How do I determine my rates?
The most important thing to remember when thinking about determining your rates is knowing what you are really worth!!
As an employee your salary takes into account business costs such as tax, health care, insurance, retirement and other business associated costs. When you work for yourself you will have to cover these costs on your own. So you need to keep these costs in mind when you are determining your rates as you will have to set aside money to cover these!
You also want to charge enough so that you can survive, cover your business costs and taxes but also thrive and build a successful business!
The big question is how do I know what to charge? What is my going rate?
A great way to start is too think about your target annual salary: Example $85K per year.
Then calculate your expenses and any overheads you anticipate for the year (that would normally be subsidized by your employer if you were employed).
Example: Office space, equipment, subscriptions and fees, wifi, advertising, phone, accountant/tax help etc etc.
Don't forget to calculate cost of living expenses such as health insurance, self employment taxes etc.
Now, add your target annual salary + expenses and overheads for the year = freelancer estimated income.
$85K (target annual income) + $23K (estimated annual expenses) = $108k
Now you just need to determine how many billable hours per year you will work. Factor in any time off for vacation/sick days or public holidays. Also allow 25% of your time for non billable hours, eg. administration work, phone calls, consultations/meeting with clients, marketing, emails etc.
So in this case my estimated billable hours for the year excluding time off equals 2000 billable hours per year multiplied by 25% non billable time.
2000 billable hours per year X .75 = 1500 billable hours
Then to get your estimated hourly rate: $108K (estimated annual salary) / divided by 1500 billable hours per year = $72 per hour