It's a fact that many freelancer business fail because they don't make enough money to make it worthwhile. In many cases the problem is not lack of talent or business skills, but the fact that they didn't set the right rates to be both competitive and profitable. Do you feel like you work a lot, but never make enough money? Or are you being constantly underpriced by your competition?

Calculate your living costs

The key to finding your minimum freelance rate starts with figuring out how much money do you want to make, after taxes, per month. How much would you like to make, and how much is the bare minimum you'd require to stay afloat. Now, multiply that by 15. Why 15? because since freelancing is quite a risky business it's advisable to have at least 3 months savings either on your bank or on your company's. 3 months is a ballpark value, and you should adjust it depending on your particular circumstances and preferences for your peace of mind. You probably already did this calculation when considering if you could start a home business, but if you didn't you'll need to do it now.

Calculate your business expenses

Once you have a ballpark figure of how much you'd like to make in one year you should estimate how much more you need to earn to pay taxes and business expenses. If you have just started freelancing your business costs may be higher than if you are already established, because you will need to buy equipment and set up things such as business insurance. That's why it's better to do all the numbers yearly instead of monthly. Include expenses such as creating a business marketing plan, business administration, insurance or registering with trade associations, even if you may not need to do any of those. This is a good moment to talk with an accountant that specialises on freelancers, and can advise you on what expenses you could expect, and how to make the most of your tax allowances and acceptable business expenses. You may find that you need to actually invoice about 40% more than the money you expect to make.

Take into account days off

Now that you know how much money you want to make, you need to decide how much do you expect to work per year. Most freelancers estimate working around 10 months a year to account for bank holidays, sickness and days when there's no work. That's around 40 weeks, or 200 days. It's not a good idea to make your estimates based on a 7 day week, since your work-life balance will suffer, and wasn't' quality of living half the point of becoming a freelancer? Dividing your expected company income by 200 would give you a ballpark daily rate for freelancing. You can do it with your target and minimum income case so you have some room to set your rates.

Compare with the competition

Once you know your estimated daily rates, is time to see how they look like compared with your competition. This is easier said than done, specially if you are talking about graphic design freelance rates or other online and global freelance business. Forget about comparing yourself with the cheapest freelancer in the market because you'd probably be running at a loss, and instead look at what are your selling points and why a client would be better paying a bit more and going with you. Look at prices for local designers, and accept that sometimes you won't be able to get the client because you need to set up minimum rates to avoid going burst.

If you are a potential client reading this

Are you a client trying to guess why quality freelancer writers or your local web developer is so expensive? Freelancers don't just charge high rates because they can. Often they do it because they need to cover for the expenses and risks involved in running a small business. Freelancers bring specialist skills to your company, without the risks of employing somebody permanently or having to pay their taxes, healthcare and other costs. That expertise costs money, and unless you are looking for fairly low grade job you may not making any savings by just choosing the cheapest option and getting a subpar product. If a freelancer is so cheap that you wonder how he makes a living that should set your alarm bells ringing, since probably he'll be either going out of business or cutting corners to be able to deliver your project.