Freelancer Flow Series: Pricing Your Services

Or Why I don’t accept $60 an hour and you shouldn’t either.

When I started freelancing I found myself asking how much I should be charging my clients (or more so, how much I should be paying myself) and I’ve seen many other freelancers asking the same questions.

I knew how much I was making as a W2 but how does this translate to being a 1099 worker?

After some poking around I’ve found that many freelancers vastly underpay themselves for their services.

There are many different ways to handle this equation but I’d like to share the solution that worked out for me.

I’ve found it best to calculate a “Minimum Pay Rate” (The absolute minimum you should accept for a role) and “Desired Pay Rate”.

Differences between W2 and 1099 workers

Let’s consider the differences between a W2 and a 1099 worker in regards to benefits and pay.

As a W2 worker

An employer often provides numerous benefits that are often unaccounted for.

  • Employer matching of Medicaid and Social Security taxes (Also called Payroll Taxes)
  • Sick leave
  • Vacation leave
  • Holiday leave.
  • Health/Dental/Vision benefits
  • Regularity of pay (You know that each month you’re making X amount of money at Y time)
  • 401k benefits

As a 1099 worker

  • You are responsible for your own expenses, accounting, time tracking, and more.
  • You are responsible for Self Employment tax, this is essentially the Payroll tax that was previously matched by an employer.
  •  A decent portion of your time is unbillable, meaning you are unable to charge them to a client. This includes learning new skills, writing proposals, and sourcing new work.

Math Time

So now that we understand some of the differences between a W2 and 1099 worker, let’s take a look at someone making $110,000 a year ($52.88 an hour) as a W2 employee (A reasonable salary for mid-level Devops/Automation work in the Austin area.).

Minimum Pay Rate

The first thing we’ll want to calculate is our “Minimum Pay Rate”.

Lucky for us, the nice folks over at Bankrate calculated that approximately 30% of your compensation as a W2 employee are benefits and employer paid taxes.

As a W2 employee, our hourly rate equates to $52.88 an hour. We calculate this based on 2080 hours a year since the benefits calculated by Bankrate includes leave time.

The first thing we’ll want to do is immediately add 30% to cover our benefits.

A big thanks to user “notimportant” over at Hackaday who helped me correct some mistakes in my math.

(benefits+pay)*0.7 = employee pay

Solving for this we know that:

benefits +pay = (pay)/.70

$53 an hour / .70 = $75.71 an hour

Right off the bat we are already looking at approximately $76 an hour or $156,000 a year to account for the lost benefits.

Now lets calculate the hours we have for work each year assuming we want a 2 week vacation, 1 week sick/I hate work days, and federal holidays (10 days).

2080 hours a year – (((2*5)+(1*5))+10)*8) = 1880 hours a year

Lets make a conservative estimate that only 80% of our hours are billable.

1880 * 0.80 = 1504 hours

This leaves us with 1504 hours to handle all our work.

$152,000 a year/1504 hours a year = ~$101 an hour

So to simply reach our previous salary of $110,000 a year we would need to charge approximately $101 an hour to account for our pay (and just as importantly) our benefits.

For this reason, you (generally) should not accept any less than $101 an hour for your services.

Exceptions might be made for clients that agree to give you a minimum amount of billable hours over a set period of time (30 hours over a year long period) or in cases where you’re willing to accept a pay cut for work (For example $100,000 a year has a minimum rate of approximately $92 an hour)

Desired Pay Rate

We’ve now calculated our Minimum Pay Rate but if we just wanted to make the same amount as before, why bother becoming a freelancer at all? We’re business people dammit!

Since we’re business people, lets assume that we’d like to make a healthy 12% profit over what we were making as a W2 employee.

Let’s multiply our Minimum Pay Rate of $101 an hour by our desired profit margin.

$101 an hour * 1.12 =  ~$113 an hour

That gives us approximately $113 an hour for our Desired Pay Rate. 

If you can charge more? Go for it! You’re a business, you should think like any other business. Optimize for what your customers can pay.

What about Project Based Pricing?

Some freelancers/consultants prefer (and HIGHLY suggest) utilizing project based pricing or value based pricing instead of hourly pricing.

If you’re able to effectively scope the project and perform the work quickly this is a great way to balloon your effective hourly rate.

Many different people have written on the subject.

My thoughts (From the perspective of a Devops/Automation guy) is to work on some hourly projects to get an idea of the time required and then move to value based or project based pricing once I build up a tool set and better understand scope.

A Note On Taxes

It’s important to remember that even though you may bring in approximately  $172,000 a year assuming you can bill all 1504 hours at your Desired Pay Rate that anywhere between 25%-30% of this is taxes (Uncle Sam has to get his cut).

