Freelancer Pricing 101: What should you charge per hour?

Your Guide to Finding Your Price

Setting the right price is extremely important as a freelancer. And that goes both ways.

If you sell yourself too cheaply, you're obviously losing out on revenue - but you're also hindering your ability to make a comfortable living from your passion.

And if you sell yourself too expensively - well, you're also missing out on revenue. Because customers will just say no. (If you want them to say yes, we've written about how to close customer meetings here).

Pricing is hard - one of the most difficult disciplines as a freelancer. So we've created the only resource you need on the subject.

Here's our big guide to freelancer pricing.

As a general rule, charge what customers will pay!

We recommend that you have a fixed, baseline hourly rate, a so-called list price, that you can present to your customers.

But we also recommend that you don't lock yourself into an hourly rate - and that you're always willing to negotiate.

Again: both ways.

You need to charge what you're worth - and what customers will pay. Therefore, start high in a negotiation phase. The customer has asked for a quote for a reason - they like you and they want to use you.

Test the customer's price limit. Make them an offer that you will be very happy if they say yes to - but one that is realistic to get a yes to. An offer with wiggleroom, so if the customer wants to pay a little less, it's still a good deal for you.

However, keep this in mind: You should only negotiate if you're willing to! If you don't want to work at the price the customer is willing to pay, say no.

Otherwise, it's likely to be a bad experience for both parties.

Are you a full-time or part-time freelancer?

Part-time, you can approach your pricing in 2 ways:

• Do you dream of quitting your job and living as a freelancer? Then you should charge a price that you'll be able to live on if you go full-time.
• Are you a freelancer looking for a little extra supplementary income? Then you can basically charge a lower price - or you can say, I only "bother" working when clients will pay my full price.

However, if you're a full-time freelancer, we believe you only have 1 valid opinion:

• "This is my only income - and I need to be able to live on it!"

This means you can't let yourself get eaten by discount schemes and friend favors. Remember: You are hired because your work is valuable. Charge a commensurate price for it.

How experienced and skilled are you?

There's a difference in how much you can squeeze the lemon depending on your seniority, skill level and ranking within your niche.

If you have a unique reputation in the industry and an excellent track record, you can charge a premium for your services that is significantly above the market price.

Of course, you can only charge this premium if customers will pay for it. But they usually will if you're an industry leader.

If you're brand new and unknown, the most you can generally charge is the market price. Often, you may feel pressured to price yourself below the market price, and it can also be a good idea to close the first customers and get a foot in the door.

But it's important that you get to a good level relatively quickly - preferably minimum market rate. Your dream is to make a living as a freelancer, and you can't do that at a reasonable level if you're working at half price.

The methodical approach: Calculate backwards

What does a salaried employee with your skillset earn and what is the converted hourly rate for 37 hours a week? And how much should you multiply this hourly rate by to find your hourly rate as a freelancer?

As a general rule, multiply a salaried employee's hourly rate by approximately 2.5 to find a suitable hourly rate for you.

We must emphasize that this method should only be your starting point - as mentioned in previous sections, every negotiation is individual and your price also depends on whether you are better or worse than the rest of the market in terms of competence.

Let's say you are an IT consultant and a permanent IT employee with your seniority earns 50,000 a month and works 37 hours a week. This gives an approximate hourly rate of 312.

If you multiply this hourly rate by 2.5, you get 780. This gives you a good starting point for an initial hourly rate that you can adjust depending on how the market responds to it.

Getting too many customers? Increase the price (or consider your first hire).

Are you getting too few? Consider lowering it - or look at other weaknesses in your business model.

Need more help with price calculation? Look no further - we've developed our very own price calculator that gives you answers to everything from annual salary to ideal hourly rate.

Fixed price or hourly rate? What should you choose?

Both - must be the annoying answer.

If it's a defined task, you can provide a project price. However, the project price should be based on your hourly rate as the scope of the project depends on the number of hours you expect to spend on it.

