I used to lie awake at night wondering: “Am I charging too much? Am I charging too little?”
For years, I set my rates based on three unreliable methods:
- What I thought clients would pay
- What other freelancers were charging
- What I needed to pay next month’s bills
This approach kept me stuck in the cycle of undercharging and overworking. Then I discovered a better way: using data to set rates that support the business and life I want.
In this article, I’ll share the exact framework I’ve used for 8+ years to set rates that are fair, profitable, and sustainable. I’m even including a free rate calculator you can use right now.
Why Most Freelancers Undercharge (And How to Stop)
The three biggest pricing mistakes I see:
1. The “Hourly Mindset Trap”
Thinking “This seems like a lot for one hour of work” instead of “This is great value for the result I’m delivering.”
2. The “Market Rate Fallacy”
Basing your prices on what others charge, without understanding their business model, expenses, or expertise level.
3. The “Self-Worth Confusion”
Letting imposter syndrome dictate your prices rather than your actual value and costs.
The solution? Stop guessing and start calculating.
The 4-Step Rate Calculation Framework
Here’s the exact formula I use. We’ll walk through each step with examples.
Step 1: Define Your Target Annual Income
Start with the life you want, not the rates you see.
Calculate:
- Personal Expenses: Rent/mortgage, food, healthcare, insurance, personal savings
- Taxes: Set aside 25-40% for taxes (varies by country)
- Business Expenses: Software, hardware, marketing, professional development
- Profit Margin: 15-20% for business growth and unexpected costs
Example Target Calculation:
- Personal living expenses: $60,000
- Taxes (30%): $25,714
- Business expenses: $15,000
- Profit margin (15%): $14,000
- Total Target Revenue: $114,714
Step 2: Calculate Your Billable Days
This is where most freelancers get unrealistic.
Formula:
Total working days per year
- Vacation days
- Sick days
- Administrative days (marketing, invoicing, learning)
- = Actual billable days
Realistic Example:
- 260 total working days
- 20 vacation days
- 5 sick days
- 65 admin days (25% of time)
- 170 billable days
Step 3: Determine Your Daily Rate
Now we have our numbers:
Formula:
Target Revenue ÷ Billable Days = Daily Rate
Example:
$114,714 ÷ 170 days = $675 per day
Step 4: Convert to Hourly and Project Rates
Hourly Rate: Daily Rate ÷ Hours Worked
$675 ÷ 8 = $84 per hour
Project Rates: Estimate hours × Hourly Rate (or better yet, use value-based pricing)
Free Rate Calculator Template
I’ve created a Google Sheets calculator that does this math for you:
Click Here to Access Your Free Freelance Rate Calculator
The calculator includes:
- Automated calculations for all formulas above
- Adjustable percentages for taxes and expenses
- Multiple scenarios (part-time vs full-time)
- International currency support
When to Break Your Own Rate Framework
The calculated rate is your baseline. There are valid reasons to charge more:
Charge Premium Rates When You:
- Have specialized expertise in a high-value niche
- Deliver exceptional speed or quality
- Work on urgent or complex projects
- Bring unique insights or methodologies
Example Premium Positioning:
“I specialize in fixing conversion funnels for e-commerce brands. My clients typically see 25-50% increases in conversion rates. While my standard rate is $675/day, the ROI typically justifies this many times over.”
Common Pricing Scenarios and How to Handle Them
Scenario 1: The “That’s Too Expensive” Client
Instead of: Lowering your price immediately
Try: “What specific budget were you hoping to work with? I might be able to adjust the scope while still delivering on your key objectives.”
Scenario 2: The Long-Term Project
Instead of: Offering a discount because it’s “guaranteed work”
Try: “For commitments of 3+ months, I offer a 10% retainer discount in exchange for monthly billing in advance.”
Scenario 3: The Non-Profit or Startup
Instead of: Working for “exposure”
Try: “I reserve 20% of my capacity for mission-driven work at reduced rates. My social impact rate is $450/day, and I have two spots available this quarter.”
Your Pricing Action Plan
This week, take these steps:
- Use the calculator to determine your baseline rate
- Update your website and proposals with new pricing
- Practice saying your new rates out loud until they feel natural
- Implement with your next new client
Remember: Your rates aren’t just about covering costs—they’re about building the business and life you want. The right clients will understand the value and pay accordingly.
I’m curious: What’s been your biggest pricing challenge? Share in the comments below, and let’s brainstorm solutions together.
