Pricing is one of the most underrated skills of running a freelance or client-based business. It’s literally the fastest and simplest way to double (or cut) your earnings in under 5 minutes.
Building a 100% universal rate calculator is impossible, since rates are derived from the value of services being provided. Value depends on all sorts of factors; not least, one’s expertise, experience, and the specific client project outcomes under consideration.
Those factors aside, it can be helpful to look at one’s freelance rates from the bottom up—that is, starting with you, your expenses and financial goals.
To do so, we’ll look at:
- Monthly Expenses;
- Billable & Non-Billable Hours;
- Savings Targets; and
- Expected Tax.
From there, we’ll generate 3 scenarios, including an hourly and day rate for each.
Using The Freelance Rate Calculator
The first step is to input some information about yourself and your business. First on this list will be your expenses, found in the first tab of the rate calculator.
Monthly Freelance Expenses
As a freelancer, there are a few key expenses that are worth tracking. For this calculator, we're going to keep it simple and break these down into:
- Rent & Utilities;
- Basic Living (Groceries, household items, travel, etc.);
- Weekends & Entertainment;
- Subscriptions; and
Rent & Utilities are straightforward enough--simply input how much you pay monthly on accommodation + heating/electricity/water/internet.
Basic Living Expenses will cover anything from your groceries to daily travel costs. These are the expenses that simply cannot be cut out of the equation--the ultimate necessities.
Weekends & Entertainment lets you budget for a social life. Dining out, going to the pub, visiting ticketed venues and events; this can all be budgeted for in this input field.
Subscriptions are an increasingly common item on the balance sheet, with everything from Netflix to your website provider commonly charging via monthly subscription. Add these up and add them into the calculator.
Other expenses lets you budget for any miscellaneous purchases on a monthly basis.
Billable & Non-Billable Hours
Working as a freelancer or sole trader (for most of us) means running the business from A to Z. Accounting, marketing, project management--it's all on you, and not all of this work can be charged to the client.
Billable hours are those which the client is engaging you for. In theory, these are the hours that will be spent progressing the client project itself.
Non-billable hours refer to all the other hours spent on your business, which cannot be charged to the client.
For this freelance rate calculator, you can input a weekly number of hours for each of these categories and it will automatically convert to monthly figures for all calculations.
You'll notice there's also an 'Engaged Days' field. If you work (or are thinking of working) to a Freelance Day Rate, then you can input the number of days per week you are typically (or would like to be) engaged. Engaged here simply means 'with work'--realistically, when working to a day rate, you will not be booked every single day of the month.
Savings Target & Tax
Part of freelancing means managing your own savings plan, and keeping enough in the kitty for when tax season comes around. This can be one of the most difficult things when starting out, with large provisional tax events wreaking havoc on cashflow (trust me, I've been there).
Setting yourself a savings target is an important first step. So is budgeting for expected taxation.
In the freelance rate calculator, you can input your Target Savings per month, along with the going tax rate for your country and income bracket.
Reading Your Freelance Rate Calculator Charts
Once you've input the various figures for your business (don't worry, you can always go back and play around with other scenarios), it's time to take a look at the freelance rate calculator outputs. There are 5 charts you'll see:
- Hourly Rates Targets;
- Gross Monthly Earnings;
- Minimum Earnings Scenario;
- Freelance Day Rates; and
- True Hourly Rate
For the hourly freelance rates and freelance day rates, you'll notice there are three 'scenarios'. This is because life is rarely clear cut, and sometimes it can be helpful to have a Plan A, B, & C in this freelance life...
The 'Minimum' scenario describes how much you'll need to earn to meet your basic expenses + your savings target + taxation (+ a little buffer).
The 'Good' and 'Great' scenarios describe 1.5 and 2x your minimum earnings scenario, respectively.
Calculating Your Freelance Day Rate
The fourth chart shows the freelance day rate that would need to be charged to meet your target earnings. As you adjust the 'Engaged Days' variable, you'll notice that these figures change signficantly (that's because if you only expect to work 3/5 days per week, then you'll need to charge more than if you expect to work 4/5 days in order to earn the same amount each month).
Calculating Your True Hourly Rate As A Freelancer
Your true hourly rate takes into account not only the hours that are billed to the client, but all the hours you spend working in or on your business. The true hourly rate figures break down how much you are earning per productive hour invested into your business--it can be a very useful figure to reference when planning your freelance business growth, work schedule and ultimately help to set your prices high enough to account for the extra hours invested in your business.