Freelance Hourly Rate Determined

Cash money

One of things I learned early on in my career as a freelance Web designer is the nausea that comes with determining an hourly rate. It’s a gut-check that makes you think about how much you are worth and what others think of your work once you tell them how much you charge.

Determining Your Rate

The first thing to do when determining an hourly rate is to start with a goal. For the sake of demonstration, let’s say you want to make US$40,000 per year.

Now, we need to figure out how much time you want to work for that year. The first step is to realize how much time you  do not want to work. What do I mean by that?

Actually, I mean a couple of things by that. The first thing is  figuring out vacation time and realizing that not every waking moment on this earth is billable. In America, we  typically take two weeks of vacation. That’s 50 weeks you will be working per year.

Another time factor to think about is your weekly schedule. Let’s not forget to exclude the weekends otherwise chores aren’t going to get done.

So, that gets us 50 weeks with five days of total work per week for a total number of  250 work days:

(50wks) x (5d) = 250days

Hours in the Day

Now that we have the number of days figured out, we need to move onto the number of hours of actual work done in a day.

It’s no secret, anymore. Not everyone actually works a full work day. Even if you are the best and most efficient freelancer, there’s going be time that’s not billable. You’re  going to need to make time to deal with taxes, internal management of computers, time to make the coffee (and the doughnuts), long phone calls to whomever about whatever, and then consider those trips to the office supply store, and so on.

Even salaried employees don’t work a full day as they have to have time at the water cooler to discuss important topics like Britney Spears or the Patriot’s winning season.

For the sake of argument, let’s say that every day you are able to bill 60% of a typical work day. If we assume an eight hour work day, that comes to about 4.8 hours. But let’s round that up for five hours to make the math easier.

Hours in a Year

Now, to get the full number of working hours worked in a year, we multiply the five hours in a day we would work by the number of days. So, that comes to 1,250 working hours:

(5hr/d) x (250d) = 1250hrs

Since we now know how much we want to make and how many hours we are going to work, finding the hourly rate becomes a simple matter of division. Take the amount you want to work and divide that number by the number of hours you are going to work in a year.

($40,000) / (1,250hrs) = $32/hr 

What’s Your Hourly Rate?

Now, you don’t have to stick with the salary I did. While we started with $40k/year, feel free to try different amounts and work your way backwards. Also, feel free to adjust the amount of hours you work in a day.

Need a calculator to figure out your hourly rate? Well, chances are you already have one handy if you use a Mac or Windows OS. Dig around your applications folders or you can use one of the many free caclulators online.

(Photo: AMagill)

12 thoughts on “Freelance Hourly Rate Determined

  1. Such a controversial topic, especially when potential clients ask that sticky question, “How much do you charge an hour?”

    It would be interesting to calculate your hourly worth when you’re NOT a full-time freelancer (i.e. your work is essentially a side gig). Do you raise your rate to compensate for the fact that the number of billable hours for you is diminished b/c of your 40 hr/week day job? Or do you hold steady, try to hit the geographic market rate, and accept the fact that you’ll never bill the hours that your full-time freelance friends will?

  2. One thing I have always heard is that if you are not a full-time freelancer, use whatever your overtime rate at your day job is (or would be) if you were paid hourly. I don’t take on side jobs so I wouldn’t know for sure how that would compare to the market rate.

  3. The problem I see with this formula is that it doesn’t take into account that freelancers need to make more money to sustain an equivalent lifestyle as a salary employee, as freelancers have a higher overhead (health insurance, higher taxes, office supplies & equipment, etc).

    But I guess this formula still works if you keep that in mind that if you make 40k as a salary employee, you should probably make $60k (give or take depending on where you live) as a freelancer. If you keep all the other variables the same in the formula, then you should be billing $48/hour.

  4. Keep in mind cost-of-living by geography too. $45k in Jacksonville or Charlotte or some other medium-sized city is one thing. But it’s totally different when you’re a freelancer in San Francisco, Chicago, or Houston, where cost-of-living is significantly higher and $60k gets you a one-bedroom flat.

    I don’t think you can make a blanket statement that $45/hr average works for all freelancers.

  5. @EricEllis: Not sure what to tell you about how to charge for side projects! Although, you could figure out how much you want to charge hourly for side work: Figure out how much you want to make a year in just side work and how much time you have–and then follow the formula I stated in the post to find out a rate that works for you. 🙂

    @ChrisGriffin: You’re right that freelancers should take into consideration various factors when determining how much they want to make in a year. The formula still works even if a freelancer wants an increase the amount they want to make in a year as well as how much or how little they want to work in a year, too.

  6. I am a sessions.edu student. I was just browsing your site. I want to be a freelance designer so this info is great!

  7. I live in a smaller community so my rate is still pretty reasonable considering what companies in larger centres charge.

    However, the more in-demand you become, and the more experienced you get, the more you need to charge. $35/hour is about right for someone starting out but as you become more experienced you need to put that rate up or you will become so busy you won’t be able to keep up. I charged $50/hour charged by the quarter hour for the last five years and just put it up to $60/hour. If this gets rid of some of my smaller clients, that’s OK. My bigger clients can well afford the hike and know my value to their enterprises.

    I made $60K last year – my best year ever, but I worked my nuts off. If I can make the same amount this year by working fewer hours – great!! If that sounds cynical, consider why you are working _ to do something you love, produce good work and yet not be overly stressed, or be a slave and burn yourself out?

  8. I’ve been looking around the web and have read tons of people answer this question by saying, “Whatever it’s worth to you”. That’s no help to those of us who have reached a point in our level of design experience that would love to test the waters of making a living out of doing what we love. Thanks so much for writing this, it’s been a great help!!!

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