Setting your rate is the hardest decision most freelancers make, and the one they most often get wrong. Price too low and you work flat out for a wage worse than employment. Price too high for your market and the work dries up. The uncomfortable truth is that the majority of new freelancers undercharge, because they anchor to an employee salary and forget everything an employer used to cover for them. This guide shows you how to set a rate that actually pays you properly.
It is written for UK freelancers and the self-employed who want a rate based on real numbers rather than a nervous guess.
Why You Cannot Just Copy an Employee Salary
The classic mistake is to take a salary, divide it by the hours in a year, and call that your rate. As a freelancer you now cover everything the salary quietly included: income tax and National Insurance, pension, holiday, sick pay, equipment, software, insurance, training, and the time you spend not billing. If you charge like an employee, you take home far less than one. Your rate has to carry all of that, or it is not really paying you.
Work Backwards From Your Target Income
The most reliable way to set a rate is to build it from what you need to earn. The method is simple.
- Start with your target take-home pay for the year.
- Add your business costs: software, equipment, insurance, accountancy, travel, marketing.
- Add a provision for tax and National Insurance, and for a pension if you want one.
- Add a buffer for quiet periods, because the work will not be perfectly steady.
- Divide the total by the number of days you can realistically bill in a year to get a day rate.
That final number often surprises people, and it should. It is what you actually need to charge to hit your target, not what feels comfortable to say out loud.
The Billable Days Reality
The step that catches most freelancers out is billable days. You cannot bill all 365 days, or even all your working days. Take off weekends, holiday, the odd sick day, and then the time you spend marketing, quoting, doing admin, chasing invoices and learning your craft. What is left, the days a client actually pays for, is often only around a hundred and twenty to a hundred and eighty days a year. Dividing your target by real billable days, not total days, is the single biggest reason a properly set rate looks higher than expected.
Choose Hourly, Day Rate or Project Pricing
Once you know your underlying number, decide how to present it.
- Hourly suits small, open-ended or support work where the scope is unclear.
- Day rate suits work booked in blocks and is easy for clients to plan around.
- Project or fixed price suits well-defined work and rewards you for being efficient, because you are paid for the outcome rather than the hours. It also protects a fast, experienced freelancer from being punished for working quickly.
Many established freelancers move from hourly towards project pricing as they get faster and more confident, because it decouples their income from the clock.
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Get The Playbook - £6.99Check Your Rate Against the Market
A rate built from your numbers only works if the market will bear it. Research what others at your level charge in your field and region, but do not race to the bottom. There is almost always someone cheaper, and competing on price alone is a trap. Position yourself on the value and reliability you offer, and aim for the middle of the market or above once you have a track record.
Factor In the Client and the Project
Your headline rate is a starting point, not a fixed law. Adjust it for the job in front of you: rush deadlines, difficult or high-maintenance clients, unusually large scope, or work outside your core skill all justify a higher figure. A long, steady, well-run contract might justify a slightly keener rate in exchange for security. Price the actual job, not just the calendar.
Common Rate-Setting Mistakes
- Charging like an employee and forgetting tax, pension, holiday and overheads.
- Dividing by total days instead of real billable days.
- Competing purely on price and racing to the bottom.
- Never raising rates, so your income falls in real terms every year.
- Quoting a number nervously and then discounting it before the client even pushes back.
How to Raise Your Rates
Rates should rise as your skill, speed and reputation grow. Raise them for new clients first, where there is no history to anchor against, and give existing clients notice with a clear, confident, matter-of-fact message. Some may leave, and that is part of the process: the clients who value your work stay, and you have made room for better-paying ones. Freelancers who never raise their rates are quietly taking a pay cut every single year.
The Bottom Line
Build your rate from your target income, your real costs and your genuine billable days, then sense-check it against your market and adjust for the job in front of you. That number will almost always be higher than the one you first had in mind, and that is the point. The freelancers who thrive are the ones who charge what the work is worth, not what feels safe to ask for.