Jessica Sharp, Content Manager at Expertlead
Whether you’re a project manager, developer, or a copywriter, all freelancers share a common challenge: setting a reasonable rate. During the early stages of your freelancer career it is easy to fall into the trap of pricing yourself too low, which could result in not being able to meet your monthly expenses as dry spells and fluctuation are a normal part of freelancing. This means that figuring out what you should be charging in the first place is an important step to making or breaking your freelance dream. Read on to ; how do you calculate your hourly rate as a freelancer, what’s better hourly rates or fixed rates and how do you decide the best price for your service?
How to calculate your hourly rate as a freelancer
Whenever you are calculating your rate step number one is always: calculate your expenses.
Set time aside to go over any and all costs connected to your work. From less obvious ones such as internet fees, website hosting, and software costs to more general costs such as rent, utilities, office equipment, accounting, taxes and insurance, the list can go on.
“In the beginning I did some research on the market, asked other people in my network about solid hour rates for the work we are doing. I also calculated my "minimum" needs based on the assumption that I can bill at least 15 days a month. So I came up with a minimum hour / daily rate. I don't accept projects that go below this rate.”
- Guido Sanchidrian González, BI & Data Architect.
It may sound strange to project billing for only 15 days out of the month, but even if you start out the gate in a sprint running on buckets of enthusiasm and limitless potential, you won’t be working 24/7 every day of the year. Therefore you need to consider the effect of lost time and non-billable hours when calculating your rate.
Let’s do the maths
A year has 365 days, approximately 52 weeks. That means there are 104 weekend days where it can be assumed you won’t work. In addition, there are about 9-16 bank holidays in Germany (adjust accordingly for your hometown), this reduces the number of working days to around 248 (using 13 bank holidays as the deductible average).
If you were a full time employee, you would have an additional 25-30 days of paid holiday. As a freelancer you have the opportunity to create an annual income with an allowance for holiday’s included. It is important to keep in mind that any break you take will come out of your overall profit, therefore preplanning can insure you avoid an unexpected dip in your finances.
Now the topic we would all rather avoid, illness. Unfortunately becoming a freelancer does not make you immune to the dreaded flu or a surprise side of food poisoning, and with all the freedom that being a freelancer brings there are a few extra responsibilities that need to be taken into consideration. One of these is sick days, which you should factor into your calculations as well. Government statistics show that on average approximately 10 days a year are lost to being unfit for work.
Lastly, you will probably want to dedicate some time to upskilling, networking or planning your own projects. So, let’s deduct another 5 days for self development.
Leaving us with 205 working days a year or 17.08 days a month. If we use the average employee’s monthly wage of €3,970 and divide it by 17.08 we get €29.05 an hour (€3970: 136.64 hours). To help you visualise all these numbers here is a table overview:
The community team at expertlead have put together a list of all the best services and tools available to make your life as a freelancer run as smoothly as possible. https://blog.expertlead.com/how-freelancer-services-and-tools-can-make-your-life-easier
To help you accurately forecast for your annual taxes check out this article: https://help.getsorted.de/en/articles/3883482-taxes-for-freelancers-and-the-self-employed
What's Better, Hourly Rates or Fixed Rates?
Depending on the type of service you offer, it will be quite easy to figure it out. For freelance coders, UX/UI designers, or software developers an hourly rate is the most popular choice as it allows space for projects to take shape and evolve during execution. As it is a common occurrence for projected deadlines to be extended and workloads to increase. However, choosing a fixed rate does allow you to have a flexible approach to time management throughout your day. This can accommodate working on multiple projects and ensure you deliver the best results by spending the time needed working on each project without having to worry about the hourly rate reaching an amount that is exponentially more or less than originally discussed.
How to define the best price for your service?
It’s not easy defining the optimum price for your services, attempting to harmoniously balance your knowledge and experience alongside industry standards and company budgets can be a daunting task. A starting point can be initiating an open line of communication between you and the hiring manager; identifying the scale of the project and calculating the time it will take you to complete. Once you get the ball rolling and gain some experience this will become simpler overtime.
As we hear from first hand experience the age old approach of networking and referrals is still the best way to validate your set price. Online networking platforms are available (you may have heard of LinkedIn) and there are also plenty of industry specific online communities. For example, expertlead offers a freelancer community platform for Tech Experts, which connects you with fellow tech freelancers, provides networking opportunities and benefits and bridges members with companies on the hunt for their specific tech skills, which in turn speeds up the hiring process and benefits all parties.
Finally, try some investigative research on freelancer platforms to see what your peers' price points are. Have the confidence to experiment with your rates, making sure you really own what you’re doing and don’t fall into the trap of selling yourself under value. If you have several years of experience in your field, you shouldn’t be charging the same rate as someone with no experience at all.
Use these tips to figure out a basic pricing model for your freelance services. Once you start gaining more experience and working with established clients, experiment with different prices. Eventually, as you grow your reputation and build network connections you’ll be able to price yourself at higher rates. At the end of the day as long as you’re satisfied with what you’re earning for the amount of work you do, there will never be a wrong price.
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