Is the price right? (part 1 : minimum rate calculation)

How do you work out what a 'good' rate is and what would put off your clients? Is there is fact, a magic number or a formula to work it out? Sadly, no, but there are some points to consider when making a hard and fast "per hour" value for yourself and this cuts across all industries and all geographic locations.

The very first point to consider is your baseline must-have income. If you cannot achieve this level of income in an average month, sorry but its time to get a job. This amount is so important that I would suggest that you deem it non-negotiable, deal-breaker, moving-on-to-other-things. A surplus above it is important, but dropping consistantly below can only lead to self-harm.

So what is base-income? Its exactly that - the minimum you need in order to cover your rent, bills, food costs, insurance, fuel for the car, medical expenses and lets not forget taxes. If you cannot cover this, you cannot continue. Get a part time job if you have to, but this is where we have to draw the line, close the curtain or otherwise look carefully into what your needs are.

Once you have that magic number (if you have another source of income, deduct it from the whole: this is only about your freelancing business), you have to estimate three factors. Although the first few attempts will be guesses, eventually the right values will become apparent.

The first is how much you are actually working. In a standard month, most people in employment commit to between 170 - 200 hours of full-time work. As a freelancer, you cannot achieve that, as the work flows in, how it flows in. If you are lucky, expect to get paid for work two thirds of that time, but realistically, look towards less, maybe even half.

The second is non-paid work, which might relate to admin, marketing or chasing up payments. You cannot bill anyone for this but you are still working, right. And often, this happens late into the night when you have free time. No TV watching for you!

The third are costs relating to the jobs you do which increase with the work. Typically, photocopying documents, office supplies or such like.

So while you can roughly measure the first (even if its an average over several weeks) its harder to place an exact value on the second, so you can either allocate a set amount (eg 10 hours a month to admin) or a percentage of your time (eg 5% of my billable hours, needs to be added for admin). The extra costs that you incur, could be charged directly to the client, but usually won't be. For example, if you had to meet the client in a coffeeshop, its not always acceptable to invoice this out as transport, coffee, server tip etc. It could be seen as cheap and tacky and result in unpleasantness.

So lets look at a real situation. Lets say you are slumming it in New York; you can barely make it on $2000 a month. You work out that your average working hours are 100 in the month, admin is 8 hours and direct extra costs make for another $45 on any average month.

Step 1 : Work out the non billable surplus as a percentage, if its not already a percentage : 8hrs / 100hrs = 8%. Step 2 : Add the extra percentage of non-billable time to your monatary requirements : $2000 + an extra 8% = 2000 * 8 / 100 = $160. This is what you pay yourself to do the work or you can outsource it. Step 3 : Add everything up - this is what you need to aim for : $2000 + $160 (non billable) + $45 (extra costs) = $2205. Step 4 : Your hourly rate should be no less than $2205 / 100 hours = $22.05 per hour.

That number - $22.05 per hour - is your absolute minimum you should be charging, in order to survive. A quick check reveals that your income will be $2205, which comprises $2000 (basic needs) + $45 (direct client costs) + $160 cost of admin charged to clients). You can reduce this by eliminating the admin fee you pay yourself, but beware of doing this - after awhile you may get frustrated at having to scrape the bottom of the barrel, so to speak. Nor can you outsource this, if you aren't charging for it.

With your baseline target, you can look at your competitors, examine your skills and decide how much extra value you put on your freelancing skills. View part 2 for strategies to grow.

[Source : https://blog.e-strategic.net/2018/04/is-price-right-part-1-minimum-rate.html]