How much should I charge for freelance services?

Pricing your services can be tricky, even for experienced freelancers. Let’s go over the factors to consider when deciding your rates. There are three parts to this: understanding the market you’re in, determining your income needs and your business’s break-even point and, lastly, setting your price using cost-based or value-based pricing.

1. Understanding the market

The first step in finding out how much you should charge for freelance services is to do market research. You’ll want to determine the following: 

• Competitors: Who are the other players (businesses or freelancers) that offer the same or similar services in your industry or region? 
• Customers: Who are your competitors targeting? Who are their customers, where are they, and what specific products or services are they buying?
• Pricing: How are your competitors pricing their services? Check their websites to see whether they use hourly or project-based pricing. What factors might play a role in their pricing—for example, do they provide unique value or services, do they have lots of experience, or do they charge below-market prices to attract customers? 

Then, map out where you fall into this mix, and use your research as a benchmark when making your own decisions. When doing this analysis, you can figure out your place in the market using the popular S.W.O.T. method: find out the strengths, weaknesses, opportunities and threats in your business environment (your geographical region or your competition online, for example). This will also help you compare your offerings to those of other vendors. 

If you’re a freelance event photographer, for example, and you offer photos but not videos, your service packages should be priced lower than those of freelancers who offer both. This could help you attract customers who are looking for more affordable rates. And, you could also expand your services to include video in the future.

By the end of your research, you should be able to answer some questions about how much you will invoice as a freelancer, such as: 

• What are the going rates for services in your industry?
• Will you charge hourly for your services, or will your pricing be project-based, or both?
• If you are charging for projects and/or packages, what services will they include?
• Will you have different bundles or packages at different price points, based on your costs and the value you provide to the customer? 

How much to invoice as a freelancer 

Now, you need to determine the dollar amount you should charge for your freelance services. There are two parts to this: a personal needs assessment and calculating your business expenses.

1. Personal needs assessment

How much will you need to pay yourself? Understanding your personal needs (rent payments, utilities and other necessities) versus wants (discretionary spending on food, entertainment or hobbies) will help you determine what you are able to pay yourself and what you are willing to sacrifice until your business grows. 

Let’s say your needs require that you earn at least $1,000 a month from freelancing in addition to your other sources of income. When determining your personal payout, you need to consider your income tax bracket as well—new freelancers often forget about this. If your needs cost you $1,000 per month, and you’re roughly in a 30% tax bracket, you’ll need to pay yourself at least $1,300 from the business. (Read more about tax brackets, how they work in Canada and find out how much taxes you may have to pay.)

You will also want to think about how many hours a day you plan to work. Don’t forget to include non-billable hours, such as time spent on administrative tasks and marketing. Take how much you need to pay yourself per month and divide that by the number of hours you’re willing to work per month. That’s your minimum hourly rate. You will now factor this into your business analysis. 

2. Business expenses 

Understanding your business expenses and what is a fixed expense will help you run some scenarios for your “break-even number”—how much you need to earn so that your business doesn’t lose money. 

First you need to know your fixed business expenses—how much you need to pay each month for things like rent, supplies, software subscriptions, banking fees, etc. Say this is $500 per month. 

Now, we can do some analysis for how to set your prices. If your personal needs assessment says you can only work 20 hours a week, you need to earn $1,300 a month, and your business has fixed expenses of $500 per month, you need to bring in at least $1,800 per month.

$1,300 (your pay) + $500 (business expenses) = $1,800 per month

$1,800 divided by 20 hours = an hourly rate of $90 per hour

That’s your break-even number. Obviously, this needs to be higher if you wish to have a profit and do other things (reinvest in the business, hire help, etc.).

If you plan to charge hourly, factor in a rate of $90 per hour plus a markup for profit. If your rates are project-based, figure out how many hours each project will take. (More on pricing below.)

Setting your price: cost vs. value pricing

There are two ways to set your prices: cost-based pricing and value-based pricing. 

• Cost-based pricing is a relatively simple way of pricing yourself, especially if you have a product-based business. Take your costs, apply a margin for overhead expenses, add a gross-up percentage for profit and—voilà!—you have your product price. This methodology is based on covering costs and achieving a desired profit level. Cost-based pricing can be done either hourly or project-based. Take a look at your competitors and, based on their packages, see how you wish to position yourself. A freelance bookkeeper, for example, will likely see both hourly and monthly packages. The hourly rate is for one-off jobs, and monthly packages are for ongoing support.

• Value-based pricing is a methodology based on the customer journey versus the costs you incur as a business owner. Pricing is derived from understanding how much a customer is willing to pay for the benefits and value they receive. Value-based pricing is usually done on a project basis, so you need to understand how many hours go into the work and see if you can still turn a profit. 

Typically, cost-based pricing is applied to more commodity-like products/services where price competition is the biggest challenge, whereas value-based pricing is used for high-value or more specialized products/servicesm, where customers are willing to pay a premium based on the perceived benefits. Anything involving strategy is considered high-value—the person is paying you to use your expertise to improve their business. Usually, to offer this level of value, you’d need a lot of experience, maybe education or a niche specialty skill, for example. 

Compare your price to the market 

Now that you’ve got your numbers, compare them to your market research. Based on your personal needs analysis and your break-even number, how does your pricing compare to that of your competitors? Is it realistic given the current market demand for your type of services? Will you need to work more hours to meet your revenue goal? 

Freelancers and taxes, CPP and EI

One thing people often forget to include in their analysis is every CPA’s favourite topic: taxes. There are two types of taxes entrepreneurs need to consider: sales tax and income tax. 

Sales tax

Goods and services tax (GST) and harmonized sales tax (HST) are charged on top of your prices (the amount is based on the customer’s location), so they should not impact your pricing analysis. You must register for a GST/HST number when your taxable sales exceed $30,000 within four consecutive calendar quarters. There are pros and cons to registering early. Read more about GST/HST, and consider working with an accountant to discuss your options.

Income tax

Depending on your business structure—sole proprietorship, partnership or corporation—you may have two sets of tax returns to consider. But, as shown above, you need to factor taxes into your personal needs analysis, so your take-home pay will cover your needs. 

CPP contributions

As a self-employed individual, you must make Canada Pension Plan (CPP) contributions at tax time, unless you earn less than $3,500. You will have to pay both the “employee” and “employer” portions of CPP, and the amounts are based on your income. It’s a good idea to set aside money for taxes, and to include enough to cover CPP. The calculation for CPP is done in the tax filing itself. (Read about the recent CPP enhancement.) 

Employment insurance (EI)

As a freelancer or self-employed individual, you don’t have to pay EI unless you opt into it. It is important to note that once you opt into EI, you cannot opt out. Speak to your accountant about the pros and cons of EI and whether it’s the right fit for you. 

How much to charge for your freelance services depends on your unique skills and income needs 

Pricing is an art, not a science. There are many variables to take into consideration when pricing your services, especially in the creative sector and other unregulated industries. Be confident in your skills, your knowledge and the value you’re adding—there will always be clients for whom you are too expensive, but those may not be your ideal clients.

More about self-employment:

• Side hustles and self-employment in Canada: Taxes, business expenses and more
• Self-employed? Here’s how to file taxes for a side hustle
• How to make more money in Canada: 6 side hustle ideas
• The best bank accounts for side hustles in Canada

About Shalini Dharna Kibsey, CPA

Shalini Dharna Kibsey, CPA, specializes in financial literacy for entrepreneurs. She helps business owners make informed decisions and navigate the complexities of business finance.

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