The Difference Between Freelance Hourly Rates and Project Fees
Figuring out freelance hourly rates is a key component to developing your business model as a freelancer. While there are several ways to charge clients, establishing an hourly rate is a useful benchmark for freelancers to price projects and meet income goals.
Why freelancers should have an hourly rate
There are practical reasons why establishing a freelance hourly rate is useful from a business standpoint. With hourly rates, freelancers get paid for scope creep (when a project becomes bigger than expected) instead of having to renegotiate. Hourly rates can also be boundaries: If you’re scheduled to work five hours on a project, that’s when your work is done.
But oftentimes, using an hourly rate disincentivizes efficient work and the skills you’ve accumulated that allow you to complete a project quickly and competently. For example, if my hourly rate is $100 and I write an article in one hour, I’ll get paid $100. Someone working slower but with the same hourly rate could write an article, but if they wrote it in three hours, they’d get paid $300. It’s entirely possible that the quality of a $300 article and a $100 article could be exactly the same, too.
Even so, knowing your own hourly rate is useful to create project fees that reward you for your skills and efficiency.
With minimum wage in the US under $15 per hour, it can be hard to demand a rate that’s astronomically higher than that. It can also be easy, as a freelancer, to undervalue your own work. But when calculating your freelance hourly rate, you’re taking into account your cost of living, skills, taxes and the time to complete the project.
Your freelance hourly rate should be based on your income goals, not the industry standard. First off, calculate your monthly living expenses, which might include rent, phone bill, health insurance, utilities, student loan payments and groceries. This should also include professional costs like office space, subscriptions, internet, equipment or marketing expenses.
Do the math
As Jenni Gritters, co-host of the Writers’ Co-op, outlined for Indy, you figure out how much you need to make per month and bump that number up 20 percent or more to account for taxes. This is the baseline for how much you need to earn. From there, determine how many hours you want to work per month. Divide your monthly income number by the number of yours. This gives you your minimum hourly rate.
The Writers’ Co-op has a supremely helpful resource, Business Planning 101 for Freelance Creatives, that outlines this math. It also lays out how to define your values and pinpoint the services you offer.
At this point, you know what you need to charge clients to survive. But this still doesn’t account for the unpaid labor that goes into freelancing: billing, finding new clients, pitching, etc. It also doesn’t include health insurance costs, nor time off for holidays, vacations, or sick leave. Remember this original low number, but you should be charging significantly more to account for unpaid work, time off, money going into savings and a cushion for tough times.
Your hourly rate will likely be higher than “industry standard” — a quick Ziprecruiter search tells me that the standard rate for journalists is $20 per hour. Most people making the industry standard rate are employees of a company, working eight hours a day and receiving benefits like time off, health insurance and a 401k. But even if I consistently worked eight hours a day at $20 per hour, it wouldn’t be enough for me to pay my monthly expenses. By asking for higher rates, you’re enabling yourself to survive, but you’re also setting the expectation for employer’s across the industry that freelancers need to be paid living wages.
Project fees > Hourly rates
Many freelancers recommend using a project fee instead of an hourly rate to more accurately account for the experience you bring to a project. As marketing consultant Daniel Rosehill writes in his blog, “Clients will often balk at an hourly rate but accept unquestioningly the exact same rate if it is just presented differently — such as worked into a project fee.”
Journalist and Writers’ Co-op co-host Wudan Yan tweeted in April 2021, “Today’s freelance reminder: hourly rates devalue the end product and punishes contractors who are efficient, and encourages dawdling. Project rates are a much nicer place to live (and project rates can be calculated based off an estimated hourly rate, who the client is, etc.)”
Even when you’re working on a project fee basis, it’s still a good idea to keep track of your hours. You can use apps like Toggl to make sure you’re not going below your hourly rate. They give you a better idea of what hourly rate actually is and encourage efficiency in your work.