As a freelancer, you have the freedom to set your rates, and your earning potential is uncapped. But, freelancers are often troubled by the question of pricing. While freelancers know they have a valuable skill set companies need they may not be sure of the appropriate rate for their services or how much they should charge.
This guide will review pricing strategies and share best practices to help you set your freelance rate with confidence.
Why is pricing freelancer rates so difficult?
All freelancers face the question of how much to charge. Your pricing strategy is a delicate balance that requires understanding your value, target clients, and the larger competitive market. If you set your rates too low, then you could be leaving money on the table and not getting paid for the value that you offer. In contrast, if you set your rates too high, then you may lose projects to other freelancers with a lower rate.
Setting prices isn’t a challenge exclusive to new freelancers. It’s essential to occasionally reevaluate your rates to ensure they stay consistent with the value provided while remaining competitive within the market.
Thankfully, as a freelancer, you have the freedom and flexibility to change your rates. The price you set isn’t written in stone. So, don’t overthink it. Throughout this article, you’ll learn strategies and tips to help you identify a price that you are comfortable charging.
How to set freelancer rates
Are you looking for the perfect formula that will tell you exactly how much to charge? Everyone knows that time = money. But, what is your time worth? How does your experience, skills, location, value, industry, etc., impact the amount of money you can charge? In reality, the perfect freelancer pricing formula doesn’t exist. You’ll have to pick a rate, and then you can see how potential clients are reacting to this rate and raise or lower it to match your needs.
Before we get into the strategies for pricing your freelance services, let’s look at the two most common pricing models—hourly pricing and project-based (fixed) pricing.
Hourly pricing is the most common way new freelancers set their rate because the model is quite simple. With this method, you come up with an hourly rate for your work and multiply that by the number of hours spent doing the work.
Examples of projects that can work well on an hourly basis include customer service and technical support.
Project-based (fixed) pricing
With this model, the freelancer charges a fixed rate for the entire project. Instead of basing your fee on the number of hours spent working, your payment is based on the result you deliver. This option is ideal for projects with clearly defined deliverables.
1. Ask yourself these basic questions before you start
Consider the following questions when thinking about setting your freelancer rate. Reflecting on the answers can help you identify the factors that will define your pricing strategy:
- How much money do I need to make to support my lifestyle?
- How much money do I want to make as a goal?
- What do other freelancers charge for similar services?
- How much money would I make as a full-time employee?
- What expenses do I have as a freelance business owner?
- Are my skills in demand?
- How much value am I bringing to the client?
2. Set your annual salary goal
Are you supporting yourself or a family? Do you have money saved up, or do you need your income to pay for your living expenses? Freelancing can supplement an existing income or provide a full-time income.
By understanding how much you need to make and how much you want to make, you’ll work backward to find your freelancer rate. Pick a yearly salary, and then you can use this to calculate how many working hours you’ll need to get to that salary.
For example, a $50,000/year salary breaks down like this:
- $50,000/year (before taxes)
- Working 40 hours/week (5 x 8 hour days)
- 4 weeks off for vacations, sick days, and unexpected absences
= 48 working weeks x 40 hours week = 1920 working hours
= $50,000 / 1920 hours = $26 per working hour
But, this rate considers all of your working time as billable hours. In reality, many activities require time that you don’t get paid for, such as administrative tasks, invoicing/billing, replying to emails, prospecting and finding new clients, marketing, and more. That leads to the next step.
3. Consider the number of billable hours you need to work
While each situation is different, freelancers’ average hourly breakdown is 60% billable hours and 40% non-billable hours. When calculating your freelancer rate, you can adjust this ratio to match your expectations and processes.
If we are allocating a total of 1920 work hours from the calculations above, how much of that time will be billable vs. non-billable time? Using the 60%/40% as a baseline, we can recalculate the hourly rate using only the billable hours:
= 1920 hours x 60% = 1152 billable hours (+ 768 non-billable hours)
= $50,000 / 1152 billable hours = $43.40/hour
As a freelancer, you'll have to balance the best way to use your time. Do you want to pursue a larger number of projects at a lower rate or a smaller number of projects at a higher rate? Understanding the amount of billable time for a project will help you calculate if it makes sense relative to the number of non-billable hours required to get that project. You can also increase your rate for smaller projects and provide a discount for more significant or long-term projects.
