When you’re starting out as a freelancer, one of the biggest challenges is setting your hourly rate. Charge too much, and you’re going to drive away potential clients. Charge too little, and it’s going to take far too many hours to make your desired salary. By doing a few calculations, you can figure out an hourly rate that pays you well and is fair for your clients.
Set Your Annual Salary and Hours Targets
Start with the easy calculations for your freelance rate, which are the annual salary you want and the number of hours you’re willing to work per year. If the freelance work you’re doing is what you did previously in a salaried position, you can use a similar annual salary as your target. Otherwise, look up salary ranges for the position online. While your target salary can be whatever you want it to be, if you’re charging a much higher rate than normal, you must have the results to back it up.
For your hours target, start with the number of working hours per year, which is 2,080, as there are 52 weeks and a full-time work week is 40 hours. Subtract the number of hours you expect to take off each year. If you want a standard-two week vacation, you’d be down to 2,000 hours. Finally, multiply that number of hours by 0.75. This accounts for the time you spend working on activities you can’t bill to a client, such as marketing your business and communicating with clients.
Determine Your Adjusted Annual Salary
Your adjusted annual salary is the target salary you just set, with the hidden costs of freelancing added to it. Those hidden costs are the financial benefits you’d receive if you were employed that you now need to cover yourself.
Benefits vary depending on the job, but you may no longer have health insurance and other types of insurance coverage that were previously paid for by an employer. Instead of your employer providing your equipment, you need to pay for it yourself as well as any repair or replacement costs. When you have a job, your employer matches your Canada Pension Plan contribution. As a freelancer, you must pay both your share and the employer share, which totals $5,474.70, as of 2017.
When you figure out those costs and calculate your adjusted annual salary, divide that salary by your hours. That number is the hourly rate you need to charge for your desired annual salary.
Consider Client-Specific Adjustments
It’s smart to be flexible with your rate depending on the value of the client. A client that needs you consistently or for a large project is much more valuable than one that needs you for just a few hours. You may want to lower your rate if it makes the difference in getting an important client. For a client that only needs a small amount of work, think about charging more to ensure the project is worthwhile for you.
Calculating your hourly rate doesn’t need to be difficult. With the appropriate numbers, you can decide on a rate that doesn’t leave you second-guessing yourself when clients ask for a quote.