If finding questions with a lot of different answers made me money, this question would be a goldmine. It seems every freelancer has their own formula for determining how much to charge. Rightly so – as your price can make quite an impact on your business. If you charge too much you’ll be less competitive, and if you charge too little you aren’t going to make money. Most freelancers charge their clients by either an hourly rate or a fixed “per project” or “per item” rate. Regardless of which method works better for you, it’s a good idea to establish an hourly rate that is going to keep your head above the water. You can then use this rate as a basis to establish fixed-rate prices.

Salary

To begin, you’ll want to determine an annual salary for yourself. Your salary should be based off your experience & location. Thankfully, salary.com has a nifty little wizard to determine the most relevant salary range based on your skill set & location. Once you’ve filled out your info, you’ll be taken to a graph that looks kinda like this:

Using this graph, choose a salary that best fits your experience. Don’t be modest, if you have the experience you certainly deserve the pay.

Overhead

Our next thing to take into consideration is Overhead, or the cost of doing business. Whether you own an office complex or you work out of your mom’s basement, it usually costs money to make money. Overhead can consist of:

• internet
• phone
• software
• hardware
• rent
• utilities
• advertising
• business insurance

And many other things (technically salary falls under this category too). In addition, your medical insurance, disability insurance, 401k and taxes, or fringe benefits, also fall into the overhead category. The salary wizard will also give you an estimation of these costs. Just click on the “benefits” tab:

Profit

You can choose how much profit you make – it’s a perk of running your own business. This amount is usually expressed as a percentage of total costs. This percentage is entirely up to you, and provides money for you to grow and develop your business. A profit margin between 10% and 25% is a good range. Go wild.

Billable Hours

Let’s go with the standard 40 hour weeks, holidays, and a 2 week vacation. That gives us anywhere from 1500-1800 billable hours depending on the holidays you want off. If you want more vacation or you think you’ll spend a considerable amount of time chasing jobs (not making money), you may want to reduce the amount of billable hours.

Crunching the numbers

I’ll use myself as an example. I’ve been developing websites for about 5 years, and I live close to the Allentown, Pennsylvania region. Web Designer, Sr. sounds about right, and that salary ranges from about 60k to 100k. Since I have 4 years under my belt, I’ll go with a salary of $80,000.

Then we have overhead. I’ll have to estimate what my costs are for the next year. I’ll spend about $500.00 for my internet, $1800.00 on hardware/software, $5,000.00 on advertising and about $20,000.00 on fringe benefits. I’m probably missing more, but this is only an example. I’ll estimate my overhead at $28,000

Now for my profit. I think I’ll make a cool 25% for growing my awesome business. To get this figure I’ll add my salary and overhead together, then multiply it by 25%. Doing this gives me a profit of $27,000.

And lastly, I’ll use 1600 hours for my yearly billable hours because I love taking time off. My salary, overhead and profit equal a total of $135,000.00. We multiply this number by 1600 to get my hourly figure, which equals $85.00. So basically, if I want to make my salary, pay my bills and grow my business, I need to charge $85.00 for every billable hour I work, or about 33 hours a week.

In the end

I can use this data to either run with it and charge by the hour, or use it to figure out set-pricing per job. Either way, I know what I need to charge to stay in business. It’s a little piece of mind that goes a long way.