What Fee to Charge for Freelance Work
Guidance on how to work out a freelance fee rate
and then apply it to estimating for a particular piece of work
Last updated on 2018-10-16 by David Wallis.
Based on my experience of working as a freelance since 1989, and having been asked about this topic a number of times in the intervening years, I’ve at last got round to setting down my ideas on calculating fees and making estimates.
Though my experience is in IT — programming, systems development, software training and a bit of website creation — I hope you will find something that is applicable to your discipline.
Assumptions and Expectations
I’m writing as a service provider. If you are planning to make and sell a product, then I shall leave it to you to pick out the bits of what I’m saying that might be appropriate to your work.
Of the fee calculators I’ve seen on the web, most are so rudimentary that I wouldn’t make use of any one of them myself. So, if there is demand for a spreadsheet fit to make the calculation, I intend to put one up here for download. Please let me know if you want me to hurry it along.
To work out a charging scheme you need a full account of your expenses. Do not rely on guesses; keep accurate records.
If you’re not familiar with the concept of profit, then I recommend reading up on it. In my view, it’s important to entertain the idea of making profit, even when you’re just setting out as a freelance.
Considerations Before You Set Your Rate
If you get your rate too high, then you risk not getting commissions purely on the grounds of cost; or you lose out to competitors because they consistently undercut you.
“Life is divided into three terms —
that which was, which is,
and which will be. Let us learn
from the past to profit by the present,
and from the present,
to live better in the future.”
Setting your rate too low may create the impression you are desperate to get work. Prospective clients might worry that you will not deliver work to a high enough standard.
Setting too low will almost certainly cause you to try and work far too many hours in order to maintain your standard of living.
Choosing to work 24/7, when you don’t need to, is entirely different to having to work 24/7.
Where to Start
Working out the rate you need to charge in order to survive and prosper is where to start. With the rate established, you can design other charging schemes — price per job or project, for example.
Aim to calculate your rate based on a typical year in your freelance life. Don’t skimp on gathering the information on which you are basing your assessments.
Billable hours are the hours you can spend on jobs. These are the hours for which you can bill your clients.
So, hours in day spent working entirely on a job: seven, say?
Days in a week on which you could spend working on jobs: four, say? You have allowed a day of non-billable time for admin, marketing, accounting, etc.
Number of weeks in a year you can spend working: 48, say. You have allowed two weeks for Summer hols; one week for Christmas and the New Year; and one for “me time”.
Doing the arithmetic, that is 7 × 4 × 48, which is 1,344 hours a year.
Subtract the number of days you miss in a year due to sickness.
I recommend you break your costs down under two headings: private and business.
Private costs are what you spend keeping you, your home and your family up and running: mortgage/rent, food, clothes, vehicles, insurances, travel, holidays, entertainemnt, savings, income tax, luxuries, etc. Everything! Say £39,000?
Business costs are those expenses you incur as a result of going about your work as a freelance: office equipment and stationery, advertising, website and email, accountancy fees, phone and mobile, use of car, computers and software, pension, insurance, business tax, etc. Say £5,000?
You’ll have to register for VAT if your turnover reaches the VAT registration threshold during any 12 month period, or if you expect it to do so in the coming 12 months. Currently, the annual threshold is £85,000.
Weighing up the advantages and disadvantages of having to charge VAT is something I might write about if there is enough interest. Please let me know if you are interested.
Your Hourly Fee
You have your figures for billable hours, and for private and business costs. The arithmetic to establish your hourly rate is total costs divided by billable hours.
So, using the example figures from Where to Start that is
(39000 + 5000) ÷ (7 × 4 × 48) = 32.74
You now know that £32.74 is the minimum you need to charge an hour in order to make a decent living out of your work as a freelance.
It’s obvious that guesses at billable hours or costs or both will have their consequences, potentially swinging your fees too low or too high. So get the figures right from the outset and avoid the toil of being forced to make unnecessary fee adjustments in the forseeable future.
The example above in which we arrived at £32.74 an hour does not include a provision for profit.
Should we need to bother about a profit element? Many a business gurus will tell you “YES” for reasons including:
- You intend to expand your business. This applies if you intend moves into other markets and acquiring other premises
- You want to employ
- You want to borrow money. Lenders will want to know you are profitable; you will be seen as high-risk if you are not returning a profit
- Personally, you want to maintain a good credit rating.
A reason I’ve been pleased to maintain a profit is that I’ve been able to weather a number of recessions during which there was a down-turn in commissions.
Consider adding 10% profit to our £32.74 and our fee becomes a penny over £36.00.
I don’t know how to advise on what profit you should aim to make. You will need to discuss that with others more in the know than me.
Pitching Your Fee
If you’re comfortable with selling yourself at £36.00 an hour, then stick out for £36.00 in any negotiations.
You charge £36.00 because you are worth it. If you don’t believe that, then I reckon you are going to work yourself to frazzle attempting a fulfilling life as a freelance.