Scoring quality assignments is only half the battle. You also need to set appropriate freelance rates so that you earn a fair profit after paying all of your business expenses.
Freelancers usually get paid in one of two ways: by the hour or by the project. Negotiating a good hourly rate is the safest bet, because you won’t bear the risk that the project will take longer than expected. Then again, fixed-fee arrangements can prove lucrative if you’re an unusually speedy worker—and they’re sometimes reassuring for the company that hires you, as it tries to set a predictable budget. If an employer seems wary of an open-ended hourly fee arrangement, you might want to suggest a cap on your hours. For example, you might propose that if the project takes longer than the eight hours you expect, you will contact the employer before putting in any more time on it.
No matter how you charge, be careful not to undersell yourself. Remember, the hours you spend on a project don’t represent your whole investment in it. You’ll also have to pay all of your overhead and business expenses, from Internet access to Post-it notes. And then you’ll have to cover your own benefits, like health insurance. Your own time
is valuable too, and you’ll be spending a lot of it on unpaid tasks like billing and marketing. These must all be factored in when setting your rates, whether fixed or hourly.
Setting an hourly rate
Although you have the power to set whatever hourly rate you feel is fair, don’t expect to get hired at $80 per hour if every other freelancer in town charges $40 for the same work. Research other freelancers’ rates by perusing the online job boards or, better yet, talking to them personally. In setting your rate, consider whether or not you have the skills,
experience, or contacts that would let you charge more than others.
In case you take your job overseas: The word for freelance in French is travailleur; in German is freiberuflich (say that ten times fast); in Hungarian is szabadúszó (try saying that at all); and in Italian is autonomo.
Once you’ve set your hourly rate, make sure you’ll be able to make it financially as a freelancer. To do this, figure out the total number of hours you plan to work each week on average. Separate out your nonbillable hours (the time you’ll need to run your business and take care of things like bookkeeping) from your billable hours. You should figure that 25% to 35% of your working hours will be spent on nonbillable tasks. Then multiply your weekly billable hours by your hourly rate. This will give you the total amount you’ll earn each week. Multiply this by the number of weeks you plan to work each year and you will get your total annual income. This should be more than you would expect to earn as a salaried employee. That’s because you’re not done yet. Subtract from this the estimated annual overhead for running your business (your expenses) and the value of any benefits you are giving up or would normally receive as an employee. Now you’ve got a realistic idea of how much net profit (your income less expenses) you’ll make as a freelancer.
If this doesn’t put you in the ballpark of what you need to make, you’ll have to make some adjustments, either to your rate or the number of hours you plan to work.
Setting fixed project fees
With a fixed fee, you bear all the risk that the project will drag on for longer than expected. Before setting the fixed fee, carefully review the proposed project so that you understand what’s involved and how long it should take—factoring in plenty of room for error. You’ll also want to clearly spell out, in writing, the scope of the project. That way it will
be obvious if you are asked to do work that goes beyond the original project—and should accordingly be paid more.
Cap your risk. One way you can protect yourself from runaway fixed-fee projects is by placing a cap on the total number of hours you’ll work.
For more information on how to set your hourly rate or fixed project fees, see Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants, by Stephen Fishman (Nolo).