Add your desired freelance profit margin to your business expenses. If you work 8 hours each day, take a 1-hour lunch, and spend 1. NOTE: If you are working part-time, you may use a 4-hour workday or a 3-day work week as your base. Instead of billing for 2, hours per year, you only bill for 1, Do some investigative work to uncover competitor rates and what other freelancers are charging similar clients.
This will help ensure your hourly rate is based on reality and in alignment with your market and what potential clients are willing to pay.
No one starting or running a freelance business is doing so to work for free, be underpaid for the services and value they deliver, or exist as a slave to their business. You deserve to earn a fair fee for work well done, to charge your full freelance rate and get it, and to live the life you dream of. The trick is figuring out the right freelance hourly rate and pricing your services and packages appropriately so you can pay your expenses, pay yourself, and put profit back into your business.
The difference between a flat rate pay and an hourly rate pay is how you bill the client. A flat rate pay is when you charge the client a set price for the scope of work that is completed regardless of the number of works required to complete the project.
The payments can be made at regular intervals based on the work completed. The benefit of flat rate billing for clients is that they know the amount that they have to pay for the project beforehand so there is little room for dispute. Hourly rate is the price that your charge per hour for a project. Charging clients an hourly fee is effective for long-term projects which are prone to changes. It also works best when you work for the client in-house.
However, hourly rates make it easier for you to account for changes in the project and other variables that you cannot control. By Stephen Fishman , J. Independent contractors ICs can charge for their services in a variety of ways, such as a fixed amount for an entire project, an hourly fee, or a sales commission.
No matter how you bill clients, however, you first need to figure out how much to charge -- even if you charge a fixed fee for the whole project. You can't determine how much your fixed fee should be unless you know roughly how many hours the job will take and what you need to earn per hour to make it worth your while.
If you're experienced in your field, you probably already know what to charge because you are familiar with market conditions. However, if you're just starting out, you may have no idea what you can or should charge. If you're in this boat, try using a two-step approach to determine your hourly rate:. Business schools teach a standard formula for determining an hourly rate: Add up your labor and overhead costs, add the profit you want to earn, then divide the total by your hours worked.
This is the minimum you must charge to pay your expenses, pay yourself a salary, and earn a profit. Depending on market conditions, you may be able to charge more for your services -- or you might have to get by on less.
Determine your annual salary. To determine how much your labor is worth, pick a figure for your annual salary. This can be what you earned for doing similar work when you were an employee, what other employees earn for similar work, or how much you'd like to earn as long as your goal is reasonable.
Compute annual overheard. Next, compute your annual overhead. Overhead includes all of the costs you incur to do business -- for example:.
Overhead also includes the cost of your fringe benefits, such as medical insurance, disability insurance, and retirement benefits, as well as your income taxes and self-employment taxes. If you're just starting out, you'll have to estimate these expenses or ask other ICs in the same field what they pay in overhead, then use that amount in your calculations.
Choose a profit margin. You're also entitled to earn a profit over and above your salary and overhead expenses. Your salary does not count as profit; it's one of the costs of doing business. Profit is the reward you get for taking the risks of being in business for yourself.
It also provides money to expand and develop your business. Profit is usually expressed as a percentage of total costs. Determine billable hours.
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