How to calculate your freelance rate

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When I started working freelance I had no idea what was an acceptable rate to charge.

I knew what I used to earn as an employee and how much I needed to survive, but not what I wanted – or even could – charge.

What we sell

To better gauge what to charge we first need to have a clear understanding of what it is that we sell. Although most of us think we are selling skills or services, in all probability you're actually selling two things: your time and your expertise.

Knowing we are selling time helps us take control of what we are charging. It helps us realise that time is a finite commodity. Then, once we know how much time we need, we can figure out how that can be broken down into billable chunks. 

One of the most common mistakes to make is taking on too much work. Whether that is down to underestimating how long something will take, schedules slipping or simply an inability to turn down a project, taking on more work than you have capacity to complete can be one of the biggest barriers to being profitable. 

So the first thing we need to know is how much time we have available. My grandmother always said there were 365 usable days in the year. However, in reality we only have a fraction of that available to work. Once we consider weekends (104 days), then factor in 10 per cent of the remaining time spent on management and sales (26 days), 10 per cent spent learning new skills and keeping up to date with tools and techniques (26 days), 10 per cent spent on time off (26 days) and 5 per cent on sickness and things you cannot plan for (13 days), then we are left with 170 days – less than half of the year. 

This means that if you considered your daily rate based on what you want to earn, divided by 365 days, you need to double your rates from the outset. And that's without even factoring in quiet or idle periods.   

Valuing your time

When we are in the business of selling time, the only way to know how much to charge is to monitor how long things take.

Rachel Andrew at Perch has written about the problems in accurately estimating time. "It comes down to discipline. Being disciplined in approach doesn't seem to be very popular!

"There is no magic behind learning how long things take. You have to start to log the time you spend, including the time you spend not getting down to work, to be able to make those projections," she explains.

"That process can be quite uncomfortable. If you log the way you spend your time for a few weeks you see in black and white how much time is spent messing about before actually doing any productive work."

Accurately knowing how much to charge means having a clear understanding of how much time is spent on what you do, as well as how efficiently you use that time.

The Pomodoro Technique

Breaking your work down into bite-sized pieces can help make you more productive with your time.

"The Pomodoro Technique is a great way to get down to work," says Andrew. "But also to log whether your time estimates at the beginning of the day were accurate."

At the beginning of the day, break your task list into 25-minute sprints of work (known as 'Pomodoros'), and write down how many sprints you think each task will take. At the end of the day you can see whether your estimate was accurate.

"Do this for a week or so and you'll soon see a pattern of which tasks you tend to estimate incorrectly. Logging your time is the best way to get good at estimating time," adds Andrew.

Measuring time is a critical tool to help both freelancers and agencies get better at gauging work and ultimately at being more profitable.

Words: Cole Henley

Cole is a tall, bearded code minstrel, technical director at digital agency Mud and web design lecturer at the University of Greenwich. Follow him on Twitter at @cole007. 

Want more advice on how to price your work and build a profitable design business? Don't miss Brad Weaver's session and workshop at Generate London on 21-23 September. Get your ticket now! 

This article was originally published in net magazine issue 266.