. If you subscribe to a pricey resource such as a specialized data base, you’ll want to apportion that expense among the hours billed.
Adjust your hourly figure so it is divisible by 5. A stated hourly rate of $53.62 looks weird.
You may wish to start with more accurate numbers. Dividing by 50 weeks is handy, but obviously there are 52 weeks in a year.
One final point: Don’t divide by 2,000, which for an annual salary of $50,000 would mean $25 per hour. It’s unrealistically low although it approximates your hourly corporate rate.
How to use these numbers
You are your boss. You can claim any numbers you wish. If you think these figures are unfair, change them. Back when you had a J-O-B, you probably got angry if your pay was too low. There’s no one to get angry at now—you are in charge.
These numbers are mere data points to assist in rate setting. You don’t have to bill by the hour. You can work with a flat per-project fee, develop some type of value calculation, bill by a time measurement other than hourly, such as by the day, work on commission or royalty basis, bill by the word (if you are a writer), or whatever system you choose.
How does this formula work for you? Any suggestions to improve it?