How to price your services as a freelancer

Published Thursday 3 September 2026

Table of contents

• What goes into pricing freelance services
• Freelance pricing models explained
• How to calculate your freelance day rate
• How to set an hourly rate
• Value-based pricing: Charging for the outcome
• How to quote clients and set payment terms
• When and how to raise your rates
• Common freelance pricing mistakes to avoid
• Simplify your freelance finances with Xero
• FAQs on pricing freelance service

Key takeaways

• Your rate has to cover more than your time: Tax, National Insurance, pension, holidays, sick days and unpaid admin all come out of it.
• The main pricing models are hourly, day rate, fixed project fees, value-based pricing and retainers, and many freelancers mix a few.
• To set a sustainable day rate, start from the annual income you want, add your costs and a tax buffer, then divide by the days you can realistically bill.
• Review your rates at least once a year and raise them as your skills, demand and costs grow.

What goes into pricing freelance services

When you're employed, your salary is only part of what you cost your employer. Holiday pay, sick pay, pension contributions, and payroll tax all sit on top of it.

As a freelancer, that extra cost lands on you, so your rate has to carry it. That's why pricing freelance services is rarely as simple as picking a number that sounds fair.

Your headline rate isn't your take-home pay. It's the raw figure that has to fund your living costs, your business costs and your tax bill before anything reaches your pocket.

Costs your rate has to cover

Before you set a number, it helps to see everything a rate quietly funds. Getting your bookkeeping in order early makes these figures much easier to pin down, and a guide to keeping on top of your self-employed accounts is a good starting point.

Your rate needs to cover the following:

• Income tax and National Insurance, which you pay through Self Assessment rather than through an employer's payroll
• A pension, since there's no employer scheme paying in alongside you
• Time off, including holidays and the days you can't work when you're ill
• Equipment and software, including your laptop and the tools and subscriptions you rely on
• Non-billable time, meaning the admin, marketing and client chasing nobody pays you for directly

For a rough sense of the tax side, check the current self-employed National Insurance rates on GOV.UK and budget for it early.

Billable vs non-billable time

Billable time is the work a client actually pays for. Non-billable time is everything else that keeps your business running: quoting, invoicing, bookkeeping, marketing and learning new skills.

This matters because you can't bill eight hours a day, five days a week, all year. A realistic working week might hold only 25 to 30 billable hours once admin and gaps between projects are taken out. Your rate has to earn your full income from those hours alone.

Freelance pricing models explained

Once you know what your rate must cover, the next question is how you charge. Learning how to price freelance work usually means choosing a model that suits the client and the job, rather than sticking to one for everything.

Here are the main pricing models freelancers use:

• Hourly rate: You charge a set amount per hour, which is simple to explain but caps what you can earn in a day.
• Day rate: You charge a fixed amount per day, which suits contract and on-site work common across the UK.
• Fixed project fee: You agree one price for a clearly defined piece of work, which rewards you for working efficiently.
• Value-based pricing: You price the result you deliver rather than the time you spend, which works when your work drives real revenue.
• Retainer: The client pays a recurring monthly fee for ongoing work, which gives you predictable income.

Many freelancers combine these. You might quote projects at a fixed fee, keep a couple of retainer clients for steady income and fall back on a day rate for ad hoc work.

How to calculate your freelance day rate

A day rate looks like a single number, but it's the output of a short calculation. Work through the annual figures first, then divide down. If you'd rather sense-check the maths, a free freelance day rate calculator can do the arithmetic once you have your inputs ready.

Here's how to calculate your day rate step by step:

1. Set your target annual income – the amount you want to earn before tax across a full year.
2. Add your business costs and a buffer for tax, National Insurance, and pension, so your billing covers them.
3. Work out how many days you can actually bill after holidays, sick days, and admin come out.
4. Divide the total you need to bill by your billable days to get your day rate.
5. Sense-check the result against market rates for your skill and experience, then adjust.

A worked example makes this concrete. Say you want £40,000 to live on, and you add roughly £13,000 for tax, National Insurance and a pension contribution. Add £5,000 more for business costs like your laptop, software and insurance, and you need to bill about £58,000 across the year.

Now the billable days. There are around 260 working days in a year. Take off 28 days for holiday and roughly 12 more for sick days, admin and finding work, and you're left with about 220 billable days.

Divide £58,000 by 220 and you get roughly £264 a day. Round that up to a clean £275, and you have a day rate that funds the life and business you're actually running.

How to set an hourly rate

An hourly rate suits shorter jobs and open-ended work where the scope isn't fixed. You can build it from the same annual figures, or convert straight from your day rate.

