Many workers emerged from the pandemic with a newfound appreciation for flexibility. Whether you want to make up for lost travel time, homeschool your kids, or move out of a high-cost-of-living area, there are many reasons why leaving a salaried job for freelancing can be appealing.
Though one of the best parts of working for yourself is that you decide how many hours you work and how much you’re paid, it also means you have to advocate for yourself. If you decide that freelancing is the right fit for you, knowing how much you should charge for each client can be tricky. You want to set competitive rates, but not price yourself out of a gig.
Keep reading for how to set a fair and realistic freelance rate that will help you earn what you deserve.
How to Set Your Freelance Rate
Step 1: Research industry standards
Check out the average rates in your industry to see what people doing similar work are getting paid. You don’t want to accidentally lowball yourself or throw out a number so high that it stops negotiations in their tracks.
Tools such as Glassdoor’s Know Your Worth allow you to compare your rate based on your industry, location, and experience level. Comparably reveals real employee salaries, giving you an idea of what specific companies pay. You can even find niche information on what freelancers are being paid to work with the brands you have your eye on. For example, Who Pays Writers lists freelance writing rates paid at popular publications.
Scour LinkedIn, Monster, Indeed and industry-specific boards for job openings. Even if you don’t want to apply for those freelance positions, check out what they’re paying. Take note and calculate an average.
You may also want to ask other freelancers what they charge. Consider putting the question to a Facebook group or networking platform that relates to your services or industry.
Step 2: Account for employee benefits
If you’re transitioning to a freelance career from a full-time, salaried position, you may have broken down your hourly salary. That’s a jumping-off point for making sure you charge enough to cover your basic living expenses, but don’t assume this number should also be your freelancing rate.
A great deal of your compensation from a salaried position comes from more than base pay. Employee benefits, such as a 401(k) retirement saving plan, can play a big role—especially if your company matched a percentage of your contribution. The biggest benefits to consider are your health insurance plan and retirement savings—but you’ll also want to factor in transportation costs, taking unpaid time off for illnesses and vacations, disability and life insurance, office supplies and access to an office or co-working space.
Step 3: Don't forget taxes
Taxes are handled differently for employees than for freelancers or contractors. As an employee, you receive a W-2 tax form from your employer, which means payroll taxes are automatically deducted from each paycheck and paid to the government through your employer.
As a freelancer or contractor, you’ll likely receive a 1099 tax form, which means you are responsible for calculating your own payroll taxes—they aren’t automatically taken out of your paycheck—and then submitting them to the government on a quarterly basis. This means you need to budget for the part of your pay that will go toward payroll taxes when you set your rate. It’s recommended that you set aside 25 percent to 30 percent of your income for taxes.
You may also want to budget for an accountant who can help you file your taxes (and maybe even reduce what you owe) since things start to get a lot more complicated when you work for yourself.
Step 4: Track your time
To make sure you're being paid appropriately for your time, you need to know how long projects will take. Start tracking how many hours it takes you to complete your work. This will also help you know what to charge clients who operate on a per-project, rather than hourly, basis.
And don’t only track how long you’re working on the deliverable itself. Time spent answering emails, joining conference calls and sending and managing invoices all count as work you’re doing for the client and should be taken into account.
Don’t worry if you underprice a project in the early days. It takes time to get a sense of how long certain projects take. Even the most experienced freelancer can misstep here (especially if a client throws them a curveball). Recording how long projects generally take you to complete can make pricing out future projects easier.
Step 5: See the big picture
As a freelancer, you’ll have a variety of offers from the clients you work with and at times, you may want to change your rate. Maybe a company’s mission is important to you and you’re willing to accept a lower rate. On the other hand, you might want to increase your fee if a client has been especially difficult to work with. Get all of the information before you throw out a figure and remember that it’s a negotiation. You can expect they'll counter, so start high and go from there.