If, on the other hand, you are a permanent consultant and the tasks vary from month to month, it doesn't make sense to give a fixed price. In this case, a total monthly invoicing based on hourly rate and hours worked will often be the most obvious option.

If you quote a project price for a large project, remember to include a good margin (i.e. set the price high) in case the customer proves to be difficult or the scope of the project gets out of hand. Or both.

A combination can also be a good option in these cases - a project price that covers the agreed work and an additional hourly rate if the work goes beyond the agreed work.

You can't bill all hours!

If you can bill an average of 75% of your hours, you should be happy. As a freelancer, you'll need to dedicate a significant amount of work to the following, among other things:

• General administration - updating website, purchasing systems, non-billable communication with customers and partners
• Promote yourself - on e.g. LinkedIn or at networking events
• Sales - outreach to new customers and customer meetings
• Bookkeeping - income, expenses, annual reports and more

And all sorts of incidentals that will inevitably crop up. Therefore, your hourly rate simply has to be at a level that can cover this "free" work - and of course your expenses.

You have a number of expenses that your hourly rate should cover

Keep in mind that as a freelancer, you need to pay for the following:

• Holidays, days off, maternity leave and illness - you won't make money when you can't bill hours
• Pension
• Office rent
• Travel and transportation
• Fixed expenses such as computer and various programs
• Advertising and publicity
• Training and courses

All this is something to consider when you look at your hourly rate and think, 'that's really high!

Because in reality, it's not.

Still unsure of a suitable price? Ask your colleagues

It's important to know an approximate market price before you make your agreements. The customer is likely to think you're frivolous (or exceptional) if your hourly rate is 1,500 and the market rate is 600.

How do you find the market price? Of course, you ask those who do what you do - your competitors/colleagues in the industry.

Some have hourly rates, price packages and price examples on their website, which you can use as a starting point.

But it's one thing what's on a website - it's another thing when it comes to actual price agreements. The two figures can be very different, which is why an honest conversation between two industry peers is so important.

Remember: It's very difficult to negotiate your way up once you get started

It can be tempting to give a discount to close a new customer. "It's just here at the beginning," you both say.

But when will you get the price back to normal later on? It won't be the customer who suggests it (we can guarantee that). And so it will be you who will ruin the good mood.

Be aware of this before you make big discount deals with new customers "just" to close them and get them in the customer directory.

That said, it is possible to raise the price for existing customers. It just requires a little finesse.

When does it make sense to raise your price as a freelancer - and how do you do it?

When you have enough customers, you can raise the price for new customers - and consider doing it for existing ones. That's the short answer.

You should never raise prices for existing customers without dialog and clear agreement. Customers like as few surprises as possible - especially when it comes to budget. Remember to do it in a very proper and polite way - especially if these are some of your first customers who have been with you through thick and thin.

That being said, a price increase will (almost) always result in customer churn, as not everyone is equally elastic when it comes to price. Therefore, you need to decide how you're going to handle the inevitable rejection that will come with a price increase.

A dialog about hourly rates can take place in this way, for example:

"Dear [name of customer]

I have been and still am happy to work for you, and you know how much I appreciate that you have chosen and continue to choose me as your supplier.

When you took me on, we started at an hourly rate appropriate to my level at the time. Since I started, I've developed a lot, including helping you reach XYZ.

A natural development in the market and an increased level of competence on my part means that my price per x.x. increases from the current XX to XX +10%.

If this price regulation puts an end to our collaboration, I am open to a dialog about your specific needs and can most likely point you in the direction of a specialist who can deliver at a lower budget. 

Of course, I hope to continue working with you and help you get closer to your goals in the future."

With this approach, you achieve several things:
- You praise your customer and emphasize that you appreciate the collaboration.
- You also draw a line in the sand and draw a comparison between your old and new professional self.
- You announce a price increase so your customer doesn't experience any unexpected surprises.
- You have your customer's best interests in mind. If they want lower quality, you can help them out. If that's the case, you were doomed to part ways anyway.