I continue to admire freelancers and solopreneurs.
The tenacity to stick with their craft, find clients, and make the financials work.
It’s not easy to get established.
Everyone says it takes 3 years.
From the outside, that seems crazy.
On the inside, you get it.
Many dive in to freelance thinking they will beat the trend …until they don’t.
I have stepped away from the corporate world twice.
The first lasted for three years until I went full time with my primary client.
The second is two years and counting.
There are many positive aspects of working on your own, but the financials are challenging.
Determining rates is something that is constantly in play.
My Lessons on Rates
Along my journey, I’ve messed A LOT on the pricing my work.
I’ve also gotten great advice from many people, podcasts and books.
Below are my Top 5 suggestions to help others.
The examples are based on a desired annual salary of $100,000.
1. Hourly Rates
No matter if you are billing hourly or bidding on a project, all calculations start with an hourly rate. Someone suggested the following formula for calculating a starting point: Pre-Freelance or Desired Annual Salary / 45 weeks / 40 hours. You might think you will work more than 45 weeks, but those 7 weeks cover administrative tasks you don’t get paid for, insurance you need to fund on your own, and any days off you want to take. This formula has and continues to work well for me.
Example: To determine your hourly rate, divide $100,000 by 45 (weeks) and then by 40 (hours). This results in $55/hour. You could also consider that, as a solopreneur you want to make this same amount working 30 hours a week. To achieve this, the rate would need to be $74/hour.
2. Day Rates
While some projects will bill hourly, you will sometimes be asked for “day rates”. You could consider efficiencies in pricing in your day rate. However, remember that the day could run short…. or long.
Example: Using the example above, 8 hours at $55/hour would be $440. You could use that number, go with $400 to provide efficiency for a full day, or set $500 as your day rate incorporating a small profit on a full day.
3. Fractional Rates
Fractional rates are offered to a business where you might contract to work 1-3 days a week every week. These rates are provided and billed to the client monthly.
Example: The fractional structure is a set number of hours each week throughout the year. Pricing is typically shown as monthly and annual amounts. For 10 hours per week, the agreement would be a cost of $2,200 per month ($55/hour x 10 x 4) and $26,400/year ($2200 x 12).
4. Efficiency Rates
In several of the summaries above, efficiency is measured. This is the consideration of offering lower hourly rates for higher volumes of hours. Some find this a good way to encourage clients to set minimum levels of engagement. Others find it simpler to just offer a flat rate no matter how many hours/days the project covers.
Example: For hourly, day and fractional rates, efficiency in the rate can be given for larger agreements. The example below illustrates efficiency for fractional employment. The same concept can be applied to hourly and day rates.
- 10 Hours/Week (40/month): $2,200 per month ($55/hour rate)
- 15 Hours / Week (60/month): $3,000 per month; ($50/hour rate)
- 20 Hours / Week (80/month): $3,600 per month ($45/hour rate)
5. Project Rates
Another type of billing is by project. There is a deliverable needed and you provide a price to deliver that piece of work.
The base number can be created by determining the steps of the project, estimating the hours of each step, and creating an overall estimate.
From there, you could work with the final number – moving the price up to cover administrative costs or moving it down to provide pricing efficiency for the size of the project.
Summary
There are no right answers in the pricing space.
Determining the value of your time is one of the most difficult aspects of the solopreneur journey.
And one of the most important.
Continuing to work with clients, present your offerings, and refine numbers will be ongoing.
You will begin to feel more comfortable and confident with the numbers as time passes.
Your Turn
Have you ever evaluated your personal hourly rate?
How would this be beneficial even if you are not currently doing freelance work?
Which types of structures are you drawn to – hourly, daily, project, or fractional contracts?