4. Incorporating freelancer expenses into your price
As a freelancer, you will have business expenses that must be accounted for in your rate. List out all of your costs and total them up. You will need to add this number to your salary goal and increase your hourly rate to cover these expenses. Below are some of the standard costs that freelancers should consider:
- Health insurance
- Business insurance & licenses
- Office space/rent
- Software subscriptions
- Marketing and advertising costs
If these expenses total $10,000/year, your annual goal needs to go up to $60,000, and your hourly rate increases to $52 ($60,000/1152 billable hours).
If your freelancing hourly rate is higher than you would be paid for a regular salary, that’s okay. Clients typically expect to pay a little more for freelance services because many other costs shift to the freelancer. As a freelancer, you’re responsible for the additional expenses associated with running and growing your freelance business. Plus, your client doesn’t pay for employment taxes and benefits as they do for full-time employees.
5. Know the market rate for your services
Now that you have a rate that covers your salary goal and expenses, it’s time to compare this hourly rate to the market. What are other freelancers charging for a similar service?
To find this information, do some research and look at your competitors’ rates. On Upwork or sites like Glassdoor, you can get an idea of freelancers’ hourly rates. You can also check out this article to learn how much freelancers make in various industries.
If your rates seem consistent with the other freelancers in the market, you have a good starting place. If the rate you are looking to charge is too high, you may need to reevaluate your expenses or salary goals. If the rate is too low, then you may be undervaluing your skill set.
6. Understand your value
You should know your value to make sure you’re charging a reasonable price for your services. Anchor your price point based on the value you provide to the client. How do you put a value on the knowledge you’ve learned, the skills you’ve developed, and the services you offer to clients? One way to determine your value is to reflect on your experience, skill level, and past work portfolio.
Expertise is an investment, not an expense. Naturally, the more experience you have, the more you can charge for your time. A freelancer with 10 years of experience as a web developer will be able to charge more than a freelance web developer with two years of experience.
The rarity and complexity of your skill set will play a role in your pricing strategy as well. A freelance programmer proficient in three different coding languages will be able to charge more than a programmer with the same level of proficiency in a single coding language. If you can demonstrate the level of quality and return on investment, you’ll be able to set a higher price for your services.
Additional things to consider when setting your freelancer rate
- Project complexity. A complex project will have stricter requirements and utilize more advanced skills, which means you can charge a higher rate for that project.
- Education. An advanced degree or industry certification may enable you to charge more for your services.
- Geographic location. Upwork’s work marketplace allows freelancers to connect with clients around the world. But, when it comes to setting your prices, it’s helpful to consider the standard rates in your client’s location. Generally, a client in Venezuela may not pay the same price as a client in Japan, so it is crucial to tailor your prices to the area you serve.
- Talk to your clients. Client communication is crucial. You need to understand the client’s goals and how your project fits into their bigger picture. Effective communication will help you identify ways to provide more value or expand your service offering.
- Don’t forget why you’re freelancing. It’s important to remember that your freelancing rates should empower you. If your rates aren’t giving you the lifestyle, freedom, and income you want, it may be time to change your pricing strategy or reexamine how you create value for your clients.
Conclusion & next steps
As a freelancer, you’re in control of deciding how much to charge for your time, attention, and skill set. There are many considerations when setting your rates. You can reflect on the questions posed in this article, use the annual salary calculation, review your competitors’ rates, and adjust based on the value you provide. If you need more tips, check out the Setting Your Rate course from the Upwork Academy.
But, the most important thing to remember is that your rate isn’t permanent. Pick a freelancing rate you’re comfortable with, and try it. The market and prospective clients will let you know if that pricing strategy matches your service’s value. You can change your rate as you gain experience, improve your services’ value, and as your income goals evolve.
If you’re ready to get started on your freelance journey, sign up on Upwork. Thousands of projects are posted on Upwork’s work marketplace each day, so set your freelancer rate and apply to projects to see how potential clients respond to your pricing. Check out this article for helpful tips on how to improve your freelancer profile.