How to calculate your freelance day rate

Picture this. You’ve decided to take a leap of faith and start working independently. But how much should you charge? What should your day rate or hourly rate look like?

It takes time to find the right balance, even for those that have been freelancing a while. It can certainly be useful to know what the average freelance day rates are in your country or sector. But ultimately, you need to price based on your experience and value that you are bringing to the client.

How much do I want to earn?

Think about how much you’d like to earn. Ideally, it needs to be higher than an in-house employed salary as you’ll have additional costs and expenses as a freelancer (such as pensions and insurance). It’s useful to work around the idea of an annual salary, so you can work out time pro-rata.

If you’re new to freelancing, you might not know how long it will take you to complete a certain project yet. If this is the case, start time tracking your work from now on. Even if you are pricing based on value, it’s important to know how much time you’re putting in so you can work out your profit margins.

How much work is realistic?

Think about the time you have available to work. It’s important to consider the number of billable hours you have available per week, and how many hours you are likely to work.

• Are you available to work 5 days a week?
• What will your core day look like? 

Remember to also factor in some time each day for non-billable work. This might include tasks such as personal marketing, invoicing and admin.

Expenses

Now that you’re self-employed, you’re going to have to factor in expenses. Take a note of how much you’re spending on:

• Insurance
• Office or work from home expenses (such as rent, gas, electricity, internet and phone)
• Accountancy fees
• Any software subscriptions
• Equipment
• Travel
• Marketing (this could include website hosting, maintenance, advertising or additional marketing materials and expenses)

Sick pay and holiday pay

None of us work 100% of the time – there will be days where we’ll want to take a break, or maybe even feel too sick to work. You want to have enough margin in your salary that you aren’t reliant on having to work 24/7.

• How many days of holiday will you take per year?
• How many paid sick days will you allow for?

If you’ve worked in-house over the past few years, it might be worth referring to your previous contracts to establish a realistic allowance.

What’s more, you might want to consider including a buffer in case you end up out of work or between projects for a certain period of time. Building this into your rates will certainly help to take the pressure off if that was to happen. 

Pensions

As a freelancer, you’ll also need to prepare for the future by investing in a workplace or private pension scheme. But how much do you need to save?

Anything is better than nothing (and in the UK, the government will top up your contributions by 25%) – the main thing is to save something each month. As a general rule of thumb, it’s a good idea to pay 10-15% of your annual salary into your pension. We recommend speaking to an independent financial adviser to receive tailored advice on your specific situation.

Calculating your day rate

Once you have considered the above points, you can work out your minimum week, day and hourly rates. 

If we’re working towards a salary goal of £45,000, this might break down into the below:

• 7 billable hours per day = 35 hours per week
• 52 weeks – 4 weeks holiday – 1 week sick leave – 4 weeks buffer = 43 working weeks
• £45,000 / 43 = £1,046 per week
• £1,046 / 5 days = £209.20 per day
• £209.20 / 7 hours = £29.80 per hour

Taxes

Of course, the above rates will form your gross salary. You will then need to take away taxes from that figure. Taxes will depend on your country of residence and your accountant will be best placed to advise on your personal circumstances.

Knowing your value

It’s worth noting that the above day rate calculations are the minimum you need to earn to stay on track for your salary goals that year – and they are based on the amount of billable hours you have per day. You can afford to mark up your work depending on:

• Your skill set
• Your experience level
• Cost of living in your area
• Client company size

Negotiation

Once you’ve established your day rate, it’s time to start putting yourself forward to clients. Don’t be afraid to go with your highest price, but also keep in mind your bottom line (i.e. the minimum you need to earn per day to stay in profit). If the price that the client is willing to pay goes below that, it’s okay to walk away. 

Are you currently pricing up your services or looking to increase your day rates? The Dweet team are always on hand to provide support and industry context to support you through this process. Contact us for more details.