This guide is for a freelancer or a two- or three-person studio selling time and expertise: a copywriter, a bookkeeper, a web designer, a consultant. You have a few clients, you suspect you are undercharging, and every new quote involves picking a number that feels safe. The aim here is to replace that guess with a method you can explain to yourself and, when needed, to a client.
There is no single correct price. There is a floor, below which you lose money, and a ceiling, above which the right clients stop saying yes. Your job is to find both and then to work out where in between you belong.
Start with the floor: what you need to earn
Most underpricing starts with a simple mistake: dividing a salary by 52 weeks and 40 hours. A freelancer does not bill 40 hours a week, and has costs an employer used to cover.
Step 1: Set your target income
Write down the gross annual income you want before tax. A useful anchor is what a similar salaried role pays where you live; job listings and government wage data give a reasonable range. Many people add a margin on top, because self-employment carries risk an employee does not.
Step 2: Add business costs
List everything the business pays for in a year: software, equipment, insurance, accounting fees, a website, training, a share of phone and internet, and any co-working space. In the US, self-employed people also pay both halves of Social Security and Medicare through self-employment tax, and the IRS describes that in its self-employment tax guidance. Health insurance and retirement contributions belong here too.
Step 3: Count realistic billable hours
Start with 52 weeks. Subtract holidays, public holidays and a sickness allowance; many people land around 46 working weeks. Then estimate how much of each week is billable. Sales calls, proposals, admin, invoicing and learning all take time no client pays for. A common working assumption is that 50 to 70 percent of working hours are billable, and early in a freelance career it is often lower.
Step 4: Do the division
Floor hourly rate = (target income + annual costs) ÷ billable hours a year.
| Line | Example figure |
|---|---|
| Target income | $70,000 |
| Business costs, insurance, extra taxes | $18,000 |
| Total to cover | $88,000 |
| Working weeks | 46 |
| Billable hours per week | 24 |
| Billable hours per year | 1,104 |
| Floor rate | about $80 an hour |
The figures above are illustrative; replace each with your own. The result often surprises people who have been quoting $40 an hour.
Then find the market range
The floor tells you what you need. The market tells you what clients expect. Gather evidence from several places.
- Published rates. Many agencies and freelancers list prices or ranges on their sites. Note ten that serve a similar client.
- Industry surveys. Professional associations in many fields publish rate surveys. These are more reliable than forum anecdotes.
- Lost and won quotes. Your own history is data. If you win nearly every proposal, your price is probably low.
- Peer conversations. Ask two or three people a step ahead of you what they charge for comparable work. Most are happy to share a range privately.
Plot your floor against the range. If the floor sits above the market’s top, you need either a narrower, more valuable niche or lower costs. If it sits well below, you have room to rise.
If you win nearly every proposal, your price is probably too low.
Choose a pricing model
Hourly rates are the easiest to calculate, and the worst for rewarding speed and skill. As you get faster, you earn less per job. Most service businesses mix three models.
Hourly or daily
Best for open-ended work where scope is unclear: consulting calls, ongoing support, emergency fixes. Use a day rate for anything longer than a few hours; it reduces clock-watching on both sides.
Fixed project price
Best for repeatable work with a clear deliverable: a ten-page website, a set of product descriptions, a year-end set of accounts. Estimate the hours, multiply by your rate, add a buffer of 15 to 25 percent for revisions and surprises, and quote the total. Define precisely what is included and what costs extra.
Retainer
A monthly fee for a defined amount of work or availability. Retainers smooth income and reward reliability. Specify the hours or outputs included, how unused time is handled and the notice period.
Value-based
Pricing tied to the result for the client, such as revenue from a campaign. This can be lucrative but needs a client who shares data and trusts you. It suits experienced practitioners more than beginners.
Write quotes that defend the price
A bare number invites haggling. A short proposal that shows understanding of the problem invites agreement.
Lead with the client’s goal
Open with one paragraph restating what they want and why. It shows you listened.
Offer three options
A basic, a recommended and a premium version, each with clear differences in scope. Clients compare options against each other rather than against a competitor, and many choose the middle.
Spell out the terms
Payment schedule, deposit, revision rounds, timeline, and what happens if scope changes. A 30 to 50 percent deposit before work starts is common for project work and protects your cash flow.
Raise prices without losing everyone
Prices should rise as your skill, demand and costs rise. The cleanest approach is to raise rates for new clients first, then for existing clients with notice.
- Set a review date each year, such as January.
- Give existing clients 30 to 60 days’ written notice.
- State the new rate and effective date plainly, with a short reason such as expanded experience or rising costs.
- Accept that a few low-paying clients may leave. That frees time for better ones.
Answering “can you do it for less?”
Every service business hears this question, often in the first conversation. Cutting the price on the spot tells the client your first number was padded, and it sets the tone for every later negotiation. Better responses change the scope, not the rate.
Offer a smaller version
“I can do it for that budget if we drop the second round of revisions and deliver five pages instead of eight.” The client keeps control, and you keep your rate.
Change the payment terms, not the total
Some clients struggle with a single large invoice rather than the total. Splitting payment into monthly instalments, with work paced to match, can solve the real problem.
Ask what the budget is
Clients often have a figure in mind and will share it if asked directly. Knowing it lets you design an option that fits rather than guessing.
Know your walk-away point
Decide before the call the lowest project fee you will accept, based on your floor rate. If the client cannot reach it, decline politely and, where possible, refer them to someone better suited to their budget. Referrals made in good faith often come back as work later.
A note on self-employment tax
The extra tax is one of the costs people most often leave out of their floor. The IRS sets the US self-employment tax rate at 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare, applied to net earnings. An employee pays only half of that, with the employer covering the rest. Build the full amount into your costs line, and check with an accountant how deductions and income thresholds apply to you.
Pricing checklist
- Target income written down
- Annual business costs listed, including self-employment taxes
- Billable hours estimated honestly
- Floor rate calculated
- Ten market data points collected
- Model chosen for each type of work
- Proposal template with three options and clear terms
- Deposit policy set
- Annual price review in the calendar
Takeaway
Calculate your floor from income, costs and honest billable hours, check it against real market data, and pick a model that rewards you for getting better. Put terms in writing and review your rates every year. A price you can explain is far easier to hold than one you guessed.
