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.
On this page:
- Assumptions and Expectations
- Considerations Before You Set Your Rate
- Where to Start
- Billable Hours
- Your Basic Hourly Fee
- Making a Profit
- Pitching Your Fee
- Your Pitch Not Working
Last updated on 2020-05-26 by David Wallis.
Based on my experience working as a freelance since 1989, and having been asked in the intervening years about freelancing, I’ve written this article on how to calculate fees.
Though my experience is of providing to my clients a service — in IT programming, systems development, software training and a bit of website creation — I hope you’ll find something that’s applicable if you make and sell a product.
Assumptions and Expectations
To construct a charging scheme you need a full account of your expenses. Of the fee calculators I’ve seen on the web, most are too rudimentary because they ask for a ball-park expenses figure. So, I’ve prepared a calculator. Details of it, together with a download link to an Excel spreadsheet, appear on the Freelance Fee Guide Calculator page.
If you’re not familiar with the concept of making a profit, then I recommend reading up on it. In my view, it’s important to make profit, even when you’re 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.
Setting your rate too low may create the impression you’re desperate to get work or lead prospective clients to worry that you’ll 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. And while you’re working those long hours, you’ll not have time to keep your records up-to-date and to promote your business.
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 per 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. If this remark needs amplification, I point you again to Freelance Fee Guide Calculator page.
When you've arrived at your rate you can compare it to what your competitors might be charging by a web search for, say,“what to charge for freelance work” or “what to charge for freelance magazine articles”.
Billable hours are the hours you can spend on jobs in a normal working week. These are the hours for which you can charge your clients.
So, start the calculation. Number of weeks in a year you can spend working? 48? To arrive at this figure, you’ve allowed two weeks for Summer hols; one week for Christmas and the New Year; and one for “me time”.)
Days in a week on which you could spend working for clients? Four? You’ve allowed a day of non-billable time for admin, marketing, accounting, etc.
That means 4 × 48 = 192 days spent on work for clients.
Now subtract the number of days you miss in a year due to sickness and emergencies: say four.
Which reduces the client-work days to 188 a year.
Now, hours in day spent working? Seven?
That makes 7 × 188 = 1,316 billable hours a year.
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, entertainment, 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 vehicles, computers and software, pension, insurance, business tax, etc. Say £5,000?
Hence your invoices to clients must cover £44,000; and that’s before any profit.
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 Basic 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.
You now know that £33.43 is the minimum you need to charge an hour in order to make a 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 foreseeable future.
If you’re content with this figure, please don’t be until you’ve properly considered profit.
Making a Profit
The example above in which we arrived at £33.43 an hour does not include a provision for profit.
Should we need to bother about a profit element? Many business gurus will tell you YES for reasons including:
- Building a cash reserve in the bank, ISA, or whatever. You’ll need this reserve to draw on in the event of a down-turn in business. Some commentators recommend enough cash for weathering a six-month down-turn
- You want to employ
- You intend to expand your business. This applies if you intend moves into other markets and acquiring other premises
- You want to borrow money. Lenders will want to know you’re profitable You’ll be seen as high-risk if you’re not returning a profit
- You want to set up trade accounts with important suppliers
- Personally, you want to maintain a good credit rating.
Making a profit has meant I’ve been able to weather a number of recessions during which there was a down-turn in commissions.
Consider adding 10% profit to your £33.43 and your fee becomes nearly £37.00. I don’t know how to advise on what profit you should aim to make. You’ll need to discuss that with your advisors.
Pitching Your Fee
If you’re comfortable with selling yourself at £37.00 an hour, then stick out for £37.00 in any negotiations.
You charge £37.00 plus profit because you’re worth it. If you don’t believe that, then I reckon you’re going to work yourself to a frazzle instead of achieving a fulfilling life as a freelance.
Your Pitch Not Working
Back in the day, bids on invitations to tender were sent by post to prospective clients. A failure to succeed in your bid would be conveyed to you by post, sometimes with reasons why you’d failed.
Today, that formal mode of communication has, in my experience, been superseded by the use of email. Prospective clients contact me by email (mostly an email copy of the contact form they’ve filled on the website). Hence email’s the medium by which I submit my bid.
One of three things tends to happen following the submission:
- An acnowledgement, with an indication of how the prospect would like to progress matters
- A simple acnowledgement from the recipent saying they will respond in due course. Which they don’t, much more often that not
For two of these three, I’m not getting to know if I’ve failed in my bid or not. Rather than let things rest, and possibly missing the opportunity of getting feedback on my submission, I do a follow-up, with an opening like “I’m do my marketing thing and following up on …”.
This approach usually elicits a response and opens a channel for asking how my submission was regarded. If you adopt this approach, then amongst the various responses you receive there’s the one about you pricing yourself out of the running. Be careful not to make your default response the one of necessarily cutting your fees.
Instead, make your response one of examining how to increase your efficiency, in so doing paving the way to revising your fee structure and your approach to respondng to ITTs:
- Back to your spreadhseet to critically assess your entries for expenses. Should I not be considering a better deal for my energy supplier; for my mobile contract; for my web and email hosting?
- Am I crap at accounts and spend far too long keeping them up-to-date. Invoicing always behind? Statements? Should I not invest time in learning to use an accounting app? (C, about whom I feature in the panel above, did just that, despite her reservations over on-line learning such an alien skill.)
You could examine how to convey a sense of higher worth to prospective clients than you are at the moment:
- Pitch for work beyond what you consider as being within your pay grade
- Make certain your website makes you look the DBs. Don’t stick to the one you knocked up using a template everyone else uses because it’s a cheap way to get started.
- Keep adding new stuff. Make certain your testimonials include very recent ones. (I don’t know about you, but I’m put off if there aren’t any of these on a potential supplier’s website)
- Equally so if you’re promoting yourself through a blog. If you are, and your entries are aging, then you’re dead.
Addionally you could move away from making hours-based quotes. Stick to your notion of your required hourly earnings, but quote on a project basis:
- Allowing you to generate greater profit. Because you’re proud of your work, you put as much into writing for Kent Life as you would for House & Garden. Surely, charges for the latter go up a notch or two?
- Your ITT can contain value-added elements which weren’t part of the spec, but which will prompt your prospect to regard your submission above those of your competitors.
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