The debate between charging hourly vs by the project continues in the freelance community. Some will justify their choice based on their expertise and the speed of their work.
For some, it makes sense to charge hourly to ensure all the time spent on a project is properly compensated. Yet, there are some freelancers who feel they work too quickly to get a decent payment.
However, if you’ve decided to charge hourly, then join the hourly invoice club.
Now, it’s about deciding what hourly rate is fair for the services you provide. If you look across the world, the average rate is $19/hr. But the rates range between $11 to $28 per hour, depending on the industry.
This isn’t to say there aren’t freelancers earning $100+/hr though. There are a lot of factors at play when deciding what rate to charge.
So in this article, we’re going to cover how to come up with an hourly rate and how to invoice your clients for it.
Let’s get started!
Deciding Your Hourly Freelance Rate
This is where things can get pretty hectic, especially if you’re new to the world of freelance. You may have an idea of how much you want to earn monthly or annually, but may not have the confidence or know how to make that happen.
If this is where you’re at now, then this is a great start. Having a goal in mind will make it easier to figure out the hourly rate you should charge.
Of course, this may fluctuate based on your experience level, skill set, and industry. Also, when you’re first starting out, you’re likely to charge below-industry rates to get your feet wet.
Then once you’ve worked with a few clients and had great feedback, then you can build a portfolio that demands higher rates.
With your goal in mind, here’s a formula you can use to make it easier to come up with your hourly freelance rate based on a $75,000 salary:
40 hours per week x 52 weeks = 2,080 hours per year.
$75,000 salary / 2,080 hours = approximately $36/hr.
But this is just the starting point.
Calculating Your Expenses
The $36/hr rate is only the base pay for your freelance business. You have to factor in other expenses you’ll incur when working for your clients.
For example, you may have to travel, spend time researching or conducting interviews, offer phone consultations, use office supplies, and pay for meals at business meetings. All of this should be taken into account when calculating your hourly rate.
Now, this may mean having a different hourly rate for different clients. This is because some projects will require more research and travel while another barely has any expenses associated with it.
You also have the option of billing your expenses separately. In this case, you’ll have to keep track of your hours and your expenses using a platform like invoicely.
Be sure to keep your receipts on hand to prove the accuracy of the expenses you’re charging.
Besides client-related expenses, there are business expenses you’ll have to manage as well. For instance, rent for an office space, insurance, utilities, vacation/sick days, and contractor fees.
In order to get a complete hourly rate, you’ll need to add up all of your business-related expenses. Then add this to your salary and redo the formula again.
For example, let’s say your overhead expenses are $25,000, your salary is $75,000, and your benefits/insurance is $15,000.
When you add it all together, it’s $115,000. This is your new “salary.” If you don’t tack this on, you’ll end up paying this out of your $75,000, which would leave you with a $35,000 salary – less than half of your goal.
So your new hourly rate will be:
$115,000 salary / 2,080 hours = $55/hr.
Do keep in mind that as a freelancer you may work more or less than 40 hours per week.
Use software like invoicely to help you keep track of billable hours to determine how many hours per week, month, and year you work.
Don’t Be Afraid to Give Yourself a Raise
You don’t want to be one of those freelancers who’s underpaid because they fear losing clients. Every employee has a right to an annual review and raise.
So why shouldn’t freelancers have the same luxury? It doesn’t make sense for a novice or expert freelancer to earn the same as their beginner counterparts.
But you don’t have to do this on an annual basis. After gaining 5 to 10 years of experience, it’s time to give yourself a hefty raise.
At this point, you have a solid portfolio of skills and a long list of clients. And if you have a website or profile set up, you may even have a high rating and raving reviews.
All of this will help you to land more clients and clients who are willing to pay more for quality and expertise. Sure, you’ll come across clients who will low-ball you, especially in this “race to the bottom” culture freelancers live in today (thank you Craigslist and Fiverr).
But hold strong. Your expert hourly rate is going to weed out the good clients from the bad. You don’t want to waste time on projects for clients who don’t value your work.
It’s better to have a handful of higher-paying clients than a never-ending list of low-paying clients. The latter will only bring you more stress for less pay. Not worth it!
Then after 10 to 15 years of experience, you can give yourself another big raise. Keep in mind that you’re now much faster at what you do so you’ll need to make up for this with your boosted rate.
What took you two hours to do in the past may only take you 45 minutes to do now, deeply cutting your pay.
When it comes to justifying your higher rates, break down how your time is used so they can learn to value your time.
But as a freelancer, you’re not just charging for your time spent on working, but all the years it took you to gain that valuable knowledge to deliver satisfactory outcomes.
Designing an Hourly Invoice
Now, it’s time to create a professional invoice for your hourly rates. But before we make one, it’s essential to emphasize the importance of using tracking software.
When you’re billing hourly, you want to be as accurate as possible. The software you use should allow you to track the time you spend on each project.
Invoicely offers this feature, which makes it easy to manage time spent on projects to bill clients accordingly. This tool integrates with the invoicing feature, making it a seamless process.
Using invoicing platforms will also make requesting payments from clients faster and easier. The design is professional and everything’s automated. You can even set up payment reminders to ensure your clients never forget to pay you.
But whatever platform or software you decide to use, be sure to include key information on all of your invoices. This includes:
- Your business name or government name
- Contact information (email, phone number, social media)
- Logo (if you have one)
Then you’ll also need to include information about your client, such as their:
- Phone number
Then in the body of the invoice, you should itemize each task you perform for the client. Next to each task should be your hourly rate and how many hours worked on that particular task.
Again, invoicely, makes this simpler.
Be sure to include the subtotal for everything and any fees you’re charging, such as tax or late fees. Also, don’t forget to notify your clients in advance about any potential fees you charge.
You don’t want your invoices disputed due to lack of communication.
As for getting paid on time, make sure to send out your invoices quickly – i.e. within 24 hours of the project’s completion. Also, it’s a good idea to use an invoice numbering system so it’s easy to track and manage all of your invoices.
With an invoicing platform, this is easy to do since the numbers are auto-generated. You can even accept online payments from debit and credit cards or platforms like PayPal and Stripe.
Start Charging Your Clients Hourly
Ready to start charging your clients an hourly rate? Hopefully, this guide helps direct you down a path to a profitable freelancing career.
There are many ways you can come up with your hourly rate, most of which will consist of research. Learn about the other freelancers in your industry who have similar experience.
See if the rate you’re considering is above or below and whether you should adjust.
Whatever you decide, make sure you have an invoicing system that’s simple so you’re not spending too much time billing and less time doing what you do best – freelancing!
Let us know in the comments how you plan to estimate your hourly rate and what invoicing system you’ll use!