Many designers spend part of their careers as freelancers—it’s a great way to gain experience, build relationships, and develop a diverse portfolio. Some independent designers work directly with business clients, submitting fixed-fee proposals for specific projects. However, others prefer to work behind the scenes as an additional resource for established creative firms. If you are one of these people, how should you go about calculating a fair price for your services?

Most design firms and agencies cope with temporary increases in their workload by bringing in outside designers on a subcontractor basis. A freelancer with very specific skills is brought in to help with a particular phase or aspect of a project, and the freelancer is usually paid a negotiated hourly rate (and reimbursed for any necessary project materials). The rate you receive will be a gross amount—that is to say that no taxes will be withheld. As a self-employed worker, you are responsible for all of your own taxes and business expenses. For that reason, it’s important to calculate an hourly rate that is based on your own situation. The process is not complicated. Just follow these simple steps:

ADD UP YOUR EXPENSES
Start by adding up all of your annual business expenses. If you’ve been freelancing for a couple of years, this is easy—just look at “Schedule C” from the federal income tax return you filed last year. However, if you’re new to freelancing, you’ll need to prepare a worksheet with estimated amounts. Do some research to make the estimates as realistic as possible and be sure to include a reasonable salary for yourself—one that honestly reflects your skills and your level of experience. (As a reference, look at the annual survey of design salaries published by the American Institute of Graphic Arts.) A complete list of your annual business expenses will look something like this:

GENERAL EXPENSES
» Office rent and utilities
(if you work from a home office, these will be prorated amounts)
» Office telephone and internet access
» Office supplies
» Liability insurance
» Advertising and marketing expenses
» Business travel and client entertainment
» Legal and accounting services
» Business taxes and licenses
» Depreciation
(if you purchased any furniture, fixtures, or equipment during the year, add just one year’s worth of depreciation to the list, rather than the full purchase price)

LABOR EXPENSES
» Salary
(this must be a competitive wage that is adequate to cover your personal expenses such as home rent or mortgage—the portion that does not relate to your home o≈ce—food and clothing, personal travel, and recreation)
» Health insurance
» Other employee benefits
» Employer taxes