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.
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.
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.
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.
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.
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.