Knowing how much to charge somebody is easy for full-time jobs—it was figured out the day you were hired. What if you have a job, but you’re also working freelance: on the side, on weekends, or for one-off projects? It can seem much trickier, but there’s actually a simple way to figure out your rate.
I went from jobs in newspaper writing, where the pay is very stable (no matter how many hours you work!) to Lifehacker (as an independent contractor, but with a set rate) to freelancing full-time. Like most things in my career, the beginnings involved fumbling around, guessing, and sending apologetic late-night emails to editors.
Looking back now, however, I think there were was a much more simple means of figuring out my rate.
In August 2011, Melanie tackled this same question, but with a notably different approach. Melanie approached freelancing like setting up a business for yourself: figure out your operating costs, average billable hours, dividing those figures, factoring in profit and taxes, and keeping track of important details. Toward the end of her post, Melanie wrote:
You can try several other methods for setting your rate, such as marking up your current salary … or just dividing how much you want to earn by how many hours you’ll work, but I wouldn’t recommend them because they’re not realistic; they don’t take into account your everyday expenses or account for long-term success.
It’s hard to argue against setting up good estimates in a spreadsheet and using math to figure out your operating costs. That’s the kind of thinking that gets you some kind looks and firm handshakes from bankers and business owners. But some people may not be jumping into freelancing full-time. For a side gig, a weekend project, a half-time schedule, or one-off job, setting up your long-term business plan can seem intimidating and overly complicated.
So do what I (eventually learned to) do: apply for your own fake job, with your real credentials, and negotiate with yourself to figure out what you should earn.
Step 1: Know Your Actual Expenses
Even if you aren’t creating a home office and obtaining a DBA and reading books about marketing, you still need to know what your costs are going to be before you ask for money. Most importantly, you need to know what your tax rate is going to be for the self-employed income you earn. The rate changes every year, but Bankrate.com has a handy calculator.
The rough number I always hear freelancers and self-employed types use is 30 percent. That is, expect to give back 30 percent of what you earn in taxes and miscellaneous fees, so charge that extra 30 percent to clients. And plan to do that in quarterly estimated tax payments, or else face a small but painful penalty at the end of the year (and a not-so-nice tax surprise). It’s not a bad number, but it doesn’t apply to everyone, especially those who joint-file their taxes with spouses.
You can take expenses off of your freelance income, such as qualified business travel and meals, equipment you need to buy, and the like. But if this is a side gig, and you’re mostly using your home and your personal computer to work, you will mostly just earn some side income and have some of it taxed. Once you know that, you’re ready to interview yourself for your freelance job.
Step 2: Make a Fake Resume, Interview for Your Kinda-Job
Want to drive yourself crazy, alienate friends, and seem completely unprofessional? Start asking around to every freelancer you know about their rates, ask people “how much would you pay” for services, and try to figure out exactly how much you should charge, based on a very vague idea of how many hours the job will entail.
Want an easier way to figure out what you should charge for your freelance side/weekend/one-off work? Figure out what kind of worker you are. For your Actual Job, you created a resume, you applied, you pitched your skills in a letter and/or an interview, and you negotiated your salary, based in part on what skills you were bringing to the table, versus how much of your work would involve winging it and learning on the fly.
This is why interns are paid a certain small amount (if at all), and why professionals at the top of their field are haggling over things like jet access and ocean-front time shares. When you’re negotiating your freelance rate, why not ask yourself what kind of job you’d be applying for if this was a full-time position, and what would that job pay? It’s good advice I received when I asked designer Nicholas Barone about new work I was taking on.
- Figure out what kind of job you could get, at this firm, in this field, with the skills you’ve built up.
- Figure out what kind of salary would make sense for you to earn at that gig, if you were working full-time.
- Add roughly 30% onto that salary, given the taxes you’ll be paying (or use the calculator.
- Ask for that amount, divided down to an hourly rate (yearly rate, divided by 52 weeks, divided by 37.5 or 40 hours or whatnot).
If you have more than one freelance gig, or you’re freelancing in a field that’s slightly outside your main field, you’ll have to do a bit more pondering. I mostly write for web-based publications about technology, so when another site comes along, it’s not too hard to extrapolate to an hourly or per-piece rate. But when someone asked me to do one-on-one computer setup and consulting, I had to figure that out. If I opened up my own shop as a fix-it computer consultant, how much would I want to earn, to live where I live and not eat off the 99-cent menu every night?
Step 3: Be Prepared to Negotiate the Little Stuff
If you think you’ve come to a realistic number for your hourly rate (or your per-piece/project rate, given a realistic time estimate for that piece/project), you’re still not quite there. There could be bits and pieces of a freelance agreement that necessitate moving the number up or down. Retaining the rights to your own work, for example, or being required to take part in long meetings (hint: they are all long).
In general, though, doing work on the side can be a simple calculation: I’m doing this work, and I think I’d get paid X amount to do it full-time, so here’s what you should pay me to make use of my limited extra-hours time to do it for you. It’s an easier way to respect yourself and your monetary worth.