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Home / Tips and Tricks / How to calculate your hourly rate (and why you may not want one) – LifeSavvy

How to calculate your hourly rate (and why you may not want one) – LifeSavvy



  Man sitting at his desk in front of his laptop and looking at his cellphone.
GaudiLab / Shutterstock

Be your own boss, set your own schedule and decide how much you get paid for. For most, this sounds like a fantasy. But for freelancers, entrepreneurs and contract workers, this fantasy can become reality. However, as with all dreams come true, the reality is a bit more complicated.

One of the main challenges of the gig economy is figuring out how much you should charge for your services. Some customers offer jobs at a set price, but many ask for their rates. If you have not set your rates yet, it can lead to a panic calculation of numbers and premature answering.

Setting rates is a delicate but necessary task. If you do the right thing, you will get a fair compensation without displacing customers.

So how do you set an appropriate hourly rate? And is this the only way to charge for your work and get paid for it? Here you will find everything you need to know.

Three ways to calculate your hourly rate

For most conventional jobs, you will receive compensation per hour worked. Their hourly rate takes over this concept and translates it into the world of freelancers.

However, this process is not without complications. With a traditional job, you usually work eight hours a day and get paid for every hour, no matter how much you work per hour. However, as a freelancer, you only have to charge for the hours you spend on a particular project.

As you work more purposefully in these hours, your freelance hourly rate may be higher than what you would get paid at a regular job. However, you want to make sure that it is not too high for your customer pool.

There are several ways to calculate what you should charge per hour. That's how everyone works.

Working Backwards From Your Goal

One way to calculate your hourly rate is to set a target salary and then backwards to figure out how much you need to earn per hour.

Until Set your target salary and calculate all your monthly expenses. How much do you need to cover your bills and living expenses each month? How much extra do you need for work-related expenses, health insurance and other costs that are no longer covered by an employer?

Remember, you pay taxes for everything you earn, up to a third of what you can do. After you've added up all your expenses, add another 30 percent to cover your taxes.

Now divide the grand total by the ideal number of hours you want to work each month. You'll probably have fewer than eight billable hours per day because you're not charging your customers for downtime. The result is the minimum hourly rate you need to charge to pay your bills.

Of course, your salary should also include some cash for fun expenses, travel, days off, and the like, so your ideal hourly rate is above the absolute minimum. This infographic lists everything that you should include in your calculations.

Use Calculator

You can use an online rate calculator to automate some of these numbers. We like this detailed hourly rate calculator for all industries.

Of course you should not just go blindly with the number that the calculator spends. But if you're not a mathematician, or worried you might forget to include something in your calculations, this can help.

Finding the Industry Standard

It's always good to do a calculation like the one described above, as it can help you with budgeting and setting your tariffs. However, it is also helpful to know what standard hourly rates apply in your industry.

The sentences always vary. For example, the rate is lower for new workers and higher for skilled workers. However, if you get a comprehensive view of other people's fees, you can set a rate that will not shock your customers.

Contently's pricing database provides a good breakdown of rates in some industries, including writing, editing and design. You can also search industry forums or just talk to people in your network. Speaking openly about salary is frowned upon in traditional business circles, but gig workers should do it. After all, it's the only way anyone knows if it's paid fairly.

Should you charge by the hour?

  Woman takes a break from working on her laptop to look at her watch.
GaudiLab / Shutterstock [19659003] Calculating your hourly rate is one thing, but deciding whether to bill by the hour is another.

Except in cases where this is absolutely necessary, we do not recommend that you bill by the hour. Why not? If you've taken on a few freelance projects that are paid by the hour, you'll probably see why.

Calculating an hourly rate creates a strange relationship between your money and your time. An hourly rate motivates you to work slower – the faster you work, the less you get paid. However, you may not work too slowly or your customers may feel that you are exploiting them.

You must try to reach this sweet spot between maximizing your time to stretch a project and stretching it too far.

However, spending more on a project is not really a good thing. The faster you finish (of course, with high quality results), the more time you have for other projects or much needed downtime. And most customers like it when they deliver things earlier than expected.

In addition, if you charge hourly, you'll be distracted all the time trying to charge exactly. If you take a 10-minute social media break, walk the dog, or stay for lunch, it will affect your calculations. This can become a significant source of unnecessary stress.

If you can avoid charging by the hour, do so. Instead, try one of the following methods:

  • Flat fee : Calculate a set amount per project. You still set a deadline for completion, but you'll be earning the amount you've set, no matter how many hours you spend on it.
  • Per day, per week or per month : Your customer pays you a fee Keep your services for a fixed period of time, regardless of how many hours you invest daily.
  • Performance Based : The better the results for a customer, the more you achieve.

Each rate-setting method has a situation in which it is best. However, in most projects and in most industries, flat rates usually work outright. You need to have a strong, trusting relationship with a customer before you can try one of the other two methods.

In addition to your flat fee, you may also want to add a Performance Bonus. You may receive a set amount for each blog post you write and a set bonus for each viral post.

You can also estimate the hours you spend on a project to set your flat rate. However, do not forget that your customer does not really pay you for hours worked. You pay for the benefits they derive from your work. This benefit may even be worth more than the hourly rate you set.

Of course, there may still be times when an hourly rate makes the most sense for a particular job or customer. As you gain experience, you will learn how best to set your rates in each situation. Whatever, you always have a contract with your customer that specifies how, when and how much you will be paid before you start working.


It is always important to set the right prices so that you get what you are worth. Whether you need to pay by the hour or not, this guide will help you achieve a fair price for your work.

Are you looking for cleverer monetary tips? Take a look at this cool budgeting hack next!


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