How to Set Your Rates as a Freelancer
Freelancing should be priced like a business, not a side hustle.
Most freelancers do the same thing when they set their project rates for the first time: they guess.
It seems like a reasonable starting point... until you realize that this method doesn't reflect what it actually costs to replace a full-time job.
Freelancing should not be a cheap alternative to an employee. Companies gain other benefits by working with freelancers, such as flexibility or specialized skills.
As a freelance fintech writer, I work far less than a full-time employee for any one client. But if you take my rate and calculate it based on full-time hours, I'd earn more. It's a win-win: the company isn't committed to full-time hours, and I can set a higher rate.
That's how you should think about your rates: the company is still saving, but it's 100% ok to charge more than a full-time professional with experience in an equivalent role.
Start with your last salary (or a typical salary for the work you’re doing)
If you've worked for an employer in your industry, your previous salary is the easiest anchor point. It already reflects market demand for your skills (assuming your employer was paying fairly).
If you’re pivoting into freelancing from another field, look up typical salaries for roles in your industry. Sites like Glassdoor, Payscale, and the Bureau of Labor Statistics can give you a solid range for roles like content marketer, technical writer, or designer.
For example, if you earned $85,000 as a full-time employee, that $85,000 becomes the baseline before you make any adjustments.
Anna Burgess Yang
Add the value of benefits you used to receive (or would expect to)
Full-time employees receive far more than a paycheck. You need to look at total compensation, because that's the total cost to an employer to hire a full-time employee in that role.
Typical benefits in the United States include:
- Health, dental, and vision insurance
- Life and disability coverage
- Retirement contributions like a 401(k) match
- Professional development or a learning stipend
In addition to not paying a salary, the employer is saving on these additional costs. Health insurance alone can cost thousands of dollars (for the employer's portion), depending on the plan and number of people covered.
Let's say the employer offers a 5% match for 401(k) retirement. The employee earns a salary of $85,000 and contributes 5%. The employer's matching contribution is $4,250 for the year. Now it costs $89,4250 to employ that person.
You can safely tack on an additional 15 - 20% to the baseline to cover the cost of additional benefits. Or you can use real numbers, if you previously worked for an employer and know the amounts.
Add employer-paid taxes
When you’re an employee, your employer covers half of your payroll taxes. When you’re a freelancer, you’re responsible for the full 15.3% self-employment tax yourself: 12.4% for Social Security and 2.9% for Medicare. Depending on where you live, you may need to account for state income taxes as well.
Your clients don't have to pay your taxes when you're a freelancer, so that's additional savings for them. This tax (half of 15.3%, or 7.65%) needs to be added on top of your baseline.
Anna Burgess Yang
Add a buffer for business expenses and overhead
As a freelancer, you have to pay all costs to operate your business. You'll have ongoing expenses, like your laptop, software subscriptions, website hosting, and any memberships. You may also pay things for costs like attending conferences or advertising.
Employers are paying those costs for employees. They provide equipment and pay for access to any tools the employees need. They send employees to conferences and pay for ongoing education or training.
You need to add the cost of your overhead to your baseline. Undervaluing or ignoring these costs doesn't make you more "affordable" as a freelancer — it just makes it harder for you to build a sustainable business.
Calculate your fully loaded annual freelance cost
Now it’s time to bring everything together.
The Freelance Rate Formula:
- Salary baseline
- Benefits
- Employer taxes
- Business overhead
A simple freelance hourly rate formula is:
Once you calculate this number, you’ll know what it actually costs a company to replace a full-time compensation package.
Convert your total annual cost to a realistic rate
With your total annual cost in hand, now you need to convert it to the freelance rate you'll charge. This might be an hourly rate, a day rate, or a project-based rate.
Let's say your annual freelance compensation target is $100,000 per year, once you factor in all of the employer costs. To calculate an hourly rate, the formula would be:
If you're charging for a project, you can estimate how many hours it will take you. If the project will take you ten hours, then $48 x 10 = $480.
But here's the part most freelancers get wrong: they use total hours worked, not billable client hours.
You may work 40 hours per week, but only 50% of that time is spent on client work. The rest is spent on marketing, meetings, client management, and admin tasks.
If you calculate your pricing based on the total hours you work, not your client billable hours, you'll end up earning far less than $100k per year.
So instead, you should take the compensation target, and do the math for client hours. If you spend 50% of your time on client work, the freelance hourly rate formula would look like this:
Think of it this way: employees also spend a lot of time doing work that doesn't directly earn money for the company. They may have reports to fill out, internal meetings, or update internal project management systems. None of these are "revenue-generating" activities, but the employees are still being paid for their time.
Anna Burgess Yang
Adjust based on market realities and your services
Once you calculate your baseline rate, refine it based on the type of work you do and the clients you serve.
I specialize in fintech, which is a really specialized industry. Not many freelancers have the same expertise I do. Other industries, like healthcare or cybersecurity, are the same. Any industry that's highly regulated or complex can command higher rates.
In addition to industry, you may want to account for:
- Retainers (charging less for long-term commitments)
- Type of deliverable (what is the client receiving?)
- Rush fees
Your freelance pricing structure should reflect both the work and the value provided.
Price like a professional, not a hobbyist
Setting your freelance pricing isn’t about guessing or undercutting the market. It’s about understanding the full cost of providing professional expertise as a business owner.
You’re not simply charging for client deliverables. You’re charging for your experience, your judgment, your processes, and the infrastructure that keeps your business running.
Keep in mind that you can (and should) raise your rates. As your experience grows and your costs change, revisit your rates annually. You should also take external factors into consideration, such as inflation or the increased cost of living. A sustainable business has pricing that reflects reality.
Freelance pricing is hard to figure out,
but I’ve created a free resource for fellow writers.
FAQs
How do you set your freelance rates as a beginner?
Start with the full-time salary for your role (or a similar one), add the value of benefits and employer taxes, and then include your business expenses. Divide by the total billable hours you expect to work to get a sustainable rate. Even beginners should use this formula, otherwise you might underprice yourself.
What’s the difference between billable and non-billable hours?
Billable hours are the time you spend directly on client deliverables and can invoice for. Non-billable hours include everything else that keeps your business running, like marketing, admin, client communication, and financial management. Freelancers typically have far fewer billable hours than total work hours. Your pricing should reflect your total work hours.
How often should freelancers raise their rates?
Most freelancers revisit their at least annually. You should also revisit your pricing whenever your expertise, the demand for your work, or cost of doing business increases. It’s normal to adjust pricing as your skills improve and market conditions change.
Should freelancers charge hourly or project rates?
Hourly rates work well for some types of work or inexperienced freelancers, but project rates usually reflect the value of your expertise more accurately. Project-based pricing also rewards efficiency: you’re earning less simply because you work faster.
What’s a fair rate for a specialized freelancer?
Freelancers in some industries can charge more because they bring industry-specific knowledge that generalists don't have. Freelancers in fields like fintech, healthcare, cybersecurity, or legal can often command premium pricing due regulations or the industry's complexity. A fair rate is one that reflects your niche expertise and the value of your work.
