Pricing Your Freelance Work

How to set rates that cover taxes, non-billable time and business costs, and when to charge by the hour, by the project or by the value delivered.

Many new freelancers set rates by comparing with a salary or copying others. But freelance rates must cover much more than a salaried person’s pay.

What your rate must cover

Your target income.
Taxes.
Insurance and retirement savings an employer would otherwise help with.
Business costs: laptop, software, internet, workspace, travel.
Non-billable time: finding clients, admin, learning, emails, invoicing.
Gaps between projects and time off.

Billable hours

A full-time employee works around 2,000 hours a year. A freelancer might bill only 1,000 to 1,400 hours, because much time goes to non-billable work.

A simple formula:

Hourly rate = (Target income + Costs + Taxes and savings) / Billable hours

If you want 12 lakh rupees in income, have 2 lakh in costs and set aside 3 lakh for taxes and savings, that is 17 lakh. With 1,200 billable hours, your rate should be about 1,420 rupees an hour.

Three ways to charge

Hourly or daily: simple and fair when scope is uncertain, but clients may worry about open-ended costs, and you earn less if you work faster.
Per project: a fixed fee for defined work. Clients like certainty; you benefit if you’re efficient but risk losing if the project grows. Define the scope carefully.
Value-based: pricing based on the value to the client. A website that brings a business lakhs in sales may justify a higher fee than the hours involved.

Raising rates

Raise rates for new clients first.
Increase rates annually to keep pace with inflation and experience.
Charge more for rush jobs and extra revisions.

Beware of underpricing

Low rates can attract difficult clients and make it hard to earn a living. Competing only on price is a race to the bottom.

The underpriced writer

A freelance writer charges 1 rupee per word, the same as her college friends. After calculating her costs, taxes and unpaid admin time, she realises she earns less than minimum wage. She raises her rate to 3 rupees per word for new clients and focuses on specialised topics.

Thinking your freelance rate should equal your old salary per hour

Freelance rates must cover taxes, benefits, costs and non-billable time, so they need to be much higher than salaried hourly pay.

Key takeaways

Rates must cover income, taxes, insurance, costs and non-billable time.
Freelancers typically bill 1,000 to 1,400 hours a year.
Hourly, project and value-based pricing suit different situations.
Raise rates regularly and avoid competing only on price.