Start by figuring out what you want your annual salary to be. To determine your salary, you might want to pay yourself what you earned as an employee, or take a look at salary.com to find out what an average salary for your profession is.

For this formula, you will need to figure out what your overhead is. Overhead is an expense that cannot be found billable to a client, it is just a cost incurred by running your business. Please fill out the following form. If you aren't sure what your overhead is, then look back on last year's credit card bills and checking account statements.

MONTHLY OVERHEAD:

Now you will need to figure out how much of a profit you wish to make. I recommend between 10% and 20%.

Follow these steps to figure out what your hourly rate should be.

1. Add Salary and Overhead Together

2. Multiply Total By Profit Margin (10% - 20%)

3. Add Total (1) and Total (2) Together

4. Divide Total (3) by Billable Hours (2,000)

For example, if the following is true:

1. Salary = $30,000

2. Billable Hours = 2,000

3. Profit Margin = 20%

4. Overhead = $15,000

Then this is how you figure out the hourly rate:

1. $30,000 + $15,000 = $45,000

2. $45,000 X 20% = $9,000

3. $45,000 + $9,000 = $54,000

4. $54,000 / 2,000 = $27 / hour

The bottom line to your freelance business is that you want to make a good living. If your hourly rate seems too low then raise your rate till you feel comfortable with it. If several clients are way too eager to hire you as a freelancer, rethinking your hourly rate might be a good idea. On the other hand, if clients are very interested in you at first and then stop communicating with you after they hear what your hourly rate is, then you need to lower your rates. In other words, feel customers out to see whether your fees are correct or not.

If you have determined that your fees are too high then you might need to lower your overhead in order to lower your fees. Try cutting some of your unnecessary expenses in order to make ends meet. When you make the change over to freelancing, sometimes there is a little suffering at first. Don't worry; it doesn't usually last long if you know how to save when times are good.

Good Luck.