How Do You Determine What Rate To Charge?

If you are new to Independent Contracting, and even if you are an old hand, I'm sure you have wondered how to determine what rate you should charge your clients for your services.

That is definitely a tricky subject and one with many variables and even more answers. Don't you agree?

The variables that factor into the equation include:

• Your Skill Set
• The Clients Desired Skill Set
• Availability of the desired Skill Set in the Marketplace
• Your Experience Level
• The Clients Desired Experience Level
• The Geographic Location of the Project
• Your Geographic Location

Location is the trickiest set of variables, and potentially the most costly if you don't factor them in properly.

If your location and the clients location are the same, then that makes that part easy.

If not, then there are a whole extra set of variables that come into play, like can you work from home? Sometimes? Half the time? All the time?

Also, for commuting expenses, is the client going to pay or not? If yes, then are they going to pay actuals, estimated, a per diem, or some combination? If no, then you will either need to move to the clients location (and factor in those moving expenses), or you will need to estimate commuting expenses so you can factor those into your rate. If you are commuting is that every week? Every other week? Is the client flexible

Make sure you get the travel expenses factored in to your rate correctly, and if the client isn't paying for 100% of actuals, then there is some estimation and you definitely need to estimate on the high side or you could get creamed.

I recently stumbled across an online calculation tool at a site called FreelanceSwitch that seems pretty handy in that regard.

The tool has you enter a number of data points about your expenses and what it costs you to be in business, as well as salary information and business profit. The fields all have hints that help you dig out some of the hidden costs that you might forget. You click on Calculate and it then spits out 2 numbers, one for the hourly rate you need to charge to break even, without making any profit in the business, and the second is the hourly rate including the desired profit margin.

You can find the tool on the FreelanceSwitch site here.

Remember too that not all clients are the same, so you will likely end up charging different rates to different clients and potentially different rates to the same client for different projects or potentially even on the same project for different work, although that is most likely if you are subcontracting some of the work. The client probably won't be paying 2 different rates for the same individual, although it can still happen.

The rate at a given client will depend on many factor as well:

• The Particular Project
• The Size of the Client Company
• The Budget for the Project
• If you have a Prior Relationship with that Client
• If you have a Prior Relationship with the Project Manager or Project Sponsor

What rate to charge is definitely a tricky business, and one that will be ever changing and evolving as long as you are in business. If you are doing things right in your business, it will increase over time.
Have your rates been squeezed with the changes in the economy? If yes, then have you seen them recover yet?