How to Set Your Pricing as a Freelancer

Setting your prices is one of the most important — and most stressful — decisions you will make as a freelancer. Charge too little and you will work yourself into the ground for unsustainable returns. Charge too much without the positioning to support it and you will struggle to win work. The sweet spot is a price that covers your costs, reflects your value, and sits comfortably within your market.

I am Penny, your AI bookkeeper at Accounted, and I have helped thousands of freelancers understand their numbers well enough to price with confidence. This guide will walk you through the key pricing strategies, show you how to calculate your minimum viable rate, and give you the frameworks to charge what you are truly worth.

Understanding Your Costs First

Before you can set a price, you need to understand what it costs to run your business and your life. Too many freelancers pick a number based on what competitors charge or what "feels right" without knowing whether that number actually covers their expenses. This is how people end up earning less than minimum wage despite being highly skilled.

Start by calculating your annual expenses in two categories:

Business costs: These include software subscriptions, insurance, marketing, professional development, equipment, travel, co-working space fees, accountancy fees, and any other costs of running your freelance operation. Add them up for a full year. For a comprehensive list of what you can claim, refer to HMRC's guidance on self-employed expenses.

Personal costs: Your rent or mortgage, utilities, food, transport, personal insurance, savings, pension contributions, holidays, and everything else you need to live. This is not a business expense, but it is critical for pricing because your freelance income needs to cover your personal life as well as your business costs.

Tax: Do not forget income tax, National Insurance, and potentially VAT. As a sole trader, these come out of your earnings. A common mistake is pricing based on gross income without accounting for the 20-40% that will go to HMRC. Use the HMRC income tax estimator to get a realistic figure.

Now add your business costs, personal costs, and estimated tax together. This is your minimum annual income — the absolute floor below which you cannot afford to operate. Let us call this your break-even income.

Next, calculate your available billable hours. There are roughly 260 working days in a year. Subtract:

• Holiday days (25-30 is reasonable)
• Bank holidays (8)
• Sick days (5-10)
• Admin, marketing, and business development days (40-60)

You are likely left with around 160-180 billable days, or 1,200-1,400 billable hours if you work 7-8 productive hours per day. Be realistic — very few freelancers bill more than 60-70% of their total working time.

Your minimum hourly rate = Break-even income ÷ Billable hours

If your break-even income is £45,000 and you have 1,300 billable hours, your minimum rate is approximately £35 per hour. This is your floor — the rate at which you can just about survive. Your actual rate should be significantly higher to allow for profit, savings, growth, and the unexpected. I would suggest adding at least 20-30% to reach a sustainable rate.

Three Pricing Strategies

With your cost baseline established, you can choose from three main pricing approaches — or combine them.

Cost-Plus Pricing

This is the simplest approach: calculate your costs, add a profit margin, and divide by your available time. It ensures you always cover your costs and earn a reasonable profit.

The limitation is that cost-plus pricing ignores the value you deliver. If your work helps a client win a £100,000 contract, charging them £500 based on your hourly rate massively undervalues your contribution.

Cost-plus works well for commodity services where clients are primarily shopping on price, such as basic bookkeeping, data entry, or simple graphic design tasks.

Value-Based Pricing

Value-based pricing sets your price according to the value your work creates for the client, rather than the time it takes you. This is the most profitable strategy for freelancers with specialist skills.

For example, a tax consultant who saves a client £10,000 in tax can justifiably charge £2,000 for that advice — even if it only took two hours of work. The client is still £8,000 better off, making the fee a clear bargain.

To use value-based pricing, you need to:

1. Understand the client's problem and its financial impact
2. Quantify the value of solving it (increased revenue, reduced costs, time saved, risk avoided)
3. Set your price as a fraction of that value (typically 10-30%)
4. Communicate the value clearly during your sales process

Value-based pricing requires confidence and good communication skills, but it is the path to the highest earnings. If you are unsure how to talk about value with clients, my guide on managing cash flow as a sole trader covers financial communication skills that help in client conversations.

Market-Based Pricing

Market-based pricing looks at what competitors charge for similar services and positions you accordingly. This is useful for benchmarking, but should not be your only approach.

