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.
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.