How to Calculate Your Rate as a Freelancer or Self-Employed Contractor

Are you planning on starting a job as a self-employed contractor or freelance worker? This guide explains how to calculate your rate right!

The advancement of technology, and now the spread of COVID-19 triggering the world’s largest work at home experiment, has freed us from the drudgeries of office work. 

No more over-bearing managers, no more traffic, and most importantly…

No more stolen lunches from the office fridge.

All that said, the most intriguing part of remote work is that it allows people to get hired for jobs all over the world.

You could be in Singapore coding websites for a UK-based company. You could be in New York writing copy for a Dubai-based hotel chain. 

The job opportunities are endless, which kind of complicates the income equation. 

In office-based jobs, an employer will have a set budget and you’d negotiate your desired salary from there. 

Remote jobs aren’t as clear cut. 

This guide will show you all the factors to consider when deciding your target hourly pay, and the different pricing structures you can use as a remote worker.

Consider This When Learning How to Calculate Your Rate

1. Field of Work 

Payoneer’s 2020 survey showed that project managers earned an average of $28 per hour, while professionals in sales earned $25/hour, and administrative jobs paid about $10 per hour. 

The more difficult and technical your job is, the higher your potential salary. You can base your target hourly pay based on the average salary for your job.

2. Seniority

Your position, whether you’re an individual contributor or a manager, also affects your pay as a remote employee.

Companies not used to working remotely, for instance, are now in desperate need of leaders who can coach and manage teams online. 

Like regular office-based jobs, your rates will also be influenced by how many years you’ve been on the job. Companies want remote employees who can do their tasks without too much hand-holding, so they’re willing to pay more for someone with experience.

3. Location

Remote jobs in India won’t pay as much as remote jobs in the UK, that’s just the unfortunate truth. The employer’s location or the location of the employees they’re targeting, will also affect the job salary. Consider these two factors when calculating your target hourly pay. 

Related Read: 55 Resume Tips, Hacks & Expert Advice to Help You Score a Job Interview

4. Expenses

As a remote employee, you will now be responsible for the costs your employer previously paid or covered on your behalf. 

These include but aren’t limited to:

  • Your equipment: laptop or computer, and office space
  • Living expenses: rent or mortgage, food, and utilities
  • Software and other subscriptions
  • Internet and mobile services
  • Insurance and taxes
  • Leaves: sick leave, emergency leave, and holiday leave
  • Training and up-skilling
  • Retirement and stock purchases

Of course, you have to earn a profit too so don’t forget that when calculating your target hourly pay. Otherwise, you’ll just break even and won’t have anything left over for personal expenses. 

You also have to consider future expenses, like having a child, getting married, or adopting a pet. Consider the lifestyle you want to live and factor it in whenever someone asks what are your salary expectations.

5 Different Pricing Structures to Explore (If You Want to Earn More)

The factors listed above are a great place to start when determining how to calculate your hourly rate and how much your services will cost at a minimum. 

Now let’s move on to the next step: the different ways you can price your services. 

1. Salary or Monthly Pay

If you were previously employed full-time, this is probably the easiest pricing structure to adapt. 

Careful though, you shouldn’t fall into the trap of asking for the same salary you earned in your last job. Remember the overhead expenses listed above?

Here’s what to do when a recruiter asks what are your salary expectations for a remote job:

  • Cost plus profit: Sum up how much you want to earn plus the expenses your employer used to pay on your behalf, like taxes, internet, hardware, software subscription, health insurance and leaves. 
  • Market rate: Check what other remote workers within your field, location, and experience level are earning. Sites like Glassdoor, Payscale, and Salary.com are excellent sources for this.

Related Read: 10+ Job Search Tips & Tricks to Up Your Chances of Landing an Interview

2. Hourly Rate

Many remote workers are paid per hour for two reasons: 

  • It’s the most commonly used pricing structure in job markets like Upwork, Guru, or PeoplePerHour.
  • It gives people the flexibility to work when they want and bill only for the hours consumed to complete a task.

This is one of the easiest ways for remote workers to calculate their target hourly pay. This pricing structure allows you to get full compensation for all the time you work, even if a project takes longer than expected. 

The worst mistake you can make when calculating your target hourly pay is assuming all your hours are billable. You can’t just take your current monthly salary and divide that number by four weeks and a further eight hours per day of work. 

Your employer won’t like getting billed for meetings, emails, invoicing, and your lunch breaks. 

Did you know there’s a study that states an average employee is only productive for three out of the eight office hours per day? Imagine how much less you’d earn if you only billed for three hours per day! 

Now I’m not saying you should cheat by billing for eight hours when you only worked three.