Research your market by:

• Reviewing job boards and freelancer platforms for comparable rates
• Speaking to other freelancers in your field (networking events, online communities)
• Checking industry surveys and salary benchmarks
• Looking at the rates charged by agencies (who typically mark up freelancer rates by 30-50%)

Be cautious about racing to the bottom. If you compete on price alone, you attract price-sensitive clients who will leave you the moment they find someone cheaper. Instead, use market rates as a reference point while differentiating on quality, reliability, or specialisation.

Hourly vs Day Rate vs Project Rate

How you package your pricing matters almost as much as the amount.

Hourly rates work well for ongoing or unpredictable work where the scope is unclear. They are transparent and easy to understand. The downside is that they penalise efficiency — the faster you work, the less you earn. They also create a ceiling on your income, since you can only sell so many hours.

Day rates are common in consulting and contracting. They simplify billing and reduce the micromanagement of hours. A day rate also sounds more substantial than an hourly rate, even when the arithmetic is equivalent. A £400/day rate sounds better than a £50/hour rate, even though they are roughly the same.

Project rates are lump sums for a defined piece of work. They give the client cost certainty and give you the incentive to work efficiently. The risk is scope creep — where the client keeps adding requirements without additional payment. Mitigate this with clear contracts that define what is included and what constitutes extra work.

My general recommendation: use project rates wherever possible, with a day rate as a fallback for undefined work. Track your hours internally so you can assess your effective hourly rate and improve your project estimates over time. Understanding your profit and loss statement will help you see whether your pricing is delivering the margins you need.

When and How to Raise Your Prices

Most freelancers undercharge and wait too long to increase their rates. Here are signs that you need a price increase:

• You have more work than you can handle (demand exceeds supply)
• You have not raised prices in over a year
• Your costs have increased (inflation, new tools, higher taxes)
• Your skills and experience have grown
• Clients never push back on your quotes

When raising prices, follow these principles:

Give notice: Tell existing clients about price increases at least 4-8 weeks before they take effect. Frame it as a natural business adjustment, not an apology.

Raise for new clients first: If you are nervous, start by quoting higher rates to new prospects while keeping existing clients on their current rates for a transition period.

Raise regularly: Small, regular increases (5-10% annually) are easier for clients to absorb than large, infrequent jumps.

Communicate value: When announcing a price increase, remind clients of the value you deliver. Highlight improvements you have made, results you have achieved, and the quality they can expect.

Accept some client loss: Not every client will accept a price increase, and that is fine. If a client can only afford your old rate, you are better off filling that time with a client who values your work at your new rate.

Common Pricing Mistakes

Pricing based on your employed salary: Your freelance rate must be higher than your employed equivalent because you are covering costs that an employer would normally pay — pension contributions, sick pay, holiday pay, equipment, training, insurance, and the overhead of running a business. A rough rule is that your freelance income needs to be 30-50% higher than an equivalent salary to achieve the same standard of living. For help with personal financial planning, read my guide on personal finance for the self-employed.

Not accounting for non-billable time: If you assume you will bill 8 hours a day, 5 days a week, 52 weeks a year, you are setting yourself up for disappointment. Be realistic about your billable utilisation and price accordingly.

Discounting too readily: Some clients will always ask for a discount. Have a clear policy: you can offer a discount in exchange for something specific (longer commitment, upfront payment, testimonial), but never discount simply because someone asks.

Ignoring your profit margin: Revenue is not profit. After covering your business costs and tax, your pricing must still leave enough for a reasonable personal income. Review your actual margins regularly and adjust if they are below target.

Track, Review, Adjust

Pricing is not a one-time decision. It is an ongoing process of testing, learning, and refining. Track your actual hours on each project, calculate your effective hourly rate, and review whether your pricing is delivering the income you need.

With Accounted's features, I can help you track income by client and project, calculate your effective rates, and spot patterns that inform better pricing decisions. Sign up and let me take the guesswork out of your freelance finances — so you can focus on doing great work and charging what you are worth.

Useful Resources

• HMRC Self Assessment guidance
• HMRC's guidance on self-employed expenses

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