To set your freelance hourly rate in the UK, divide the total you need to bill by your billable hours for the year. Using the example above, 220 billable days at six billable hours each gives 1,320 hours. Divide £58,000 by 1,320 and you get about £44 an hour, which you might round to £45.

To convert from a day rate instead, divide the day rate by the hours in your working day. A £275 day rate over a seven-hour day works out at roughly £39 an hour. The gap between the two methods is normal, so treat both as a floor and never quote below it.

A steady bookkeeping routine for freelancers makes it much easier to track whether your hours are actually adding up to your target.

Value-based pricing: charging for the outcome

Value-based pricing ties your fee to the result you deliver, not the hours you put in. If your work makes or saves a client serious money, that value can justify a price far above your day rate.

Picture a designer rebuilding a shop's checkout page. The job takes four days, so a day rate might bring in around £1,100. If that redesign lifts online sales by tens of thousands of pounds a year, pricing on the outcome could mean charging several times more, and the client still comes out ahead.

Value-based pricing as a freelancer works best when you can measure the result and point to a clear commercial gain. It's harder to apply to open-ended or purely creative work where the payoff is difficult to quantify. When that's the case, a fixed project fee or day rate is usually the cleaner choice.

How to quote clients and set payment terms

A good quote protects both sides. Scope the work in writing before you start, listing what's included, what isn't and how many rounds of changes the price covers. That single step prevents most disputes and keeps scope creep from eating your margin.

Payment terms protect your cash flow. According to Xero Small Business Insights, UK small businesses are often paid later than their agreed invoice terms, which can leave you short even when the work is done. Two habits help you stay ahead of that risk:

• Take a deposit upfront, often 25-50%, before you begin larger projects.
• Set clear terms on the invoice, such as payment within 14 days, with a defined late fee.

Spelling this out at the quote stage sets expectations early. For more on keeping money moving while you wait to be paid, it's worth reading up on staying on top of your cash flow.

When and how to raise your rates

Raising your rates is part of running a healthy freelance business, yet many people put it off for years. A few clear signals tell you the time has come.

Consider a rise when any of these are true:

• You're fully booked and turning down work at your current rate.
• Your skills or results have grown noticeably since you last set a price.
• Your own costs, including software and living expenses, have climbed.
• You've gone more than a year without a review.

For new clients, simply quote the new number. For existing clients, give fair notice and explain the change without apologising, keeping your message brief and confident.

A short note that your rates are increasing from a set date, with a thank you for their business, is enough. Phasing a larger increase over two steps can make it easier for long-standing clients to absorb.

Common freelance pricing mistakes to avoid

Even experienced freelancers slip into pricing habits that quietly cost them. Spotting them early saves you from working hard for too little.

Watch out for these common mistakes:

• Undercharging to win work, which anchors clients to a low price that's hard to move later
• Forgetting tax and National Insurance, then facing a Self Assessment bill your rate never funded
• Skipping deposits, so you carry all the risk on unpaid or delayed projects
• Never reviewing your rates, letting inflation and rising skills go unrewarded
• Competing on price alone, which attracts clients who leave the moment someone cheaper appears

Simplify your freelance finances with Xero

Confident pricing starts with knowing your numbers, and that's far easier when your income, expenses and tax sit in one place. Xero helps you track what's coming in and going out, and send professional quotes and invoices. Understanding which business costs count as allowable expenses also helps you price accurately and keep more of what you earn.

With a clear view of your finances, you can set rates from real figures and put money aside for tax before it's due. Get one month free and see how much simpler running the numbers behind your freelance business can be.

FAQs on pricing freelance services

These quick answers cover the pricing questions freelancers ask most often as they set and adjust their rates.

How much should you charge as a beginner freelancer?

Research the going rate for your skill and set your price near the lower end of that range, not rock bottom. Starting too cheap makes it hard to raise your rate once you have a track record.

Should you show your prices on your website?

Publishing a starting price or a "from" figure filters out clients who can't afford you and saves everyone time. Keep custom or value-based work to a quote so you can price each job on its merits.

Is it better to charge hourly or per project?

Hourly suits short or open-ended work, while a project fee rewards you for working quickly and gives the client a fixed cost. Many freelancers use project fees as their default and keep hourly for smaller tasks.

How often should you raise your freelance rates?

Review your rates at least once a year, and sooner if you're fully booked or your costs have jumped. Small, regular rises are easier for clients to accept than one large jump after several years.

Do you include tax in your freelance rate?

Your rate should always be set high enough to cover income tax and National Insurance, since you pay those yourself through Self Assessment. A common approach is to set aside a portion of every payment so the money is ready when your tax bill arrives.