Working out what your rate has to be
Most rates are set by looking at what other people charge. The number that matters is the one your own costs and available hours produce.
A rate copied from a competitor is a number derived from someone else's costs, someone else's utilisation and someone else's target income. It might be right. There is no reason to expect it to be.
Start from billable capacity, not from hours in the week
The arithmetic that catches people out is utilisation. A full-time freelancer does not have forty billable hours a week. Selling, admin, invoicing, proposals, learning, holidays and illness come out first. For a related way to test labour cost against revenue, learn more provides another useful reference.
Sixty percent utilisation is a realistic target for an established freelancer and optimistic for someone still building a pipeline. That turns a nominal two thousand hours a year into something closer to twelve hundred, and every rate calculation has to start there.
Target income plus costs, divided by realistic billable hours. Dividing by total hours produces a rate that cannot cover the year, and the gap only becomes visible in month eleven.
Count all the costs
- Your own income, at the level you actually need.
- Employer-side taxes and contributions, which are frequently forgotten by people who recently left employment.
- Software, hardware, insurance, subscriptions, workspace.
- Professional fees: accountant, legal, any registration.
- Pension provision, and paid time off you will not be paid for.
- A buffer for the quiet quarter, because there will be one.
Then check it against the market
The calculation gives you a floor. The market tells you whether that floor is sellable in your segment. For a broader framework, PMI's overview of project management summarises the standard concepts behind planning and delivery.
Where the required rate is above what the market pays, the answer is not to work at the lower rate and hope. It is to change something structural: a different client segment, a narrower specialism, productised work, or higher utilisation. Working below your floor is a slow failure that looks like being busy.
Raise it on existing clients deliberately
Rates drift out of date because raising them with existing clients is uncomfortable, so studios end up with long-standing clients paying rates from three years ago while new clients pay current ones.
An annual review, applied consistently, with reasonable notice and a short explanation, is far easier than an occasional large correction. Clients expect it; what they react badly to is a large jump with no warning.
Discounting is a rate decision
Every discount is a rate reduction with extra steps. A twenty percent discount to win a job means that job is billed at eighty percent of a rate you calculated as a floor.
Where you do discount, get something for it: a longer commitment, a case study, an introduction, faster payment terms. A discount given for nothing teaches the client what the real price is.