Freelance Pricing Part 1 - Set Your Rate!

The Five Formulae

There are five formulae you can use to ascertain your hourly rate.

Formula 1 - The Basic Method

Follow these steps to figure out what your hourly rate should be.

1. Subtract nonproductive time from Annual Hours to get Billable Hours.


2. Add Salary and Overhead Together


3. Multiply Total By Profit Margin (10% - 20%)


4. Add Total (1) and Total (2) Together


5. Divide Total (3) by Billable Hours (the amount from #1)

For example, if the following is true:

• Salary = $30,000
• Annual Hours = 2,080
• NonProductive Time = 500 hours
• Profit Margin = 20%
• Overhead = $15,000

Then this is how you figure out the hourly rate:

1. 2,080 - 500 = 1,580


2. $30,000 + $15,000 = $45,000


3. $45,000 X 20% = $9,000


4. $45,000 + $9,000 = $54,000


5. $54,000 / 1,580 = $34 / hour

Formula 2 - The Easy Method

This formula is the easiest of them all. However, I don't recommend this formula unless you are a well-established professional. This isn't the way to start out your freelance business -- only very skilled freelancers can get away with this.

Ask yourself the following questions:

1. How much money do you want to make on this project?


2. How many hours do you want to work?

Now all you need to do is divide 1 by 2. It's that simple! You now have your hourly rate.

Formula 3 - Annual Costs and Annual Hours

Use this formula if you need to set the rates for your entire business.

Add up all the costs you incur through your business on an annual basis (and don't forget to factor into these your profit percentage), and divide this by the annual hours you work. This will give to you your pay rate.

1. Salaries + Overhead = Annual Costs


2. Divide Annual Costs by Annual Hours Worked

So for example, if the following is true:

• Salaries = $60,000
• Overhead = $50,000
• Annual Hours = 2,080

Then this is how you figure out the hourly rate:

200,000 / 2,080 = $52 per hour

Formula 4 - Pricing By Order Form

To price by order form, you'll need to use an order form to add up the cost of each ingredient in a project. I don't recommend using this method unless you're only designing simple sites that all have the same basic ingredients, otherwise, there can be too many variables in the project, which can prevent you using an order form. Here is an example of an order form you might use: