Setting off on your own to work as a freelancer or consultant is a great way to broaden your experience and grow your network. Whether you’re planning on becoming a professional freelancer or simply looking for work between jobs, one of the most important aspects of freelance work is knowing how much to charge. Figuring this out will help you confidently negotiate your fee.
What should you be paid?
Keep in mind that your wage from your most recent payroll-based job represents only a fraction of what you need to earn.
If you’re making the equivalent of $20 per hour at your salaried, payroll position, you need to plan on charging much more than $20 an hour. Read on to learn why and for steps to help you determine your rate:
- Calculate your cost rate. Take your annual base pay plus bonus — in this case, we’ll say $50,000 and add 20 percent. This represents your benefits (social security, health insurance, etc.). Divide that number (in this case, $60,000) by the number of hours most people are available to work in a year, which is usually 2,000. $60,000 divided by 2,000 hours is a rate of $30 per hour.
- Calculate your lowest billing rate. Because it’s unlikely that you will work 2,000 hours a year (that’s just the nature of freelancing), add another 20 percent to your hourly cost rate. $30 x 1.2 equals $36 per hour.
- Calculate your average billing rate. As a rule of thumb, freelancers spend half their time marketing themselves and networking. It’s just the nature of the game. Therefore, they bill at twice their cost rate. That’s $30 times two, which is equal to $60 per hour.
Now, if you run a consulting firm or have additional overhead costs, it’s not uncommon to charge at 3 times your cost rate.
What you charge and the rate you negotiate depend on several other considerations. What can the market bear? How specialized are your skills? Will you charge per hour or will it be a project-based rate?
To learn more, contact GetFive for resources to help you answer these questions and succeed on your freelance or consulting venture.