How to Set Your Rates as a Freelancer or Consultant

Why Getting Your Rate Right Matters

As a freelancer, your rate determines your income, your lifestyle, and the sustainability of your business. Set it too low and you work long hours for inadequate pay. Set it too high and you struggle to win clients. The sweet spot requires understanding your costs, your market, and your value.

Step 1: Calculate Your Minimum Viable Rate

Start with what you need to earn, then work backwards.

Annual Income Target

Decide what you need to take home after tax. Include:

• Living expenses (rent/mortgage, bills, food, transport)
• Savings (emergency fund, retirement, holidays)
• Business costs (insurance, software, equipment, marketing)

Let us say your target take-home is £40,000.

Add Tax and National Insurance

For a sole trader earning £55,000 (to take home £40,000):

• Income tax: approximately £8,486
• Class 2 NI: £179
• Class 4 NI: approximately £2,546
• Total tax: approximately £11,211

So you need to earn approximately £55,000 gross to take home £40,000.

Add Business Expenses

Typical annual expenses: £3,000-£8,000 (depending on your field)

Total revenue needed: approximately £60,000

Calculate Your Billable Hours

You will not work and bill for every hour of every day. Account for:

• Holidays: 5 weeks
• Sickness: 1 week
• Admin, marketing, and business development: 1 day per week
• Available working weeks: 46
• Billable hours per week: 4 days × 7 hours = 28 hours
• Annual billable hours: 46 × 28 = 1,288 hours

Your Minimum Rate

£60,000 ÷ 1,288 hours = £47 per hour

This is your minimum. Many freelancers should charge significantly more to account for growth, professional development, and the realities of inconsistent billable work.

Step 2: Research the Market

Check what others in your field charge:

• Ask freelancer networks and forums
• Check job boards for contract rates
• Look at competitor websites
• Ask clients what their budget range is

Your rate should be competitive but not the lowest. Competing on price alone is a race to the bottom.

Step 3: Consider Value-Based Pricing

Instead of hourly rates, consider charging based on the value you deliver:

• A logo design might take 10 hours but be worth £5,000 to the client
• A tax review might take 3 hours but save the client £10,000
• A website might take 40 hours but generate £100,000 in revenue for the client

Value-based pricing decouples your income from hours worked and rewards expertise.

Step 4: Review and Increase Regularly

Review your rates annually:

• Have your expenses increased?
• Has your experience grown?
• Are you consistently fully booked? (A sign you should charge more)
• Has the market moved?

Increase rates for new clients immediately. For existing clients, give notice and explain the value you provide.

Common Pricing Mistakes

Forgetting Tax

The £50 per hour that sounded great becomes £30-£35 after tax and NI. Always think in post-tax terms.

Not Accounting for Unbillable Time

If you only bill 60% of your working hours, your effective rate on total time worked is 60% of your quoted rate. Price accordingly.

Undercharging Out of Fear

Many new freelancers undercharge because they lack confidence. Start at a fair rate and increase as your reputation grows.

Track your income and understand your true hourly earnings with Accounted.

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Know your numbers, set your worth. Sign up for Accounted and let Penny help you understand your income so you can price your services with confidence.