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Determine your daily rate as an IT freelancer in 5 stepsDorien Jorissen
One of the hardest things you will ever have to do as a freelancer is determining your rates. If you charge clients too much money, they won’t want to work with you. If you don’t charge them enough, you won’t earn the money to live your life comfortably. So establishing the right price for your services is crucial.
Many blogs have already been written about freelancers determining their hourly rates or rates per project. But what if you’re a freelancer in the IT world and you perform long-term projects from your client’s office? Some of the general rules don’t apply to you then.
In this blog you will discover how to determine your daily rate as a freelancer in this specific situation.
1. Identify your target annual income
Everything revolves around how much money you want to make as a freelancer. In order to answer this question, you first need to find out how much you spend on bills, food, traveling and living “comfortably” on a monthly basis.
To pay my bills, eat, travel and live “a comfortable life,” I need to make at least X per month.
Of course this means that your target annual income highly depends on your personal situation:
- Family status: Are you single, living together or a parent of 2 children?
- Location: London and New York are a bit more expensive to live in than Brussels.
- Skills: Some (niche) skills are higher in demand than others and wil be better paid.
2. Calculate your business expenses
After determining how much you want to earn each year, you have to realize that annual earnings and annual income are not the same thing. For doing business, you also need to take into account certain business costs. Have you already considered these expenses?
- An office space
- A computer & phone
- Web hosting & internet
- Marketing & project management tools
- Invoicing & accounting software
- PayPal or other money transfer fees
- Accountant fees
- Insurances (health insurance, …)
- Taxes (self-employment taxes, personal income taxes, …)
- Social contributions
- Costs for traveling
Add these business expenses to your ideal annual income for a more realistic view of your yearly expenses as a freelancer.
3. Determine your number of billable days per year
Okay, you’ve calculated your costs (both personal and businesswise) on a yearly basis. Now you can start determining your number of billable days per year.
As you know, a year has in general 365 days. You won’t be able to freelance on all of them though. Just think about
- vacation time (4 weeks),
- holidays (10 days),
- sick days (1 week),
- and weekends (52 weekends).
Subtract these days from the yearly number of days and you come to about 216 working days each year.
4. Arrive at your daily rate
Now that you know how much you need to earn each year and how many days you’re able to work on a yearly basis, you can arrive at your daily rate. Divide your wanted annual income (including business costs and taxes) by the number of billable days each year to determine your price per working day.
Target annual income / Billable days per year = Daily rate
Great, that’s the daily rate you can charge your clients!
Just remember to stay competitive within your country and domain too. If your rates are excessive, potential clients won’t choose you as a partner.
There’s one issue we haven’t taken into account yet… Experienced freelancers will take much less time to complete projects than their younger counterparts. This is the moment value comes into play.
5. Don’t forget to include your value!
Including value into your rate as an IT freelancer isn’t that easy. It’s the point at which you step into a realm of 100% subjective opinions. And just a small warning: not everyone will agree on how much value you contribute to a project. That’s why you need to take into account
- how well you know a certain domain / language / framework / system,
- if and how well your client and their employees know them,
- how much value you specifically can add to the project of your client.
Besides value, also experience, self-education and industry determine your price as a freelancer.
First of all, the more experience you get in your domain / language / framework / system, the higher your rates can go. Investing in self-education through online courses, events, workshops, … is also a great way to ensure that your rates raise to a higher level. Finally, freelancing across multiple industries (such as healthcare, banking, media, …) makes you more attractive to clients. Because of your experience in several sectors, they know if you will thrive in their sector too.
Ready? Set. Go!
Now you have all the necessary information you need to determine your daily rate as a freelancer in the IT world. Keep in mind that you should review your rates once in while to include your (new) value, but don’t do this too often. You also need to stay consistent and professional towards your clients.
If you’re looking for a new project now or in the future, don’t hesitate to take a look at the available projects through IT MATCH!