How to Calculate Freelance Rate Based in Reality & Data

So, you have decided to dip your toes into freelancing. And now you want to know how to calculate your freelance rate properly.

If that’s the case, let me just say: congratulations! You have joined the most exhilarating dark side: the option to work from anywhere, set your own hours, and escape the dreaded 9-to-5 grind. It all sounds like pure bliss, right?

But your bliss as a freelance hustler won’t last long if you don’t know how to calculate freelance rates properly. After all, the amount you get paid for a project or per hour is what turns into your annual income and pays the bills.

Now, defining your freelance hourly rate is so much more than you setting a desired goal for your income. It’s about deciding how much your time is worth. You have to put a lot of forethought into it and consider:

• Whether you want to be paid hourly or per project.
• Setting a rate that’s not too high to scare away potential clients, but not so low that you can’t make a decent income.
• Finding a reasonable and competitive freelance hourly rate.

That all being said, if you don’t know how much you should charge per project or per hour, just keep on reading. The perfect pricing formula doesn’t exist but we at Memtime are here to help you develop a rate that will seem fair and appealing to your prospective clients.

Step #1: Research the freelance market

Your freelance rate depends on the hourly rates of other freelancers in your field. This is how the economy works, supporting the law of supply and demand.

So, one of the first steps is finding out how much other freelancers are charging. More importantly, you should find out how much clients are willing to pay for a freelancer like yourself. Here’s how you can do so:

Step #2: Setting your freelance hourly rate

Now that you have a general idea of how the freelance market works and how much clients are willing to pay for your time and expertise, you can define your hourly rate.

Here are the stages you need to go through to work out a freelance rate:

Define your ideal annual income

The first step is quick and easy: determine your ideal yet realistic annual income level.

If, after all the research you’ve done on the freelance market, you still can’t come up with a precise number for your desired income, I suggest you use a salary calculator:

• Add your previous annual income, and see how much you’ve earned per hour, weekly, monthly, etc. Use these numbers as a baseline, as they are a starting point for your freelance rate and annual income.
• Think how much you want your income to increase. Ten percent? Twenty? Fifty? Write that number down.

Determine the starting figure for your freelance rate

Once you have an idea of how much you wish to earn yearly, it’s time to get granular about your income.

You have to take into account how much you’ll actually work. You most likely won’t work 52 weeks yearly; you’ll probably take a few weeks off. Plus, you’ll have sick days and probably face some unpredictable circumstances leading to being absent from work.

With all that in mind, here’s how granular you should get about your potential yearly income.

Let’s say that you could earn $60,000 gross (before taxes) yearly. Here’s how to calculate your rate per hour:

• Working 40 hours a week (5 days x 8 hours of work).
• There are 52 weeks in a year. Subtracting 4 weeks for vacation and sick days leaves you with 48 weeks per year.

When you put the two numbers together, you get 1920 work hours.

Now, all you need to do is divide your desired yearly income by the number of work hours: $60,000 / 1920 hours = approximately $31 per hour.

And there you go, your hourly rate should be about $31 if you wish to earn $60,000 yearly.

Bonus tip: If you don’t know where to begin with calculating your hourly rate, you can use a freelance rate calculator like the one Upwork has. The tool is designed to help you calculate a minimum freelance hourly rate based on the costs you provide.

Adding extra costs to the starting figure

Being your own boss as a freelancer is liberating. But it also comes with a lot of responsibility and hidden costs that don’t go into those billable hours. Here’s what I mean.

When you work as a salaried employee, you don’t have to give two cents about taxes, as they are automatically deducted from your paycheck.

As a freelancer, you have to pay taxes for health insurance, life insurance, and disability insurance, etc. Not to mention, many activities一including administrative tasks, professional development and training, invoicing, emailing clients back and forth, finding new prospects, handling your own marketing一require time that you don’t get paid for.

Moreover, you need to cover their own overhead costs, which include:

• Office expenses like rent, utilities, and office supplies.
• Equipment and software, which includes purchasing and maintaining tools necessary for their work.

Knowing all of this, it is perfectly normal that your freelance hourly rate is higher than your previous salaried rate. In fact, freelancers are recommended to charge up to 50% more than salaried employees. This is supported by the need to cover additional expenses, lack of benefits, non-billable time, and income stability. And clients understand this as well, as they are aware of other freelance activities you have that can boost your hourly rate.

Decide on how you wish to be paid

Some freelancers like to be paid by the hour, others per project.

Some like to work on recurring retainers or to get a share in the revenue.

There are many ways you can earn income, and whichever you choose, know there’s no right or wrong answer. Here are the three most common pricing models:

So, how can you decide on the pricing model?

Well, the only way to decide is by adding time to the equation.

Time equals money, right? And you want to calculate your rates fairly.

I suggest you start by calculating how much time you need to complete a project. To do so, you should track how much time goes into each of your tasks. In this case, you can’t rely on guesstimates, but on real-time data.

And to help you become an expert estimator, we created Memtime.

Negotiating your freelance rate

The big question in the freelancing community is whether you should negotiate your freelance rate, no matter if it’s a flat rate or an hourly one.

The truth is, some clients will try to negotiate it. It’s their prerogative, similar to negotiating a traditional job offering.

The only catch is: if a client is trying to lower your rate, don’t think you have to accept it or you won’t get the gig. You should be ready to negotiate. As you’re negotiating and sticking to your rate, consider what you can tell the client to justify your rate:

• You can highlight your education and experience.
• You can showcase your impressive portfolio and past collaborations with notable clients.

Whatever the case, be straightforward about your skill set and go over the scope of the project together to see if the client realizes how much time, effort and knowledge you need to produce the results they desire. Plus, if the project requires you to use some paid tools and programs, mention those expenses.

Bonus tip: Consider fairness for both parties when negotiating your hourly rate. For example, you could lower your rate if you want to partner with a smaller business and the project scope isn’t that big. It’s all about balance and keeping good relationships with clients. After all, you want to be a freelancer for a long time, not a good time.

Don't forget to sign a contract

Being a freelancer is really about navigating through uncertain waters; one day you’re in, next day you’re out.

So, to keep up with all your responsibilities, solidify your rate, and ensure you give yourself a monthly paycheck, always ask to sign a contract with a client.

And remember: not all clients will be inclined to sign a contract with you. If that is the case and you really want to make a partnership, ask for some form of written agreement that outlines your work scope and defines the rate, no matter if you are being paid hourly or per project.

Bonus tip: It's a smart move to encourage on-time or automatic payments by adding incentives and penalizing late payments. You can achieve this by introducing a late payment penalty of 1-2%. Of course, be clear about it with your client straight from the get-go, to avoid potential conflicts later on.

Take control of how much you charge for your time

As a freelancer, you control how much you charge for your time, expertise, and knowledge. And, as you have seen, there are many considerations and decisions you need to make when setting a freelance rate. Whether you’re working on your main gig or managing your side hustle, the same principles apply.

But the most important of them all: freelance rates should be based on real-life data and tracked time, not guesstimates.

And to help you define a solid freelance rate, rely on Memtime as your tick-tock freelance buddy. It is the most seamless automated time tracking tool. You won’t even realize it’s there, yet all your daily activities will be captured down to the minute.

Give Memtime a shot, and you’ll see how much value lies in time tracking and the wonders it can do for your tasks and projects.

Wishing you exciting projects and fulfilling days on your freelance journey!