How do you calculate your freelance design rate?

Dear Design Doctor

I am a new freelance web designer and need to know how much I can charge for my daily or hourly rate. Do I just charge what others are charging, or is there another way? How do you calculate your freelance design rate?

The Design Doctor is Patricia van den Akker, Director of The Design Trust who answered this popular question on how to calculate your hourly or daily design rate:

“Web design is a very competitive area to work in and very often the price is set by your employer or the recruitment agency you work for. Your daily or hourly freelance design rate depends on:

• What experience you have for the job and how unique your skill set is
• Where the work is e.g. London pays higher hourly rates
• How long the work is for: if the work is for a longer period then often the daily rate goes down
• The market rate. What are others charging? How competitive is the job?
• When the work takes place. Night or weekend work gets a higher rate, or if there is an emergency job to be done
• Your ability to negotiate

As a web designer, you might like to check out in particular ‘value-based pricing’ where you look at how much financial value you add with your work.  For example, if you can show that your web design has increased a previous clients’ turnover by 25% then you can charge a higher rate than if your design has had no or little-proven value.

There are three steps in calculating your freelance design rate:

Step 1: Identify your annual business costs

Firstly, identify how much you spend annually on your business: what are your annual overheads and other costs?

You might need to go through your previous years’ bills to get the facts. Don’t forget to include your phone, travel, insurance, work space, materials, and marketing costs.

As a freelance designer, your business costs will be much lower in comparison to people who run a product-based business, who have stock and require a studio.

Let’s say for this web designer who works from home or his client’s offices the total annual business costs are £ 3,500 p.a.

Then identify how much you would like as a salary.

Be aware that you will need to deduct tax and National Insurance in the UK, so let’s say that you would like to earn £27,000. (This figure very much depends on where you are and what seniority you hope to get within the business).

So this web designer would need to earn £30,500 to cover their annual overhead costs (personal and business costs = £3.5K + £27K).

Step 2: How many hours can you invoice for?

This is tricky! You will need to have holidays (we all do!) and you might get ill. You will need to spend time on admin and marketing too.

And then there are slow periods in the year such as Christmas or the summer holidays (although you might actually get booked for that to cover employees’ holidays!)

As a web designer, you might get fairly regular bookings with the same business clients for a longer period, so I would expect something like 60 – 70% of your hours to be billable throughout the year.

If you are a recent graduate then I would expect your billable hours to be far lower, and if you work in other design sectors it would also be harder to find regular repeat business, so then you might be looking at 25 – 40%. This means that you get paid on average for only 1 – 2 days per week, other days you might work but don’t get paid for it.

My suggestion is to be on the cautious side with the number of days or hours you will be able to invoice for.

So I would expect you to have something like the following annual billable hours:

48 weeks x 40hours x 60% = 1,152 hours p.a.

Step 3: Calculate your freelance design rate

Now divide your total annual business costs (step 1) by your total hours invoiced (step 2) and you’ll get your hourly or daily freelance rate that you need to charge to break even:

In our case that is £30,500/1,152 = £28 p.h. or £212 p.d. for an 8-hour day.

And that’s it! That’s how you calculate your freelance design rate.

Does that hourly freelance rate look high to you?

A couple of notes:

• You might be earning a far lower hourly rate than this in a PAYE job, but remember that this is an hourly freelance rate from which your tax, National Insurance, and all expenses will be deducted.
• Also be aware that you actually need to get the work to get this hourly rate! If your billable hours are far less than anticipated then your annual income will decrease dramatically. However, when you become better known with potential clients or employers your billable hours’ percentage should naturally increase due to repeat work, which means that your annual income will increase without having to change your hourly rate!
• Your actual daily or hourly rate will depend on a variety of factors, incl. market, your expertise and experience, total work involved, and budget.
• Be flexible with your daily or hourly rate. For long-term fixed contracts decrease your hourly rate in return for a more steady stream of billable hours. Longer term (part-time or full-time) contracts provide stability and increase your % of billable hours in the year. Be prepared to negotiate about your daily or weekly freelance design rate.
• Get it in writing. Make sure that you get your hourly or daily rate confirmed in writing or in a contract.

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