One of the trickiest parts of making the shift from full-time to freelance is learning how set your hourly rate. There are many factors to consider when going from salary to hourly, including your level of expertise, added costs for health insurance and other overheads, as well as your time and the project scope. The further along you are in your career, the more you can charge; but setting your rates too high can disqualify you from many opportunities that can bring professional development and build your portfolio.
We’ll take you through the various parts that make up a salary calculation and help you determine how to optimize your offering for the best possible rates. But, if you’re looking for a quick benchmark, CodeMentor reports that experienced developers based in the US are asking for between $60 – $100+ per hour; developers based outside the US ask for between $40-60, depending on where they’re from.
Here are some tips for setting your hourly rate as a freelance developer.
Fixed-rate, hourly rate or retainer?
The first step to setting your rate is to determine how you’re going to be paid. There are three ways to charge as a freelancer:
- Fixed-rate: a fixed-rate project is one in which the price is agreed upon in advance. The final cost doesn’t change, regardless of how many hours you spend doing the work
- Hourly rate: more flexible than the fixed rate, the hourly rate means an hour paid for an hour worked. Some companies ask developers to track their time for more transparent invoicing
- Retainer: “retainer contracts are based on an hourly rate, but specify the number of hours and weeks the freelance developer is to be retained for,” writes CodeMentor. For instance, a client can reserve a developer’s time, ensuring their project will get priority for 20 hours per week for 10 weeks.
The way you charge – fixed, hourly or retainer – depends on the scope of the project and the type of work you’re asked to provide. Fixed cost contracts are generally not suitable for developers unless you’re already experienced in setting expectations, scheduling milestones and adhering to your timeline. Since one report found that more than 83% of software projects aren’t carried out as initially planned, you could lose a lot of money when a fixed-price contract goes off schedule. For this reason, many developers stick to retainers or hourly contracts.
What’s the market rate?
The next step is to learn more about the market in which you’re competing for work. Price your services too high, and clients will go to someone more affordable. Discount your work too much, and you’ll struggle to make ends meet.
As we mentioned previously, freelancers charge different amounts based on where they live. Cost of living varies dramatically depending on your home country; a developer in San Francisco must charge more than a developer in the Philippines. Keep this in mind as you compete for contracts. Your level of experience is also an important factor. When you’re just starting out, you may want to discount your rates slightly to help build a portfolio of work and a reputation. Ask for client testimonials as you go. Your reputation as a freelancer is crucial to continuously grow your business.
Lastly, price your services based on your unique offering. Are you well-versed in a specific language? Can you work faster than most coders in your area? Do you know how to design an app that never crashes? Price your skills higher to attract clients that are more discerning when it comes to quality and expertise.
What are your overhead costs?
There are some administrative costs you must factor into the overall rate calculation. Freelancers have to pay taxes as well as healthcare, professional development costs, software subscription fees and other things for which your company may have historically picked up the tab.
One freelance developer who has gone through this process notes, “You’ll have to pay all your own Social Security and Medicare taxes, and you’ll pay your income taxes out of whatever you have saved yourself. Make sure you factor this into your rates and that you save for it. I’ve generally saved 20% for taxes, but last year that wasn’t enough for me. I’m saving 35% this year.” If you’re unsure how much you should save for taxes, speak to an accountant who can provide more information about your tax bracket and the according rate.