How to Calculate Your Hourly Rate

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calculatorIf you’re new to freelancing or business ownership, you may be unsure about how to set your rates. Even if you’re a seasoned professional, it’s always a good idea to revisit what you charge as you get more experienced, when there are changes in your personal life that alter the amount of time you can work, or you experience some other business-impacting change.

Rate Calculator

If you like the idea of using an actual calculator, one of the best tools available is the Motiv Freelance Hourly Rate Calculator. It takes you through a series of questions about business costs, personal costs, billable time and desired profit, and spits out an ideal hourly rate and a break-even rate. The great thing about this calculator is that it’s really easy to fill out so if you want to play around with the numbers to see how they impact the final rate, you can do so quickly.

When you use the tool, you need to think in terms of annual numbers, and the more researched and educated your estimates are, the more accurate your ideal rate will be. Some information you may want to have in front of you when you use the calculator includes:

  • Rent or mortgage payments
  • Travel expenses
  • Computer, equipment and furniture costs
  • Software expenses
  • Professional fees
  • Office supplies expense
  • Advertising fees
  • Desired savings
  • How much you want to work
  • Any other expense you incur or expect to incur

Rate Forumla

If you prefer to do the math yourself, you will first want to develop a formula. About.com has a good analysis of what an hourly rate formula should include, from your desired salary, taxes, billable time and overhead expenses.

Another good source of information when developing a formula to determine your hourly rate is the article, “Pay Yourself Right When Being Your Own Boss,” on Salary.com. It’s also a great reminder than when you are self-employed, you are responsible for your own healthcare, insurance and vacation/sick time and need to factor that into your rates.

You should also check out “How do you rate?” by Neil Tortorella on Creative Latitude.

Now What?

Once you have an idea of a rate from a calculator or a formula, you need to apply it to the “real world.” You will want to consider the market for the services you offer and your experience. And don’t underestimate the emotional side of rate-setting. While you want to select a rate that is fair and acceptable to potential clients, you also want to be happy with the rate you select. Not charging enough can be a quick path to burning out and may create feelings of resentment and dissatisfaction if you feel you are being underpaid.

Setting an hourly rate is a very individual process, and sometimes takes a little trial and error to get it just right. So do your research, create a starting point and get out there and log some billable time.

Image credit: Vangelis Thomaidis

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  • jeremy.heslop

    Research is key. If you plan on working in a local capacity make sure you know what your competitors rates are. Don’t bend your rates to match them as much as making sure you are being fair to your clients for what you are offering. If you are offering a great service and you are in high demand then up your prices. If you are just starting out then be competitive. Once you get your price right you can go up from there.

  • nachenko

    The more skilled you become, the faster you work. The faster you work, the less you earn.

    Customers don’t like raising rates, but I don’t like earning less as a prize for my improving skills.

    What a problem!

  • http://www.rebeccahaden.com rhaden

    When I started working freelance, I talked with local copywriters, and they pointed out the importance of avoiding price wars. If one person works for much less than the rest of the members of the community, it makes everyone seem less valuable. Unless you really want to be perceived as the discount alternative, you have to keep the going rate in mind.
    On the other hand, I do some work through a freelance marketplace where there are service providers from all over the world. In such a case, there’s no point in trying to match prices, because our circumstances just aren’t comparable. There, the rate calculator can be a huge help, keeping us from charging rates that end up putting us out of business.

  • dmwalk

    I’m mystified why so many freelancers charge by the hour. I charge by the project. The faster I get, the more money I make. The average client doesn’t have a clue about hourly rates, they just want to know what their website is going to cost. All custom work I do, I charge by the project as well. Sometimes you might get burned if you underbid a project, but just be careful with your terms of service and specific project proposals.

    • http://www.avertua.com Alyssa Gregory

      dmwalk – Yes, many times it does make sense to charge per project, but how do you develop per project costs without knowing how long things take you and what hourly rate to base it on? Determining an hourly rate is usually the first step in developing per project pricing, unless you just charge arbitrarily for each project.

  • streetjammer123

    i have calculated my hourly rate after reading this , its around $18/hr :)

  • Anonymous

    streetjammer, I don’t know what you do or where you live, but your rate is way, way too low.
    But I also don’t know your skill level, so I guess I cannot really determine that.