The Way We Work
January 11, 2011 by Tamara Rice

Setting your rate may be the most important decision you make as a freelancer, and it's one of the hottest topics among contractors. Charging too much -- or even too little -- can stall your career and impact the way you are perceived as a professional, so it's important to put the research into setting an appropriate rate.

While actual rates vary widely from field to field (and from location to location), there are four very basic steps you can take to calculate your rate today:

1. Find your competition. One of the best ways to find actual contractors in your field is to perform a search using the same phrases an employer might use to find you. For example: software development contractor, freelance writer, contract web designer, etc. Vary the wording and do multiple searches. On oDesk, you can start by finding your specialty here and reading through various contractor profiles.

3. Narrow the competition based on experience and education. If you have any degree -- even if it's not in your field -- you can charge a little more than if you have none at all. (Maybe even as much as 20% more than someone without a degree.) However, with most fields of contract work, experience is the key and can be shown in years or in the sheer number of projects completed. If you have less than a year of experience in your field or less than a year of experience as a contractor, you should expect to start out in the lower end of rates.

4. Narrow the competition to your part of the world. Now that you have a global perspective on rates, begin to focus on the going rates of those who live in your general area -- your city, your country, or (at the very least) your continent. A web designer located in New York City is likely to set a higher rate than one in Delhi, India. From a U.S.-based employers' perspective, the NYC contractor will already have an understanding of U.S. business practices, culture, and communication that a contractor located elsewhere may not. The more you can prove an understanding of your prospective employers' needs and expectations throughout your profile and application, the less geography matters in calculating your rate--but newer contractors need to incorporate the influence of location in setting a reasonable rate to start from.

5. Calculate a comparable rate and measure it against your budget. Estimate a rate that is fair according to your research regarding career field, education, experience and location. Then do the math to see if this rate will allow you to meet your financial obligations, including the expenses of being your own boss -- like paying for your own health insurance, maintaining your computer, and giving yourself opportunities for ongoing education and career growth.

If the rate pays the bills, then congratulations, you are off to a great start. Set your rate accordingly and prove your worth to those who hire you.

IMPORTANT NOTES ON SETTING RATES:

compare and calculateIf you can't live on the fair rate you calculated, then you may need to make some bold decisions. You can set a rate that pays the bills and hope employers choose to hire you at that "inflated" rate. (If they don't, a new career path or simply a reduction in living expenses may be in order.) Just remember that when you overcharge, you risk receiving negative feedback that may affect your ability to land the next job. People expect to get what they pay for, and if you are not worth what you are charging, employers will eventually stop hiring you.

If you are new to contract work, start cheap and increase steadily. Many professionals who make the switch from traditional to contract work balk at lowering their income initially, but it's only a temporary dip to build your reputation. If you are having trouble landing contract work at your desired rate, offer to work for a discount (20 - 50% less), but always with two caveats:

  1. It is for a short-term "let me proove my worth to you" assignment.
  2. Make it clear you will charge a higher and more appropriate rate next time the employer hires you.

If you are a career contractor, give yourself a regular raise. Every year that you work as a contractor in your field makes you more valuable. Increase your rate by 1 - 5% each year, according to how much experience you gained in the year, new work responsibilities you've taken on, and how much the general cost of living increased in your part of the world.

Tamara Rice

Freelance Writer and Editor

Tamara Rice is one of several freelance writers on the oDesk Blog team. She joined the oDesk marketplace in 2009, after more than six years on staff at an award-winning national magazine.

  • janeth

    i find this useful..i had the hardest time trying to find the rate to charge.thank you

  • http://www.katrinacanlas.com/ KC Canlas

    Thanks for the tips. Will certainly use these as I move forward in my online career. However, one question, are there really 5 tips? I can't seem to see Tip #2.

    Thanks!

  • http://www.superscriptor.com Bogdan P.

    Regarding the regular raise: I find that 1-5% is very litlte. Personally, I doubled my rate in less than four months. This is because I had the courage to ask more for my work and employers agreed that I deserved it.
    In a year, you should be able to grow more than 5%. If you don't, you should be asking yourself why you've stagnated in the past year.

  • Janell Williams

    This is great to know and have. What a great reminder to give myself a raise every year as I gain experience.

  • http://www.sevenstew.com microsourcing

    I have learned a significant amount of useful information from your post. Thanks for this wonderful share!.. really appreciated..

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