When you’re just starting out as a freelancer, the first question most people ask is: What do I charge?

Good news! It’s not that hard to figure out.

Don’t base your rate off your previous salary

There have been dozens of formulas that take your last job’s salary, multiply it by something, divide it by something else, and end up with a rate.

Don’t do this. While your expenses probably haven’t changed that dramatically since going solo (most of these calculators base their formulas off stabilizing your cost of living), your income potential has – if you know what you’re doing.

How good of a communicator are you?

There’s (unfortunately) a natural bias towards those who communicate more elegantly and cadenced than those who don’t. If you’re a pessimist, you might call these people smooth talkers. But our deliverables are more than just great technical execution. We need to dazzle, and that starts by making the process of working with you as smooth and worry-free as possible.

Confidence is something that I wasn’t born with but I’ve slowly leveled up, largely out of the necessity of running a small business. If you can portray confidence, and be perfectly frank with clients about what you know and what you don’t know, you’ll put a lot of skeptical clients at ease.

Is what you can provide in high demand?

If you’re a Ruby on Rails developer and know what you’re doing, you’re being robbed if you aren’t charging 3-figures per hour. Likewise, many other disciplines can justify a substantial hourly rate.

Offshoring and the “race to the bottom” attitude that Craigslist and other outlets have cultivated make a lot of people think that they need to lowball their rate. Then they can at least win the contract and make a little money, which in their mind is better than no contract and no income at all.

There’s a very good reason American developers are still hired by American clients (feel free to substitute with your country of residence). If it was all about the numbers, no one would hire me. But my rate is fairly high, and I justify that rate by letting potential clients know that the risk of failure is minimal, I communicate well and often, and it’s my goal to equate the income I receive with the value I produce.

Do a little Googling and get a sense for what someone of your skillset in New York, Boston, or San Francisco charges. Then start there.

Don’t negotiate (too much)

If a potential client has enough cash on hand to hire you, they’re probably at least decent at business (even though many of us might disagree!) And good businesspeople know how to negotiate and haggle.

My rule of thumb is that if I can get a client to book me for a large amount of time, I’ll lower my rates a bit. This saves me from downtime and the overhead of lost time spent marketing and getting that next client.

But don’t be a pushover. Trust me: You’ll be respected by your client if you can stand firm and explain why you charge what you charge.

Treat each new project as an experiment

Whenever you get a new client, push your rates up a little. You’ll be surprised at how high you can get it.

In my experience, most resistance comes when you change the first digit. $100 an hour to $200 is pretty big, and is going to lose you a lot of work. But $65 to $75 an hour isn’t going to make most clients hesitate, and after a hundred hours that’s another $1,000 in your pocket.

My winning formula:

• Find what your peers in high cost of living areas are charging. This is your base.
• Present yourself as a premium service. There’s a lot of risk in hiring freelancers (will they flake out?), if you can assuage any fears and stick to being a professional, you won’t get much pushback.
• Offer a bulk rate, but only if you need to. This totally depends on what you do. (As a Rails developer, my idea of long term is greater than 6 months of full time booking.)
• Go higher with each new proposal. Your confidence will grow, and you’ll be able to scope out your natural ceiling.