How do you work out your hourly rate as a freelancer?

Having taken the leap into freelancing, you’ll soon come up against one of the biggest questions you’ll face: ‘what hourly rate should I charge?’

Few people enjoy having conversations about money, but it’s important that you’re prepared to talk about prices up front. One simple conversation can make the difference between a productive, profitable project, and one on which you could even lose money.

So how do you work out your freelance hourly rate – and is an hourly rate really the best way to go? Keep reading to find out.

How do I set a freelance hourly rate?

Working out what to charge clients can be a difficult task for both new and experienced freelancers. You want a competitive price to attract clients, but you also value the work you do and want to be paid fairly.

New freelancers often underprice themselves in order to build a client base but this isn’t always a good thing. People may judge your business based on your pricing: if your rates are too low, potential clients will begin to wonder why.

With that in mind, it’s important to set a realistic hourly rate that’s fair for both you and your clients. When working out your freelance hourly rate, it can be helpful to start with a target ‘salary’ in mind.

From there you’ll need to work out the costs associated with running your business, which can include:

capital expenditure
rent
utilities
travel
taxes
programmes and software
marketing costs

Your target salary will need to reflect the costs of the above – though you’ll be able to claim expenses on some of these.

Some other things to consider include what your competitors charge and the demand for your industry.

Hourly rate calculator

Once you’ve considered the above factors, use this formula to help work out your hourly rate:

Choose a target annual income (before taxes and expenses)
Decide how many weeks you’ll work (accounting for unpaid time off for holidays)
Decide how many hours of billable work you’ll do each week
Check this against your competitors

For example, you’re a freelance graphic designer with a target annual income of £35,000. You estimate you’ll work 48 weeks a year, which gives you four weeks of unpaid leave. Within your working weeks, you imagine you’ll complete 32 hours of billable work.

32 hours (hours worked each week) for 48 weeks (weeks worked in a year) is 1,536 hours worked
£35,000 (target annual income) divided by 1,536 hours is £22.79

This means your hourly rate should be set at £22.79. To make sure this is a viable rate, you’d then check this against what your competitors are charging – which in this instance would be graphic designers with a similar level of experience.

Billable vs non-billable work

As a freelancer, your time will be split between billable and non-billable work. Billable work is the work you’re paid to do by clients. For example, designing a logo or attending client meetings to discuss a project.

Non-billable work is still work – but it isn’t directly related to the work you do for clients. This could include bookkeeping, invoicing, and marketing your business. Non-billable work is crucial to your business, which is why it’s important to make time for it in your work week – even if you’re not getting paid for it.

“You have to make your prices what you feel that you’re worth and they should represent what you can actually do. I think a lot of self-employed people, even established ones, are worried about putting their prices up. But when all your expenses are going up, you’re working for less money.”

Richard Burle
Owner of Richard’s Garden Services

Should I price by the hour or by the project?

Hourly rates aren’t the only way you can price yourself. If you’re taking on a larger project, it could be more beneficial to set a daily rate instead.

For example, imagine you’re a web designer. A client approaches you and asks for a simple website build. You estimate that it’s roughly four days of work. Setting a day rate rather than an hourly rate could mean:

it’s easier to track billing and invoices
a predictable income for the week, agreed ahead of time
more time to focus on the work and less on invoicing or tracking your time

However, there’s also the possibility of underpayment – perhaps the project turns out to be harder than you initially thought, or you need to stay late for client meetings. This could mean it works out less per hour than your usual hourly rate.

When making the decision of how to price your jobs, you should conduct some market research. See what your competitors are doing and price yourself accordingly.

What about freelance consulting rates?

It’s common for people to move from full-time employment into self-employment in a consulting role. Here you’re at an advantage, because you may well already have some knowledge of comparable rates in your field. However, it’s important that you still do your research.

If possible, speak to some hiring professionals to find out the sorts of rates they might expect. You should also expect to work to clients’ budgets – while you shouldn’t underprice yourself just to secure work, you should try wherever possible to get a handle on client budget first and price accordingly.

Beyond this, the same rules apply: get comfortable talking about rates, and make sure that you price not just competitively but also fairly.

When can I raise my freelance rate?

Finally, it’s vital that you review your rates regularly. If you stick rigidly to the same rates for years on end, it won’t be long before you start to lose out.

There are some circumstances in which you might consider raising your rate. First, you should do so if it’s a ‘rush job’, meaning that the client is on a tight deadline and you’d be completing the work in a tighter timeframe than you’d like. You should also raise your rates if you’re at capacity and can’t take on any more work, as your time is now at a premium.

And don’t forget that you should conduct annual rate reviews with all of your clients. The experience that you’ve gained in that past year should be reflected in higher pricing and, with some canny negotiating skills, you’ll be able to persuade your clients of your value.

Read more about how to tell your customers about a price increase in our dedicated guide.

Any tips on setting your prices as a freelancer? Share them in the comments below to help someone out.

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How to set a freelance hourly rate: what hourly rate should I charge?