The Pricing Mistake I Made Before Going Full-Time

How much should I charge? That was my biggest question when I started Floresta. I had to figure that out right away.

I was already doing stuff on the side before going full-time on my own. A logo here, some illustration there, business cards, flyers… Small potatoes. It’s easy not to care that much when you’re already employed.

It’s also easy to look at the abundance of competition and think "I can’t ask for a lot." But once that work has to pay the bills, your view has to change.

Pricing Mistakes

Being stuck in the employee mindset

I used to make a huge pricing mistake when I was taking design & illustration jobs on the side. It was the employee mindset.

A full-time employee is generally expected to work 8-hour shifts and has 2 weeks of paid vacation. So if I was making $80,000 at my full-time job, I just charged $40/hour (80,000 / 50 weeks / 40 hours per week).

If you just do that, you completely ignore these realities:

• Business overhead. Software, tools, and equipment are all on you.
• No paid vacation when you're solo. Time off = no income.
• No employer covering half your taxes.
• No benefits, health insurance, retirement contributions.
• Non-billable hours eating into your actual working time.
  

This simplification is fine if you're doing it on the side, but not when it's your livelihood. A freelance rate is a completely different calculation.

Not accounting for non-billable time

Understand the difference between billable and non-billable hours. Answering emails, meetings, retouching your website, reading business books... Sure, that's "work," but it's not generating income.

If you work 8 hours a day (you probably don't), be mindful of all the time spent doing this mindless work. It adds up! The true value is probably closer to 5 than 8.

Charging hourly

You can calculate your hourly rate and use that as a basis — more on that in a few — but you never use that on an invoice. Charging hourly punishes you for being fast and good.

There are a lot of pricing models out there but the easiest and most effective to start out with is project-based.

It's easy: if your rate is $100/hr and it takes you 10 hours to do something, you charge $1000. It'll sometimes take you more, and sometimes less, but just price according to your average.

So what do you do?

1. Remove guilt from the equation. You have to live off your work, so start there. How much does it cost per year to be you? Personal expenses, business overhead, all of it.
2. Figure out how much time you have. How many hours are you doing income-generating work in a year? Take vacation and sick time into account here.
3. Do the math. Divide your expenses by your billable hours, add a profit margin (I started with 10%), then factor in taxes. This becomes your hourly rate under the hood. Not what you put on invoices, but your baseline.
   

Once you know how much time you have and how much you need to make, there’s no guessing. You can confidently say no to someone who asks for a discount, because it stops being a choice. You literally can’t afford to go lower.

Practical example

Expenses

Let's say you add up all your expenses and it's about $50,000 a year. Figuring out this number really helps if you actually track expenses and you're not just guessing.

Billable Hours

Next up, let's figure out hours. There's 2,080 work hours in a year (working 8-hour shifts every single weekday). However, let's remember that you need to just count billable hours. If we consider 5 hours a day, that brings us down to 1,300.

But what about your birthday? Holidays? Do you get sick? This is where you get to decide how much time off you deserve. A privilege your employer never gives you.

There are 11 federal holidays in the US, roughly 2 work weeks worth. Most full-time employees get 2 weeks of vacation and 2 weeks of sick time. That's 6 weeks off.

Our final calculation is now 25 hours per week times 46 weeks. 1,150 hours.

Profit Margin

If we stop here, we get $43.48/hr. Not a bad start — you're covering all of your expenses. A profit margin is a percentage on top of breaking even. It gives you more headroom to invest back into your business in the form of equipment upgrades, new software, etc.

A profit margin also allows you to weather dry spells here and there. Its percentage directly dictates how much you time you can spend without work.

A good starting profit margin is 10%. This means that if you don't have enough work to fill your 1,150 hours, you can still get by if you work 1,035 hours instead.

At a 10% profit margin, our rate moves up to $47.83/hr.

Taxes

A self-employed worker in the US generally gets to keep two-thirds of what they earn. It's the price you pay for a functioning society!

To account for it, all you have to do is divide your rate by 0.66. We're up to $72.47 now!

Round it up to $75/hr and call it a day. If you're just starting, this may sound like a lot, but remember — we're just covering your expenses and adding a little bit on top for you to weather potential storms. That's simply how much it costs to be in business.

"Some people can't afford you and that's okay."

Next time someone hits you up for a logo, stop charging $200. If it takes you 10 hours, you need to charge $750 at the bare minimum just to stay in business.

It's okay if they say no. Some people can't afford you and that's okay. But some will say yes. Once someone agrees to your rate, you have market validation.

Next time, up the rate a little bit and see how it goes. Stop when you feel good about how much you’re charging. Or go full capitalist goblin mode and keep charging more forever. Your choice.

Pricing models

Once you get used to project-based, you can graduate to other pricing models, like subscriptions or value-based pricing. Floresta for example has since moved to a credit-based model — but that's a story for another post.

Figuring this stuff out made it possible for me to get started and the momentum to keep going.

It takes legwork, but it works. The reward is worth it.