Freelance rates and how to set them

Most freelancers set their rate by looking at what employees earn and dividing by working hours, which produces a figure that cannot sustain a business.

The calculation

Working backwards from what you need.

Start with the annual income you want to take home.

Add tax and social contributions.

Add pension contributions, since nobody else is making them.

Add business costs: equipment, software, insurance, accountancy, training, travel, premises and professional subscriptions.

That total is what the business must generate.

Then divide by billable days rather than working days.

Billable days

The step that changes everything.

A year contains around 250 working days.

Subtract holiday, which you must fund yourself.

Subtract public holidays.

Subtract sickness, at a realistic estimate.

Subtract time for admin, invoicing, marketing, client acquisition, proposals that do not convert, and professional development — which collectively is frequently a fifth to a third of the working year.

Subtract expected quiet periods.

What remains is frequently around 130 to 180 billable days, which is substantially fewer than most people assume and which roughly doubles the required daily rate.

Hourly, daily or project

With different implications.

Hourly rates cap earnings at hours worked and penalise efficiency, since getting faster reduces income.

Daily rates are simpler and have the same structural issue.

Project or value-based pricing charges for the outcome rather than the time, which rewards expertise and efficiency and requires being able to scope accurately.

Retainers provide predictable income and are worth offering at a modest discount for the certainty.

Most established freelancers move from hourly towards project and retainer pricing over time, which is generally the right direction.

Why people undercharge

The consistent reasons.

Comparing against an employee salary without accounting for what the employer provided.

Fear of losing work, which is generally overestimated.

Not knowing the market rate, since freelancers rarely discuss rates.

Starting low to build a portfolio and never raising it.

Competing on price against people in different circumstances or countries.

And imposter feelings, which affect pricing more than competence does.

Finding the market rate

Practical sources.

Professional bodies and industry associations, which publish rate surveys in many fields.

Freelance communities and forums, where rates are discussed more openly than in employment.

Recruiters and agencies, who know contract rates.

Job advertisements for equivalent employed roles, adjusted upward for the reasons above.

And asking peers directly, which is uncomfortable and is the most reliable method.

Raising rates

Which almost every freelancer does too rarely.

Raise for new clients first, which tests the market with no risk to existing relationships.

Raise for existing clients with notice, framed as an annual review, which is normal business practice.

Raise when consistently busy, since being fully booked at your rate means the rate is too low.

Expect to lose some clients, which is the mechanism by which the average rate rises.

And note that a rate increase with some client loss frequently produces higher income with less work, which is the outcome to aim for.

Negotiating

Practical points.

Do not state a rate before understanding the scope, since the scope determines the price.

Ask what the budget is, which sometimes produces a higher figure than you would have quoted.

Quote a project price rather than an hourly rate where possible.

If pushed on price, reduce the scope rather than the rate, which preserves your pricing.

Include revision limits, since unlimited revisions are where profitability disappears.

And be willing to decline, since work at an unsustainable rate occupies capacity that better work would fill.

Getting paid

Where freelance income actually fails.

Written terms before starting, covering scope, price, payment terms, revisions and what happens if the project changes.

Deposits for new clients and for larger projects.

Staged payments rather than payment on completion.

Invoicing immediately rather than at month end.

Chasing from the day terms are exceeded, politely and persistently.

Charging interest on late payment where the law permits, which exists in many jurisdictions and is rarely used.

And declining further work for clients who do not pay, which is the only sanction that reliably works.

The rate that includes everything

A final check.

If your rate does not cover holiday, sickness, pension, equipment, admin time and quiet periods, you are not charging a business rate — you are charging an employee rate without the employee protections.

Which is the calculation worth doing before the next quote rather than after the next difficult year.

General information only, not financial or tax advice. Consult a qualified accountant about your own circumstances.