Freelance Consulting Rates – How to Calculate Them

When you first start out as a freelance consultant, things feel great. After all, you wanted to leave that job so badly. You are now free to work your hours, set up your office in your house and walk the dog at any time of the day without feeling guilty. Yes, it is great to work as a freelancer. No doubt about it, you made the right decision to become one. Now, let’s talk business. How do you set your fees? After all, you can’t wait to get your first contract.

If you google “freelance fees guide,” you will get 47,300,000 results. So many people have already tried to answer the question before me, so why bother, you might ask? I just want to add the 47,300,001 answers to the list!

The first question you will need to ask yourself is: How much am I worth? What was your salary at the last job you had? What is the going rate for someone with your experience in your area? This is the question you need to answer honestly. You see, when you calculate your rate in a way that you believe is fair, it will give you the power to negotiate it with your future clients. Yes, we all leave money on the table from time to time. Sometimes we need the work, other times, we want the client, and sometimes we just want to do the work. But at the end of the day, to survive as a freelancer, you need to believe in the value you are offering to your clients and align that with your rates.

As a true cost estimator, I will show you how I calculate a freelance consultant’s hourly fee.

Gather your data:

• Direct costs. 
• The only item in this category is your annual salary: the salary you used to have, the one you wish to make, or the going rate in your area for someone with experience. Include your year-end bonuses, if applicable.
• Overhead costs. This category is reserved for all your annual costs, which you will now have as a freelancer, and those that you can now claim as business expenses.
  • Determine what costs were covered by your former employer, and now you will have to pay for yourself. For example, healthcare premiums, pension contributions by your former employer, life insurance, disability insurance, etc.
  • Determine your costs to run the business. You will most likely need the following:
    • an accountant for year-end tax returns,
    • maybe a bookkeeping service (even though this is easy enough for you to do yourself),
    • office space if renting one,
    • marketing and advertising,
    • web hosting,
    • office supplies,
    • business cell phone charges,
    • business vehicle expenses. If you have a vehicle that you use for personal and business purposes, your accountant will explain how to calculate the business expenses only,
    • membership fees,
    • amortization for any newly acquired hardware and software,
    • all subscription expenses: magazines, software, apps, etc.
    • anything else that is related to running the freelance business.
  • Determine how many hours you will need to work in your business and which will not be billable hours. You might spend time on marketing, bookkeeping, purchasing, attending conferences, etc.
  • Determine how many days you want for holidays,
  • Determine how many days are statutory holidays,
  • Determine how many days you want to consider for sick days;
  • Add a percentage for potential uncollected payments. Not very common, but it happens.
• Profit. This is the tricky part. How much should you add to profit and why? Like any other business, as a freelancer, you will need to be competitive, but simultaneously, you want to be profitable. The profit you will charge will be related to your business plan, market conditions, type of projects, etc. It all depends on how much added value you offer to your clients, the level of expertise required for various projects, etc.

There are some minor details that your accountant will be able to clarify for you. It all depends on whether you will have an incorporated business or only a sole proprietor, and some other factors which I do not intend to cover in this article but rather leave to the professionals who deal with them in the field of accounting. This article aimed to give those who are not familiar with the hourly rates how they are calculated. It is not intended to be a complete guide, as everyone’s set of circumstances is different.

This would conclude my view on how to calculate the freelance hourly rate. Thanks for reading this article. Do you have anything to add? Please do so in the comments field below.

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