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5 Tips to Determine Your Freelancer Market Value – Is Your Hourly Rate Below Average?

JKat

How much should you charge as your hourly rate as a freelancer? This is one of the biggest questions faced by freelancers, and the reason is that online competition is particularly fierce in this field. The online markets and websites where freelancers meet their employers are usually crowded with candidates, and a higher rate might mean a much lower chance of getting jobs.

Before we move forward, however, there is one principle I want you to understand and keep with you at all times: do not undervalue yourself. Do not be afraid to charge more if the service you offer has a higher quality and if you have a stronger online reputation than the average freelancer in your industry. Many employers are looking for cheap work, that’s true, but many are also looking for serious freelancers who will deliver great work. If you want to grow in the freelancing world and make a living out of it, you have to stick to quality instead of focusing on low rates.

This is why we put together this guide to help you determine how much you should charge as your hourly rate. Once you obtain a final number, stick to it (allow for some small variation, but nothing more than 5 or 10%) and be patient. I am sure you will find someone willing to pay the right amount for your great services!

How Much Money Do You Need?

List All Your Payments to Determine Your Actual Expenses

The first step is to determine how much you spend on a weekly or monthly basis. This might sound a bit obvious, but many people fail in being thorough in this step. Listing all the payments means listing all the payments. We tend to ignore minor expenses – that snack or coffee that happens every day. However, an undocumented $5 daily cash outflow amounts to a $150 monthly black hole.

The problem with registering expenses is that they are very easy to forget. If you wait until the end of the day to register all your cash outflows, you will hardly ever remember everything. Relying on receipts is also not a good idea, since they are very easy to lose, and not every establishment will issue them after a purchase.

The best way is to download an app for your phone. I have used Money Manager (the version for Android can be found here) for a long time. It is very intuitive and easy to use, and you can access all the main functionalities for free. Feel free, however, to browse around and find the app that suits you the most.

Once you have it, make sure you record every purchase as it happens. It does not take more than a few seconds to open the app and record the transaction, and you will soon be able to enjoy the many benefits of it.

How Much Money Do You Want?

Determine Your Desired Monthly Income and Calculate Backwards

Once you have determined how much you spend every month, you should determine how much you want to have by the end of the period.

Many freelancers start with a fixed hourly rate and then try to cut out expenses to reach the desired monthly profit. While this approach is acceptable for beginners (as they need to develop their online brand), seasoned freelancers should work the other way around.

Here are three accounts you can consider: amount for savings, budget for personal projects, and budget for leisure. If you have other accounts in mind, write them down as well. Notice that these are not among your monthly expenses. The expenses are what you need to pay in order to maintain your living standards. Your desired monthly income brings together your expenses and this extra money you want to fund personal projects, leisure time, and savings for the future.

Consider Taxes, Insurance, and other Necessary Provisions

To be completely thorough, we must consider the deductions you will have to pay once you receive your salary. You should also consider whether you need (or want) to buy health insurance. This is a very personal decision, and since the public policies vary considerably from country to country, I will abstain from giving any definitive advice in this area. Make sure, however, to include any insurance-related expenses in your list of monthly costs.

Last but not least, you must consider how taxes affect your income. Again, countries drastically differ in their tax schedules (including which expenses are tax-deductible). Nonetheless, I find the simplest approach also the most efficient. Use the highest tax rate without any deductibles. End of story. If you assume this approach, you will never pay more taxes than the amount calculated here. In addition to that, every dollar that you earn through a lower tax rate and through deductibles will enter as a revenue for you.

Your desired monthly income is actually your desired net amount, and to calculate the gross monthly income you need to divide the net amount by (1 – Tax Rate). A simple example: if you target a net monthly income of $2,500 and you pay 35% of income tax on your earnings, your gross monthly income must be $2,500/0.65 = $3,850, approximately.

Use an Online Hourly Rate Calculator or an Excel Sheet

Building an Excel Spreadsheet is the obvious course of action to analyze your expenses, desired net income, and tax rates in order to calculate your hourly rate. Make sure to be thorough and identify each cell accordingly as not to be lost in the future when updating the spreadsheet.

If, however, you have trouble assembling an Excel spreadsheet to do the calculations for you, or if you prefer to use an online tool to the math, you can find many alternatives by doing a simple Google search.

There are many online hourly rate calculators, and I found the one provided by BeeWits very thorough and versatile. It provides many questions that inspire you to think about different aspects of your expenses, future projects, and work habits. Here are a few examples:

  • How many vacation days do you plan to have per year;
  • How many public and religious holidays will you have;
  • How many days will you budget for sickness and other unexpected events;
  • What are your monthly costs as a freelancer (office, communication, subscriptions, equipment, among others).

These questions mostly relate to the costs of performing and delivering your work, but the tool also offers you the possibility of adding new fields to the overheads section. You can use this option to add in your monthly living costs.

Personally, I prefer to use an Excel spreadsheet because I can personalize it as necessary and it keeps my data accessible for future calculations. Online hourly calculators can be used as an inspiration for different categories of expenses and work habits, but I prefer to implement these insights into my own Excel spreadsheet instead of directly using the online tool.

Understand Your Market Value

Do Online Research to Find Out the Rate of Other Freelancers

While sticking to your desired monthly salary is the ideal strategy, some industries are considerably more competitive than others in the freelancing world. For them, you will have to do some extra research and compare your rate with other freelancers to make sure you are not completely out of the curve.

When evaluating your hourly rate, a comparison with other freelancer’s market rates is helpful. Keep in mind that your market value is determined by domain expertise, trustworthiness, and your location.

Finding the Hourly Rate of Freelancers

The best place to look for freelancers’ hourly rates is on freelancing websites. Here is a step-by-step guide to using two very famous websites: Upwork and Fiverr. The process is similar on other websites such as Peopleperhour, Toptal, Freelancer, and other platforms.

Upwork yields better results when you are a registered user. Simply register as a freelancer in the platform and follow the steps below to find the rates of freelancers.

Step #1: In the initial page of your dashboard, click on the arrow in the “Find jobs” search field. Then, select “Freelancers.”

Step #2: Type the skills or relevant keywords you are targeting and simply press enter.

Step #3: Filter your search by using the advanced filters from Upwork and browse through the results!

Fiverr is another website that offers extensive data for you to benchmark your rates. The process of finding freelancer rates is even simpler than in Upwork as it does not require you to sign up for an account.

Step #1: Go to Fiverr’s homepage and simply type the skills or keywords you are targeting. I did the same search for “article writing,” and the following results popped up:

Step #2: Use the extensive filters to explore more options and find freelancers with sets of skills more similar to yours.

You can compare both platforms, but keep in mind that Upwork displays a per-hour rate, while Fiverr displays the rate on a per-project base. In any case, browsing through these two platforms should give you a good idea of how much other freelancers with similar work experience, time in the market, and online reputation are charging.

By following these five steps, you will be able to both determine how much you should charge as your hourly rate and whether this amount is within the acceptable limits of your industry. Keep these principles in mind and we are sure you will experience a great improvement in your future freelancing contracts!

Before you go…

How do you determine your market value as a freelancer? Let us know your thoughts in the comments!

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