What? You don’t have a minimum hourly rate yet? OK, don’t panic! This is easily fixable, as long as you realize the importance of setting such a rate as a freelancer.
Your minimum hourly rate is the rate under which you will never ever accept a job offer.
Depending on the project specifics, you can always change the rate during the negotiations to reflect the specific project scale or complexity of the tasks involved. But it’s important you set the bar correctly (if you want to make a good living as a freelancer, that is).
Here’s a quick formula you can use to calculate your minimum hourly rate:
This formula will give a different result to everyone because we all live differently. Also, location heavily impacts our living costs as well as due taxes. And let’s not forget that the minimum hourly rate for a starting freelancer naturally is lower than for an experienced freelancer with a proven track record whose skills are in high demand.
To show you how to use this formula, let’s see how it applies for me at the moment.
Personal expenses—
This is the money I need to pay my rent and bills, buy food, clothing, and alike. For me it’s roughly $10,000 per year.
Business expenses—
These would include software licenses and recurring payments, internet bill, office space (if you don’t work from a home office), accountant services, and alike. For me it’s roughly $2,000 per year.
Other expenses—
Put here anything that is not of necessity for your well-being right now but you either want to have it, or will need it later in your life. For example, massage or a beauty procedure on a regular basis, maintaining a car, skiing as a hobby during winter months, a travel fund to cover expenses for a monthly trip, retirement fund or other savings, etc. I put in this section also the fees I need to pay for getting paid—e.g. Upwork, PayPal, Payoneer, Skrill and bank fees. For me these other expenses amount to roughly $20,000 per year.
Hours worked—
If you intend freelancing to be your single source of income, you can decide how many hours a week you want to put in to work on clients’ projects. There are plenty of successful freelancers who work forty or more hours a week. There are many who choose to work only a few hours every week. I am at the stage when I work about fifteen hours on clients’ projects, and I usually do so for fifty weeks per year. (I travel so much that I rarely go on a vacation without my laptop and without doing anything for clients; I simply can’t make myself stay away.) This amounts to 750 hours per year.
Tax—
As I said, this is something which relates to your location as laws and regulations differ from country to country and from one type of entity you operate under to another. Let’s say taxes are roughly 20%.
So now we have the following formula:
This makes my minimum hourly rate $51.20/hour. This is the minimum hourly rate I have for new clients right now. Should my living situation change in some way, e.g. higher rent, more business expenses, desire to work less hours on clients’ projects, etc., my minimum hourly rate would change accordingly.
You should do your own math to find what your minimum hourly rate is at this moment and at this stage of your life and freelance career.
You are probably wondering how you could possibly come up with exact numbers of your personal or business expenses on a yearly basis right at this moment. You are right, you couldn’t. But neither could I.
The above numbers are estimated and are based on past experience. This formula will do a good enough job to help you figure out your minimum hourly rate. You can freely charge more depending on each project’s specifics.
Don’t get too hung up on it though. You cannot pinpoint an exact number for your minimum hourly rate but guess what—you don’t need to do that anyway. If you commit right now to succeed as a freelancer, there is a great chance that you will be charging at least a 20% higher rate in six months than you do now. So your minimum hourly rate then would be, even should be, different from your minimum hourly rate right now.
In my own freelance career I’ve always set my rate to what I would like to earn, and as my knowledge and experience grew, I kept sliding it upwards. Besides, if more freelancers would stop setting rock-bottom rates, the playing field would be more level and everyone would get paid better rates.
Just make sure you don’t set your minimum hourly rate at $10 per hour if you want to be hired at $30.
Remember who you are, what you do best, what you are worth and how much you want to get paid for your skills and expertise. Do not sell yourself short. Find your comfortable level to get started and stick to it.
P.S. Buy on Amazon my book, Diana’s Freelance Tips – How to Succeed on Upwork and Elance, for more strategies and tactics on how to succeed as a freelancer.
Great article Diana! However, the 10$/hr is a good start when you do not have a portfolio to show. My still lacks but it will improve eventually, I am sure. I know what I can do and what I have to improve. If I go for 25$, I guess I will stay with the same projects, especially in UpWork or Freelancer.com
What about different clients & countries? Same rate?
Hi, Alexander – $10/hour may or may not be a good level to start. It totally depends on the person and their skills. The important thing is to find _your_ comfortable level to get started and stick to it; and then to adjust your rates as time passes and your experience grows, and skills – improve.
And to your question – what a great question!
The location of the freelancer or the client doesn’t really matter, or at least – it shouldn’t. If you are say Mexican and you work ONLY with Mexican clients (because you don’t know English, for example, and you are limited to work on your local market), then yes – the prices on the local market will pretty much dictate how much you can charge. However, if you are good at what you do and you have no limitations as to what clients you can work with (e.g. US, Canada, Australia, Western Europe, and other well-developed countries) then where the client is located shouldn’t dictate how much you charge. The Mexican client slightly falls off your scope of target clients IF they cannot pay as high rates as the clients from developed countries.
You have certain skills and you price your cervices at a certain level. If somebody cannot afford to hire you – that’s their problem, not yours.
There are plenty of clients who are willing to pay top dollar for high-quality work. Freelancers should NOT price their services based on location or how much the client can pay. The leading factors should be who you are, what you do best, what you are worth and how much you want to get paid for your skills and expertise.
Does this answer your question? 😀
~Diana
While I agree that rates should not be based on a client’s ability to pay, I do think other factors might have some weight. Like what the market will bear, or a range that is acceptable to the current marketplace. In some cases, one may have to adjust what they would like to earn to what the market will bear.
I totally agree, Jacquie – the trap that many freelancers fall into though is charging too low only because they live in a low-socio economic country.
Like the country I was born in (but I am sure the example is valid for many other countries around the globe) – the rates that the local market will bear are VERY low compared to US market. For example, the going rate for writing a 500-word article is most often around $5-$10; it takes a lot of talent and years of experience and stubbornness to work at normal rates on the local market. Many never do, they consider this the norm.
However, if you can charge north of a hundred USD per post on a global level (working with people outside the local market), why would you work for $5 per post only because that is what the local market can bare?
That’s what I am drawing the attention to and that is also what I was trying to convey as a message in my previous comment.
If for some reason you *must* work on a local level, the rate that the local market will bare is a leading factor. But if you can work with whomever you want anywhere, then you can charge as high as you are able to sell yourself and our skills, regardless the local market going rates.
Hope this helps those who are reading through the comments and getting more and more confused about their pricing strategies 😀
~Diana
Great article, Diana!
One has always have to take into account many factors and you have enlisted them quite well. I believe one has to have a reasonable minimum and stick to it. Otherwise, nobody will respect his/her services.
Cheers,
Svet
Well said, Svet – self-respect and ticking to what you are worth is the first step if you want others to respect you as well. Thanks for stopping by!
~Dana