💰 Ultimate Freelance Pricing Guide

I’ve worked with 20+ talent platforms and marketplaces and have helped over 4.5 million people across 190+ countries in their freelance journey. I’ve become the go-to price consultant and wage negotiator in my friend group because of it.

Here’s the TLDR about all things freelance pricing.

*Note - My example figures are simply for understanding and do not reflect accurate market rates for products and services.

Pricing Models 101

Time and Materials

Likely one of the most obvious and popular models, Time and Materials consists of setting a time-based rate (hourly, daily, weekly, monthly) and customers pay for the actual time spent by the service provider and the materials used during a project.

Example: A Software Developer charges $80 per hour, works 40 hours on a project, and buys and implements a tool for a customer that costs $500. Their invoice would show $3700 (plus taxes, if applicable).

Project and Milestone

This is a simple and common model, Project and Milestone pricing involves billing clients after achieving specific deliverables.

Example: A Creative Director running a brand redesign may be invoicing their client $20,000 after delivering a brand strategy, $10,000 after creating messaging tone and voice, $10,000 after creating a visual language and logos. Breaking apart a $40,000 project as deliverables are shipped.

Value-based

This is often more an art than a science. Value-based pricing is a strategic approach where the price of a product or service is determined based on its perceived value to customers rather than historical pricing or production costs. It’s often used for outputs with high perceived value, unique features, emotional appeal, and scarcity.

Example: Management Consultants often price based on value. The value that they provide through strategic advice, problem-solving, and expertise is priced much higher than simply the cost of time and is much more nuanced than a specific set of deliverables.

Retainer

Typically used in longer relationships, a retainer pricing model is where clients pay in advance for ongoing services provided during a set period. Unused retainer time usually expires and, depending on the agreement, the client can or cannot take unused time into the next month.

Example: A lawyer charges a $1000 retainer fee per month for 10 hours of work. The client pays in advance. The lawyer works 4 hours and deducts $400 from the retainer, leaving a balance of $600. This is where their agreement will need to specify what happens next.

They must determine in their initial contract if the lawyer will

• Keep the $600 and the client prepays the following month’s $1000 retainer,

• Roll over the $600 balance to the following month, or

• Refund the client $600

Success

This strategy is an “output” based model, rather than an “input” based model. Success-based pricing is a strategy where freelancers charge clients only when a successful transaction occurs between the client and an end customer. This ensures that both client and freelancer pre-define “success” when entering an agreement and aligning it with business goals.

Note: This may be a success-only agreement where payments only occur if the client earns more revenue from end-clients OR this may be added on top of another price model where someone is paid by time or deliverable AND commission or equity on top of this.

Example 1: A Marketing Consultant sets up a new customer lead channel (referral program, partnerships, ads, etc.). They may charge a % commission or affiliate fee on all end-customer transactions completed through that channel for a period of time (6 months to a year).

Example 2: A Strategic Advisor may charge a low retainer or advisory fee to a startup on a strict budget and accept an equity or share option grant in exchange for reducing their rates. They only earn money if the company is successful (earn more revenue, investment, etc.)

You’re Probably Not Charging Enough

Common Mistakes

The most common approach to pricing, especially for new freelancers coming from full-time in-house employment, is to take their annual after-tax / take home salary and split it out into an hourly rate.

Here’s why that’s a terrible approach. You’re not accounting for other costs and expenses like:

• Taxes - These are usually withheld in your pay and you’ll now have to remit your own taxes. Depending on how you’ve structured your business (sole proprietor, incorporated, etc.) and your income level, you’ll have a different taxation rate.

• Insurance, Benefits, Pension - Did you get health, life, or unemployment insurance, pension contributions, or related benefits? You have to take the direct costs of these and add them to your rates as you’ll now pay for this yourself.

• Time Off - Your salary usually accommodates a certain amount of paid time off (government-required or otherwise). Now you don’t have that. You’ll need to inflate by the amount of days that you’ll want to take off.

• Down Time - Different from time off, you have to accommodate for the fact that you will not have guaranteed work all the time. You will have time spent on marketing and promoting yourself, admin and invoicing time, etc. that are not all billable hours but are required for you to successfully run your business.

• Additional Costs - Do you need specific software? New devices every few months or years? Travel, learning/skill development, or advertising investments? These all need to be added, too.

• Bulk Pricing - It’s harder to fill your calendar with hourly commitments. Consider making your hourly rate higher than your day rate which is higher than your part-time rate, which is higher than your full-time rate, etc. It incentivizes clients to purchase more time and gives you more guaranteed income. Your cheapest discounted rate should still cover all costs listed in previous bullets.

Let’s do the Math

Pricing, in general, is always subjective. Everyone’s costs differ, methods differ, and markups differ. You do not need to subscribe to this formula AT ALL and should create your own. This is simply to illustrate things that people might be missing out on.

Here’s a real-life scenario as an example.

Jane was laid off from her job as a software developer at a tech company and wants to go freelance. She has already had inquiries from people in her network who want to hire her on a fractional basis. She’s trying to calculate her rate card and has chosen a time and materials pricing model. Her gross salary was $150,000/year.

👎️ She should NOT do this

Take 150,000 / 52 weeks / 40 workable hours per week giving her a rate of $72/hour. 

While this accommodates her taxes as it’s her pre-tax salary amount, she’s still losing money.

👍️ She should do THIS

1. Accommodate these additional costs to her starting reference point of $150,000

   • Add Healthcare costs of $250/month = $3,000

   • Add Pension contributions of $500/month = $6,000

   • Add Software, Hardware, and Training budget of $100/month = $1,200

   • Assume that she will have downtime between client projects if she loses a client, etc. She thinks she’ll be working 80% of the time (multiply the total by 1.2 to accommodate for a 20% down time)

   • Assume that she will take 3 weeks of holidays (divide by 49 weeks in the year)

   • Assume that she will need 5 hours per week in admin time (divide by 35 workable hours per week instead of 40)
     
     ((((150,000 + 3,000 + 6,000 + 1,200) x 1.2) / 49) / 35) = $112 / hour
     

2. She wants to incentivize her customers to buy more time from her so she will structure her rates as follows. Remember, your full-time rate should be the most attractive offer for customers but should still cover all costs.

   • Full-time rate is $112/hour (our min. base cost)
     x 40 client hours = $4,480/week

   • Part-time weekly rate is $112/hour X 1.1 (10% markup on cost) = $123/ hour 
     x 20 client hours = $2,464/week

   • Hourly rate is $112/hour x 1.2 (20% markup on cost) = $134/hour

You can see that this adds up quickly. If Jane simply took her salary split at $72/hour, she would be nearly halving her potential rate.

When was the last time you raised your rates? You might be overdue.