As a freelancer, you have the freedom to choose your prices. In reality, it's one of the best aspects of working for you. Even so, determining the costs may be challenging. Overall, you deserve to get paid what you're worth, but you still want to make sure you're setting your rates wisely. You will build and show the prices to prospective clients in several ways.
Even there's the nagging doubt about whether you cost the correct price. Knowing how to set your freelance prices wisely is critical in the search to provide your customers with the value they need while still allowing your company to flourish. Today, I'll give you some helpful hints for getting your prices exactly where you want them.
Let's get this underway!
Choosing Your Annual Income Target
The method of determining your freelance prices begins with a single question: How much money do you want to make?
However, many considerations go into addressing this issue, and you must bear these in mind while developing your calculation. If you want to raise more than you do at your new 9–5 job? While this will seem to be a reasonable rule to adopt in determining your target annual revenue, keep in mind your cost-of-living expenditures as well. This is the best position to begin. Pay attention to the information! Start by measuring the cost of living by adding up expenses such as rent, Bills, and Utilities.
Once you've determined how much each of these expenditures would cost you each month, factor in how much money you'd prefer to save each year. This would send you your target annual salary, which would be helpful when determining your freelance prices.
Time is money
It does not occur to you to predict how much time you would waste in front of your screen operating as a freelancer, but as the adage goes, time is capital. As a result, you must determine how much time you can realistically expect to spend operating.
One of the most significant advantages of working as a freelancer is arranging your hours and operating according to your timetable. What isn't so cool about it is that time will get the better of you, and you can find yourself running almost 24 hours a day to meet deadlines if you're not cautious. When determining how much time you can afford to live, one can weigh options including;
Mental Health Days (Believe me, all freelancers deserve them)
Number of days you are willing to work (whether you work only on weekends)
Number of days you free
If you've determined how many days per year you'll spend living as a freelancer, it's time to refine your focus and choose how many hours per day you'll work. Assume I decide to operate about 245 days a year out of 365. With this detail, I can calculate that I'll spend approximately seven hours a day running. Two hundred forty-five days of labor at a rate of 7 hours per day equates to 1,715 hours worked a year.
Besides, as a freelancer, each hour spent in front of a screen does not always equate to compensation. As a freelancer, you are your manager, which ensures you are still responsible for all of the activities associated with operating a small company. Calculate the amount of time that company administration activities such as reviewing email and making a cold pitch would take for every specific day. Subtract these activities from your running total until you've produced an estimation for them. This will calculate the annual time commitment.
Calculating the Costs of Doing Business
Money generates expenses; it's an unavoidable reality of life. As a consequence, it is vital to understand the distinction between annual sales and annual gains. Having a business incurs certain costs. This is the first costs to consider when determining the freelance rates. Overall, unless and unless those costs are deducted, you would not see a profit.
But what are business expenses? There are many costs, varying from the large, such as the computer you use and your office, to the small, such as task scheduling software and web hosting. Smaller costs can seem negligible at first, but they may quickly add up.
Self-employment taxes and the burden of self-insurance are two more important areas of business spending to include. In general, freelancers should set aside roughly 25% to 30% of their taxable income to prepare for tax season. Unfortunately, as a freelancer, you would be liable to both payroll and self-employment taxes, and the expense will cover both.
There are many things to consider before paying for your health insurance. Except with the most common plans, health care may be prohibitively expensive. Earn a Living the comprehensive post-Health Benefits for Freelancers: 12 Viable Options contains helpful information about how to plan for health insurance as a freelancer. It could be beneficial to you!
Take into account the Hourly Rates
Now that we have defined our annual target sales, the costs of doing business, and our yearly expenditure of time, it's time to get to what we all came for: measuring your hourly freelance prices. Doing this is straightforward enough and involves the use of a reasonably easy-to-understand formula:
Target annual profits + Costs of doing business / Annual Billable Hours Let's look at a case. Let's assume that our annual target revenue is $60,000. Next, we have identified that our cost of doing business is approximately $9,500 a year. We'll take both of these totals and sum them up, figuring up our annual profits of $69,500 a year. Next, we can split this amount by our calculated annual billable hours of 1,500 hours after subtracting the hours spent performing company administration activities. This total averages out to $46.33 per hour. This suggests that you'll want to charge each customer a minimum of $46.33 per hour to reach the taxable salary. Any situation in which you bill a customer higher than the minimum hourly wage is merely icing on the cake, further boosting the annual target revenue.
Bear in Mind the Worth of Your Services
Although we've offered a minimum hourly rate, it's crucial to note that not all freelance jobs will rely on hourly rates. How came it? Charging an overtime wage is beneficial while it takes labor. If not, you put a severe limit on one thing: time. There are only so many hours in a year to gain and limiting your wages to hourly rates drastically restricts your earning ability.
If you realize that the bulk of freelancers work less than 40 hours a week on average and that 79 percent of freelancers are making more money within one year of leaving their 9–5 jobs, you have to wonder how it's done. Stated, the alternative to this drastic rise in pay without further working hours is fixed-rate jobs. Fixed-rate roles rely on reminding the client of the project's cost, not on the period taken to complete it.
The real value of fixed pricing is how plans are distributed to consumers. Consider the probability of a single worker valuing $125 per hour. When you present this to a client, they'll wonder if it's worth paying $125 per hour for the work. Overall, they are inexperienced with the work method and may not realize how long it will take them to complete the task.
If, on the other side, you deliver an offer saying that the job would pay a flat rate of $375, the buyer is much more likely to approve it so that they know just how much they'd owe upfront. In one case, consumers pay what they think the time is worth. On the other hand, they pay your operation's whole expense. This also encourages you to start paying a premium on the same workload.
Therefore, it is necessary to keep your commodity in mind while setting your freelance rates. Ultimately, you decide your costs and worth of your capital and electricity. Remember not to undercharge the clients for fear of asking anything from them. How much money you make as a freelancer (and therefore your success) depends on your ability to consider your services' value.
Use the specifics in this article, follow the five steps described below to establish freelance rates, and continue with confidence. Confidence is critical in getting the gigs you need as a freelancer. If you're confident of the value, the customers will be too.