It’s important to save 30% of each paycheck as you must pay quarterly taxes!

Failure to pay these quarterly taxes can result in a pretty stiff penalty from the IRS.

You can see how to calculate your estimated penalties here under the section titled “Simple Method”.

Our $172,000 a year would give us a tax burden of approximately $57000 a year.

The BEST tax calculator I’ve found for Freelancers is by H & R Block.

You can find it here.

It will calculate your Self Employment Tax + Income Tax along with any expenses.


In short, a lot of people vastly underestimate the amount of money they should be making as a freelancer to match their W2 pay.

Be sure that you’ve done some basic number crunching and market research to understand your real value.


  1. Martha DiMeo July 5, 2017 at 12:46 pm

    Robert you overlooked the costs of running a freelance business— e.i advertising & marketing, continuing ed, seminars & conferences, office expenses, professional services (all freelancers need a good CPA!), hardware & software, to name a few. All these business costs need to be factored into the hourly rate.

    1. Robert Tisdale January 12, 2018 at 5:33 am

      Howdy Martha,

      These are excellent points and I may see about integrating these into my article at a later date.

      For someone in my field, many of these things are negligible. Many of us don’t have offices (We work remote), don’t perform much advertising or marketing, and we largely use FOSS software (or the client pays for their software costs)

      I’ll see about placing a section for this since it may apply to other freelancers.

      Thanks for the tips!


  2. Lisa September 17, 2018 at 2:03 pm

    Thanks Robert, finally someone who knows exactly what he is talking about. As a FT freelancer myself, I don’t understand why so many people are freelancing for less than what they would be making working a regular 9-5 FT job. For starters, you shouldn’t even consider being a FT freelancer if you are not going to make as much as your former FT job. Some people are making like $30K a year as a freelancer and that’s beyond me. You would get a LOT MORE MONEY if you were employed! It’s just not worth it. Yes, you are working from home and you can do whatever but you need to think with your brain. At the end of the year, you won’t have much in your pocket and it’s not worth the stress.

    I am not taking anything under $85 an hour anymore. My field is different though but still!

  3. Lisa September 17, 2018 at 2:10 pm

    (should have mentioned that $85 an hour is for bigger clients, on Upwork, I charge a lot more per hour otherwise your only get crazy bad invitations to interview… I am close to $200 an hour now and seem to get a lot less crazy bad invites. When clients are legit with personalized invites, I am like 80% sure to convert them as clients.)

    1. Robert Tisdale September 19, 2018 at 3:46 am

      I’m glad you enjoyed the article Lisa :).

      I think part of it is not understanding how the compensation structure differs but the other portion is how sites like Upwork encourage a race to the bottom.

      People see that someone is charging 70 an hour so they say “God I can’t charge 100”, then they drop to 70.. 60… 50… and so on until they’re working for pennies.

      I wrote this article to inform myself but also because “Rising tides lifts all boats”.

      Hope you decide to share this with others. Cheers!

      1. Lisa September 19, 2018 at 7:32 am

        Hey Robert,

        I think it might be the other way around now. I feel like Upwork is only looking for legit and therefore more expensive freelancers. Since they want to go public, I guess that makes sense. I am assuming you also have your own account manager over there? I shouldn’t call mine “an account manager” per se since I am only getting a copy paste email every week but I guess they are trying to nurture their best freelancers still.

        1. Robert Tisdale September 26, 2018 at 6:37 am

          Sorry for the late reply! I had a week full of migrations and this slipped my mind.

          > I feel like Upwork is only looking for legit and therefore more expensive freelancers

          That would certainly buck my experience. I’ve found Upwork has a real effect on what people think freelancers are worth.

          A decent majority of people, even those in places with high cost of living (Like the USA, UK, etc), often have drastically lower rates than what they would actually need to make a decent living salary.

          I think this is largely in part caused by trying to compete with areas with much lower costs of living (India, Russia, Pakistan, etc).

          The reality is you’re never going to compete on price with someone who can work at 3 USD an hour and it’s not worth trying.

          > I am assuming you also have your own account manager over there?

          Yep, I’m top rated. I’ve found the emails they send aren’t that useful but the ability to use chat support has been very helpful on a number of occasions.

  4. FactorLoads September 25, 2018 at 6:42 pm

    Yes, I think that as a freelancer, you must know your real value so that it will be fair too for your clients and to your hardwork too. Thanks for sharing this article!

    1. Robert Tisdale September 26, 2018 at 6:38 am

      No problem factorloads. I’m glad you enjoyed it.

      I’m hoping other freelancers will start to see what their work is worth and start charging accordingly after reading this.

      Rising tides raise all ships as the saying goes :).

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