Here’s how the recruiters will calculate it.
By Ellyse McCallum
Photo by Alexander Mils on Unsplash
It’s that dreaded question freelancers squirm at when talking to a prospective client — what’s your rate?
It almost feels like a trick question.
If I charge a higher amount, am I making it harder to win clients? Do I even want to work for clients who are not prepared to pay my full rate?
Or, is having a lower rate a deterrent that infers my quality of work is a reflection of my rate?
Am I worth more than this? Am I getting ripped off? Am I in way over my head?
Knowing what to charge as a freelancer can become all too confusing! It’s time to figure it out once and for all.
We All Make Mistakes
I’ve done freelance work on and off over the past five years and I’ve definitely learned a thing or two from the early days.
I started working for a small not-for-profit full-time after getting my degree, but because my wage was so low at this particular workplace, this meant that when I started freelancing I set my rate at a price much lower than what my skill set and time was actually worth.
As time went on and I picked up new clients, I had more confidence in raising the rate — little by little. After all, by the time tax rolled around I wasn’t making much.
I even helped out family friends who needed marketing help and gave them fixed-rate packages — in the hope that it would be a win-win for everyone. Well, my time was definitely the loser in those scenarios.
Putting a price tag on your skill and time is a challenge. It’s a conversation I’ve had many times with family and friends who freelance, and they all question what’s appropriate.
It wasn’t until I spoke with a recruiter when I found myself looking for work that I fully understood how they calculate rates for contractors.
How a Conversation With a Recruiter Created Clarity
Where I come from (the land down under), contractors and freelancers will typically earn more than individuals employed full-time.
Why? Because there are no overhead costs for the company. If you’re sick, you don’t get paid versus a permanent employee who is entitled to a certain number of paid sick days off. This also includes covering healthcare or holiday leave and any loading paid on top of it.
As a freelancer, this means that you can reasonably request up to 15–20% more than what you would expect to be paid as a permanent employee.
If you have a think about your annual salary expectations, it’s a good idea to work back from there.
But here’s the mistake many of us will make when it comes to calculations.
Agencies will usually divide income to determine the day rate by 220 workdays per year to calculate the yearly pro-rata rate.
Let’s say working full-time I would expect to earn a salary equivalent to $90,000 (including tax).
Add on 17% and that equates to $105,300.
Divide this by 220 working days and there you have it — a rough standard day rate of $480.
If you choose to divide this by an hourly rate and it’s a little lower than you think you should charge, you can still increase the price.
However, using the above guide is a good place to start for marketers in terms of calculating rates and understanding what is reasonable.
Do some research and take a look at what income your type of role would usually make, and then you can confidently at least set a rate 15–20% higher without (hopefully) raising eyebrows when you quote.
Besides, if a client comes back to you after you’ve proposed a rate, you’ve got a reasonable explanation as to how and why the rate has been set. You’ll never be able to negotiate up—but you can always negotiate down.
What Else To Consider When Setting a Rate
Adding on 15–20% to an annual wage and calculating it accordingly is helpful, but there are other expenses you’ll need to account for when freelancing, particularly for marketing roles. All of these will influence your rate.
Insurances and healthcare
Depending on where you are in the world, you may need to pay for insurance to protect yourself — like Workers Compensation, Professional Indemnity, and Public Liability. These all add up and aren’t costs that regular employees need to worry about. But, as a freelancer, you need to make sure you have this sorted. The same goes with healthcare options in countries where it isn’t accessed freely. In the United States, many employers will use healthcare as a benefit of employment, but if you’re a lone wolf you’ll need to fork out the cost yourself.
Tax, retirement, and business expenses
Don’t forget to set aside income for tax, retirement (in Australia we have superannuation, 401(k) in the USA), and operational expenses to run your business. Plus, you have to make sure there’s finally enough left in your pocket to pay your bills and live a little.
It’s also reasonable to expect that different cities in your country will have different rates — particularly when the cost of living comes into play. If you live somewhere where it’s expensive to survive, make sure you account for this in your rate! If you’re from New York City, let it be known that you are a NY-based freelancer.
Your experience and education
How much experience do you have?
What portfolio is under your wing? Are you trained?
If you have valuable experience this should be accounted for when you charge clients. Think about it — how many hundreds, if not thousands of hours have you spent perfecting your skill? How much have you financially invested? If you’ve had to study there’s no doubt you owe someone a debt.
Clients are paying for all you have acquired and learned up until this point — not just a few hours of work in a field that you became an expert in overnight. Plus, the value of the work to the client is an important one for the rate.
You are allowed to charge for your expertise and don’t feel guilty for it.
How To Unexpectedly Delight Clients in Negotiations
So you’re either told that your rate is too expensive, they can only afford you for a certain number of hours, or they’re trying to barter you down.
Generally, smaller businesses, charities, or startups without the resources to pay a higher premium will fall into this category.
Just because someone can’t afford your full rate, it doesn’t mean you have to permanently lower your price. If you really do want to win a particular job and are prepared to take the pay cut for future opportunity, you’ve got two main options:
Discount the rate, and let the client know it’s discounted in your invoices through the product or service description. That way your official rate hasn’t gone down, but you’re happy to help them out on this occasion or for the contract period.
2. Don’t discount
Don’t discount your rate, but rather, charge your regular rate and the hours they can afford and tell the client that you won’t charge for any extra work you do on top of what they can afford or offer. If you actually discounted your rate, it would have been the same overall payment anyway, so you can always give the client a little bit extra to account for this.
Then, on your invoice, charge for the full number of hours worked and include the discount, wiping off the hours of work you’ve given to them for free. It’ll make the client feel like you’re giving them real value through your discount — leaving a pleasant experience with you and your personal brand.
Knowing what to charge and how much you’re prepared to work for is an ongoing process that will always change.
When you look at it from a practical standpoint, adding on a minimum 15–20% percentage for a client is reasonable, plus accounting for overhead costs that employees don’t pay for will influence your rate. Don’t forget that people are paying for what you bring to the table, and if it’s unique or a well-developed skill set, don’t feel guilty about charging for it.
How did you determine your rate?
Please share with us in the comments!