How much should you charge for freelance work?
One of the most difficult things about freelance work can be figuring out how much to charge. If you ask too much you risk scaring off the potential client, but if you ask too little you risk being considered a second-rater and, even more importantly, doing yourself out of much-needed income. After all, there's no point in doing freelance work if you don't get rewarded appropriately. To help you avoid this problem I'm going to show you exactly how to work out a fair rate. All you need from here is the confidence to stick to your price, and of course the skills to the the actual work.
First, a few words on how to approach charging in the first place. Estimate how long the job will take, then add 50% to that figure. This isn't in order to scalp anyone, it is just being realistic. As well as allowing a buffer for complex issues, it helps protect you when revisions have to be made. If possible, it can be much simpler to discuss things in terms of daily rates or even lump sums for the whole project rather than the relatively bitty and quibble-prone per-hour approach. You still need to know how it breaks down per hour, but you don't necessarily have to discuss that specific detail with your client. Now, about that hourly rate...
There's a tried-and-tested method for working this out, and it is surprisingly simple. First of all, decide how much you want to earn per year. Be generous; remember that this is the gross amount, covering absolutely every penny that you'll spend, from tax and mortgage or rent through to IT maintenance costs. As a freelancer this is all down to you, from the phone bills to the stamps... everything. Forget the fact that you might do other paid work. Assume, for the purposes of this exercise at least, that this will be your sole work and source of income. We'll pick a figure of £40,000pa for this exercise, but feel free to go higher.
Here's the magic: just divide this annual income target by 1000, and there's your hourly rate:
£40,000pa/1000 = £40ph.
Trust me, this works. But if you want to know why, here are the details...
As a freelancer, it is realistic to assume that, over the course of a year, no more than 50% of your standard working hours (the Monday to Friday 9 to 5 thing) will be chargeable, and the rest will be devoted to admin, pitches for new work, experiments, and so on. This, conveniently, gives you approximately 1000 chargeable hours per year.
As I've already said, you need to work out your desired annual income. As a full-time freelancer (if you have a job already all that does is reduce everything proportionately, the principle and ratios remain the same) you'll be responsible for absolutely everything: computer hardware, software, stamps, phone charges, electricity, rent, insurance, holiday and sick pay, paper, pens, furniture, maintenance... everything. So don't forget to include it all when estimating the annual gross income you need.
Your hourly rate is your gross annual target income divided by the annual chargeable hours, or, to put it another way, target income / chargeable hours = hourly rate. With the £40k target I mentioned earlier that's 40,000 / 1000 = £40ph.
If you work for less, your target salary is less. If you work for an equivalent of £15ph, whether because you underestimated the time something would take or because you caved in at the negotiations, you're aiming at a £15,000pa gross income, which will barely cover your living expenses. (And if you live in London it probably won't even do that without help.)
See how it works in reverse, showing how little you'll make if you don't keep a finger on things? By all means do allow for time spent learning things. If there's much of that, is it fair to charge the client for it? But don't be a doormat. And remember, if you charge a very low rate now, that's the expectation the client will have for your work in the future... not to mention for work from the rest of us. Charge appropriately, stick to your guns and deliver the best results that you can, and you should have a long and profitable freelance career.
First, a few words on how to approach charging in the first place. Estimate how long the job will take, then add 50% to that figure. This isn't in order to scalp anyone, it is just being realistic. As well as allowing a buffer for complex issues, it helps protect you when revisions have to be made. If possible, it can be much simpler to discuss things in terms of daily rates or even lump sums for the whole project rather than the relatively bitty and quibble-prone per-hour approach. You still need to know how it breaks down per hour, but you don't necessarily have to discuss that specific detail with your client. Now, about that hourly rate...
There's a tried-and-tested method for working this out, and it is surprisingly simple. First of all, decide how much you want to earn per year. Be generous; remember that this is the gross amount, covering absolutely every penny that you'll spend, from tax and mortgage or rent through to IT maintenance costs. As a freelancer this is all down to you, from the phone bills to the stamps... everything. Forget the fact that you might do other paid work. Assume, for the purposes of this exercise at least, that this will be your sole work and source of income. We'll pick a figure of £40,000pa for this exercise, but feel free to go higher.
Here's the magic: just divide this annual income target by 1000, and there's your hourly rate:
£40,000pa/1000 = £40ph.
Trust me, this works. But if you want to know why, here are the details...
As a freelancer, it is realistic to assume that, over the course of a year, no more than 50% of your standard working hours (the Monday to Friday 9 to 5 thing) will be chargeable, and the rest will be devoted to admin, pitches for new work, experiments, and so on. This, conveniently, gives you approximately 1000 chargeable hours per year.
As I've already said, you need to work out your desired annual income. As a full-time freelancer (if you have a job already all that does is reduce everything proportionately, the principle and ratios remain the same) you'll be responsible for absolutely everything: computer hardware, software, stamps, phone charges, electricity, rent, insurance, holiday and sick pay, paper, pens, furniture, maintenance... everything. So don't forget to include it all when estimating the annual gross income you need.
Your hourly rate is your gross annual target income divided by the annual chargeable hours, or, to put it another way, target income / chargeable hours = hourly rate. With the £40k target I mentioned earlier that's 40,000 / 1000 = £40ph.
If you work for less, your target salary is less. If you work for an equivalent of £15ph, whether because you underestimated the time something would take or because you caved in at the negotiations, you're aiming at a £15,000pa gross income, which will barely cover your living expenses. (And if you live in London it probably won't even do that without help.)
See how it works in reverse, showing how little you'll make if you don't keep a finger on things? By all means do allow for time spent learning things. If there's much of that, is it fair to charge the client for it? But don't be a doormat. And remember, if you charge a very low rate now, that's the expectation the client will have for your work in the future... not to mention for work from the rest of us. Charge appropriately, stick to your guns and deliver the best results that you can, and you should have a long and profitable freelance career.
3 Comments:
This article worked out very helpful to me. Thanks!
xrayman says...
your observation has been a great help...
cheers
I subscribe to Anil Dash's approach....
http://www.dashes.com/anil/2005/05/12/pay_by_the_hour
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