Growing Online Income

How To Calculate Your Contracting Rate

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Hello from beautiful Santorini and incase you’re wondering: YES IT IS AMAZING. 



One of the biggest questions I see from people who start freelancing is “How do I calculate my contracting rate?”

It’s quite different to having a traditional job that’s littered with benefits: health insurance, holiday pay and so on. It can be extremely daunting when you’re first starting out to figure out a price and to go from there.

Many people see the hourly rate that some freelancers charge and think it’s a dream job, but what about all the downsides of freelance, such as the inconsistent hours, lack of benefits, instability and more. It’s not quite as black and white as you might have first thought, and if you find yourself wanting to freelance, or already freelancing, you should check out these suggestions for how to calculate your contracting rate:

1) Work Out How Much Your Life Costs
It’s surprising how many freelancing friends of mine charge so little that they wind up barely being able to afford their lives. Yes, it’s nice to be able to work in your pajamas, but that benefit is kind of null if you have to pull 60 hours a week to pay your bills.

Add up your life expenses (rent, car payments, petrol costs, food, bills), things you want to be able to afford (gym membership, eating out once a week, a certain amount on clothes and so on) and make a total. If you have the luxury of time, why not track your spending for a month or two to calculate a real value. Include some spare ‘play money’ to give yourself breathing room.

Let’s pretend my essentials cost was $2000.

2) Work Out How Much You Want to Save
Saving is important: there’s little hope that the NZ government is going to be in a position to provide for me when I need it, so I’m looking to provide for myself. 10% would be an absolute minimum in my opinion, but in this example I’d like to aim for 20% just for illustrations sake. That’s $400 per month.

That brings my essentials + savings up to $2,400 per month.

3) Decide how much holiday time you want

Of course this would be a priority for me. In a traditional job setting you get a four week holiday – at least in NZ.

Let’s pretend I want 4 weeks of holiday a year. That’s 13.5% of the year (54/4*100). So I’ll need to add an extra 13.5% onto my total.

13.5% of $2,400 is $324

That brings my total up to $2,724. It’s getting big!

4) Estimate how much tax you will need to pay
We’ve calculated our figures on the raw amount we want to have in our pocket for our expenses, saving and um, holidays! So now we need to add on the tax amount. I pay 0% in tax, so I’ll leave this category as blank, but you should add on a percentage for your tax if you’re going to be paying it.

My total ‘needed’ amount to live the life I want (for example) is $2,724 or roughly $681 per week.

5) Play around with how many hours you want to work
Say my goal is to only work 20 hours a week, to achieve a good life work balance. I would divide $681 by 20 hours, to get $34.05 per hour.

This is actually quite a funny figure for me as I was earning around $40 per hour when I was full time freelance writing.

6) Adjust the number as necessary
If I was wanting to get into freelance writing and didn’t have my current income levels, I think I would play around with charging clients between $35-50 an hour, depending on how many hours they were giving me. I think this is a fair level for my skill level and would allow me to live a good life (in Guatemala) without working too much.

How did you calculate your freelancing rate? Are you already freelancing or thinking about making the jump?