Should I Increase My Hourly Rate as a Freelancer?

Mon, Apr 12, 2010

Pricing, Skills

Should I Increase My Hourly Rate as a Freelancer?

Every freelancer has had to make their own decision on what to charge for freelancing projects, be that an hourly rate or a fixed rate. Whichever method of pricing you prefer, there is always a lingering issue which eats away at the mind of many freelancers and causes them to change their rate, especially in the recession. The issue is “What do others charge?”

It is sensible and in fact I would recommend that every freelancer should check what their colleagues are charging because this could give you a better understanding of what you ought to charge. This, however, does not mean that you should base all your pricing calculations on what they charge because there are too many variables. Other freelancers could be in different financial situations, their ability is different from yours, their time management is different from yours etc.

What are you worth?

One of the best ways of figuring out what your hourly rate should be is to work out how much you want to make in a year, divide by the hours you wish to work and you have your hourly rate. The problem with this system is how much you make in a year.

Many freelancers will base their worth on what they would be charged in an employed job or they were paid in a previous employed job. This method is heavily flawed and by no means should be the way you work out what you are worth. Allow me to demonstrate this point below.

You work for a company and they pay you a wage. Lets say, for arguments sake, this wage is $30,000 a year. If you therefore say that when you become a self-employed freelancer that you will aim to make $30,000, then you are seriously undercutting your own ability.

The company is actually paying you in excess of $50,000, just that you don’t see some of the money. There are so many costs which the company will spend on you such as heating, rent for office space, internet, phone lines etc. These are the invisible costs to you which the company happily spends on you.

So if you were making a wage at a normal company, then is your worth twice that? No.

Let’s look beyond that. A company employs you for $30,000 a year and spends $20,000 a year on invisible costs on you. Your value to the company is more than that. Remember that the reason the company has employed you is because you can help them make a profit. If you are worth $50,000 and that is the value you add to the company, then the company is breaking even and there is no point in employing you. Your actual value is what you are worth to the company. If you are making $30,000 a year and add your invisible salary of $20,000 a year then you’re actually making more than that for the company in order for them to profit. So your value to the company is probably as much as twice that.

Working at home

When you work from home, you need to include heating, internet connections, insurances, telephone bills and all other costs which are used by your business, when working out an hourly rate. You would make a company more than this if you worked for them in order for them to make a profit, so your value is more than this. You should however not overly price yourself or you may not be affordable for your clients.

Charging more

By charging what you are worth you add value to the field of freelancing. There are far too many freelancers in developing countries charging peanuts to do work. The fact of the matter remains that the reason they charge so little is because of the much lower cost of living in such countries – and overall, with the Internet, it really hurts freelancers in developed countries as they’re undercut so severely on a daily basis. Remember that you can rise above these price wars because you’re not offering a tangible product, you’re offering a service which you can go far beyond what everyone else is offering in terms of quality of work, speed, communications, and overall etiquette. Clients don’t mind paying more if they feel they’re going to get more – that’s the key to freelancing.

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This post was written by:

- who has written 54 posts on Freelance Apple.

Shoaib Hussain is an web entrepreneur who was formerly a freelancer. He is the main writer and owner on FreelanceSchool.com and aims to enlighten young freelancers with his vast experience and deep knowledge. Shoaib Hussain also spends his time giving advice to budding freelancers and helping web businesses.

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13 Responses to “Should I Increase My Hourly Rate as a Freelancer?”

  1. Jordan Walker Says:

    I have been debating this for quite some time now. Think you are right, need to increase my rates.

  2. Eve Says:

    For your purposes of being self-employed, you have to create a rate that pays the bills. Being self-employed can mean feast or famine on a regular basis. You might consider a varying rate scale that has a base “not to go below” a certain rate. Some clients can and expect to pay more for a service.

  3. Noone Says:

    Thank you for sharing. Definitely worth the time away from my workload.

  4. Jason Gross Says:

    I have spoke with several Presidents and CEO’s of design firms or advertising agencies about this topic and the information I have gathered from them is right on par with what this article says but sometimes to an even higher degree.

    Some business owners expressed to me that a persons base salary should actually be 1/3 of their value to the company. So if you want to make $50,000 then you should be providing $150,000 worth of billable work to the company. According to the owners 1/3 of the $150k is your salary, 1/3 goes to benefits (medical, dental, vision, 401k, etc.), and the final 1/3 goes to things mentioned in this article (rent, power, water, internet, etc.).

    So something additional to take into consideration, especially if you are coming from a salary position is the fact that you now need to cover your own butt for medical expenses and retirement money!

  5. c Says:

    you are right on. keep on producing. keep on trucking.

  6. Brett Widmann Says:

    This is a good article to try and figure out what you should be charging. I tend to do it on the basis of my skill level, amount of hours needed, and the type of project it is. Thanks for sharing.

  7. Tina Says:

    Before you start being your own boss (because that is was you are as a freelancer) you should know first who are the most competators in your area. Also you need to figure out why people should hire you; what extra’s do you have comparing with other freelance appliers. A good research is as a basic necesarry to know what everybody else is asking. With all that information in mind you can make your own calculation what you want to earn – or even better what you value are and what can pay your bills.
    With experience over the last 24 years I know that a ‘lower’ rate will effect you in the negative. Try to be a little overrated, this will give you also a way to negotiate with your new client. A low rate can’t go lower and all your clients would like to try to get even below your rate.


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