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

You and your lifestyle are an expense. 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.

There are tax implications when it comes to deductible and non-deductible expenses, but let's keep it simple for this and just lump it together.

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. If we stop here, we get $43.48/hr. Not a bad start, you're at least covering all of your expenses given your available time. But what if things go wrong?

Profit Margin

A profit margin is a percentage on top of breaking even. It gives you more headroom to invest back into your business and 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. Over time, you'll want to increase this to 20-30% for a healthier headroom.

At a 10% profit margin, our rate moves up to $47.83/hr. But this only covers your net income — we didn't even account for the biggest chunk.

Taxes

Your total effective tax rate highly depends on where you're located. The important thing here is to account for it.

All you have to do is divide your rate by the percentage you keep. My personal rule of thumb is to save about 1/3 of my gross income for taxes. Your rate may be significantly higher or lower! If we're keep about 66% percent of our gross income, we divide the rate by 0.66. This brings us up to $72.47. No one's watching, so might as well round it up to $73/hr and call it a day. This is your minimum rate.

If you're used to comparing your rates with what you find on Fiverr, this may sound like a lot, but remember, we're just covering your expenses and adding a little bit on top to weather some 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 going broke by charging $200. It's okay if they say no. Some people can't afford you and that's okay. If you're good at what you do, some will say yes.

Over time, up your rate 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.

Find out your rate

The math is simple, but if you want some napkin math, use this little calculator below to find your own minimum rate!

This is meant to get you in the ballpark, not replace an accountant. Two things it doesn't account for: first, not all expenses are created equal — business expenses are tax-deductible and reduce your taxable income. Second, your actual tax rate depends on your location, filing status, income level, and deductions.

Exploring pricing models & Increasing prices

Figuring out your minimum rate is just the first step. I highly discourage you from simply working hourly. Starting with project-based is great to start because you and your client both know how much money is involved. 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 time.

There are many resources on this topic, but I personally like this video to reframe your mindset on pricing:

Increasing prices may feel dirty, but prices naturally increase. Inflation, your expenses, life events, world events... They all affect prices and are outside your control. Increases are a need, and there's no reason to feel guilty about that.

Figuring out pricing from the get-go made it possible for me to start my self-employment journey and the momentum to keep going.

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