Instead, you should learn how to calculate your hourly rate in a way that incorporates your admin and other non billable hours into the computation.

Here’s a simple equation to calculate your target hourly pay:

(Expenses + Desired Profit) = X * (30 hours x 48 weeks)

The formula above assumes the following conditions but you can adjust it for your lifestyle:

  • 30 hours productive work per week, 10 hours on admin and non-billable time
  • 48 weeks of work out of 52 weeks in a year, which means you have 4 weeks or one month of vacation

Let’s plug in some numbers to see how it works.

Let’s say you want to earn the same amount you were earning in your corporate job ($45,000) so that’s your profit. For utilities and other overhead expenses, let’s just assume a round $15,000. 

Here’s how to calculate your hourly rate using the same conditions above:

($15,000 + $45,000) = X * (30 hours * 48 weeks)

You will get:

($60,000) = X * (1440 hours)

$60,000 / 1440 hours = $41.66

The rate above already includes your vacation time, non billable hours, expenses, and some profit that you can use for your personal expenses and leisure.

Keep in mind that you can always increase your rates as you gain more experience working remotely, or as you take on more projects. 

3. Fixed Rate or Project Rate

Fixed or project rate quotes work better than other types of pricing because it gives you the freedom to earn a fixed fee regardless of how long it takes to finish a task. It’s also an easier sell for many clients because they know upfront how much a task will cost.

Using this pricing structure, however, means you won’t be basing your earnings on a target hourly pay. 

You will also leave the arena of traditional employment. Once a project is done, you have to find another one. You’re not earning a monthly salary. It’s not all bad though. Given the right strategy, there are many upsides to this pricing structure.

If you’re an expert and efficient worker in your field, you can complete a task in less than the expected timeframe and still get a high fee. 

Jake Gorgovan started with a target hourly pay of $30 per hour as a website designer. After building his portfolio and improving his skills, he increased his rates to $60 per hour. 

But by that time, he was so efficient at what he did that he could complete a project in three hours. At $60 per hour, one website project he got on UpWork earned him a measly $180. Of course, his client was happy to get a beautiful site for such a bargain. But that’s when Gorgovan realized how hourly billing limited his income. 

A month later, he booked a design project. This time for $4,250— a huge increase compared to the previous $180 bargain but it still only took him 5 hours to complete. 

You see, many businesses don’t care how long it takes you to complete a task. Keep this in mind next time you’re asked what are your salary expectations. All they care about is you do the job right and on time. 

If your job and skillset doesn’t require you to be always available, a project based pricing structure can help you earn more without an 8 to 5 time commitment. Fixed rate pricing models are great for creatives, IT professionals, and project managers.

Related Read: 10 Cover Letter Tips & Tricks Sure to Score Job Interviews [2020 Ed.]

4. Retainer Fees

Retainer fees are great for professionals that have a come and go workflow. IT support professionals and designers are great examples of this because unless they work for a big company, they won’t have much to do after the initial setup of a website or network system. 

They might be needed in case the system goes down, or a new web page needs to be designed and uploaded. But it’s not steady enough to warrant a full-time arrangement.

A retainer arrangement is better for this setup compared to billing based on a target hourly pay for two reasons:

  • An employer can count on you to be available for a set amount of hours every month, so that gives them peace of mind. It’s like having a lawyer or doctor on call.
  • You invoice a client for a set fee every month, whether or not they request your services.

Keep in mind, however, that clients pay for retainer fees to ensure you will be there when they need it. So you can’t overbook yourself and say sorry when your client comes calling. 

On the flip side, you also shouldn’t feel guilty if your client doesn’t use the hours they paid. It’s like a gym membership fee— they won’t give a refund if you don’t go. 

5. Rate Per Word

Some magazines and agencies pay writers per word. Top national magazines, for instance, can pay as much as $2 per word. Content mills, on the other hand, can pay as low as $0.001 per word. 

Not many employers will like this arrangement though because it makes budget planning harder. Just imagine invoicing from their point of view– sometimes they’ll pay for 1200 words, sometimes it’s 453 words. It’s an accounting nightmare. 

Experiment with Different Pricing Models

Whatever target hourly pay and pricing model you start with, know that it doesn’t have to be that way forever. 

Feel free to change it as you learn more, change roles, want to earn more, or just when you feel like it. As a remote worker, you’re no longer confined to the traditional systems of office based work.

Related Read: 25 Best Apps for College Students: Productivity, Studying, Learning & More

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Charley Mendoza
Written By Charley Mendoza
Charley is a freelance copywriter and content marketer specializing in career and entrepreneurship. When she’s not stringing words for her latest copywriting project, you’ll find her trying new recipes, or planning yet another trip.

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