If you’ve ever thought about becoming a freelancer, one question always pops up: “What should my rate be?” Besides figuring out what leaf silhouette you should use for your logo, it’s probably the number one decision a freelancer stresses about it.

A Google search will bring up scores of articles that offer a general formula to figure out your rate, as I’ve written about previously:

(Living Expenses + Work Expenses + Profit) ÷ Billable Work Hours = Estimated Hourly Rate

Some sites might even have a handy rate calculator if you don’t want to do the arithmetic yourself.

But, in practice, these estimates will barely give you a ballpark figure, and that’s only if you’re very aware of the expenses your freelancing business will have and the hours you’ll actually want to work. Especially if you’re just starting out as a freelancer, these calculators won’t help you.

Let’s get real about freelancing.

If you’re trying to figure out your rate, it probably means you are just embarking on your freelance journey. So, working backward from the annual salary you eventually want is fairly unrealistic. That’s like planning a path across the Pacific before you learn how to sail a boat. In reality, when people start freelancing, they are in a transition. They’re often coming out of school or from a 9-to-5 job or trying out a career change. Let’s take this in stages.

Stage One

A friend knows you’re good at video editing and offers you a paid project. “What’s your rate?” he asks. You don’t know, but you’re a smart cookie, so you browse over to a site like Upwork and see what the general hourly rates are for video editors. It’s a pretty wide range: anywhere from $30 to $100 an hour. You guess $40 is fair, but you really don’t have any idea. Maybe $50 would be fine?

Here’s a better approach: ask for a project fee.

For a beginning freelancer, an hourly rate can be hazardous. If the project takes longer than expected, your first client may be upset at the increasing cost. If the project is too short, you haven’t made much money at all. Setting a project free up front instead is a safety net for both parties so they feel confident, and is especially good for the newbie freelancer still learning how long the actual work may take.

So, how do you set a project fee? Well, you still need to have an idea of how long you think the project will take and estimate an hourly rate. But we haven’t just gone in a circle; again, a project fee for your first few freelance assignments is the best way to get paid what you’re worth and protect the client if you’ve misjudged. At this stage in your freelance career, when this is probably not make-or-break money, it’s all about making your clients happy.

Stage Two

You’ve got two or three clients now. It’s not just beer money; you’re nearly paying rent off freelance work. You’re thinking about quitting your day job, quitting your other side jobs or making this your full-time career. You might even change your LinkedIn job title to “Freelance Video Editor.”

You’re also seasoned. You have a good idea of the time and effort a certain project will take. You’re getting repeat business. You’re even becoming the go-to person for a couple clients on their projects.

Now’s the time to transition to an hourly rate.

The benefit of going hourly is really apparent when you have ongoing relationships with your clients. Negotiating per-project fees quickly becomes a hassle, and as the projects grow in size and complexity, it’s harder to estimate their worth, anyway. Going hourly may also mean more regular paychecks instead of waiting until after a big project ends to invoice. And, perhaps most importantly, charging by the hour makes your clients respect your time. If they want to add in an extra tweak or put you on an hour-long call, they’ll have to pay for it.

Here is where that equation up top starts making sense. Now with some experience, you have a much better understanding of what expenses you’ll have on a monthly basis and how many hours you can realistically work. Factoring in health insurance, taxes, equipment, software and taxes, $40 an hour is now looking to be on the low end of the spectrum if this is going to be your sole source of income.

Stage Three

At this point, you no longer need to be reading this blog. You’re juggling six to 10 clients, and you’re actively turning down work. You’re living the dream! But I’ve got one last piece of advice for you.

Go back to a project fee or employ tiered package rates.

Why? Hourly is working great. However, as Lindsay Van Thoen from freelancersunion.org puts it: “You shouldn’t be penalized because your skill level enables you to provide high value quickly. The client is more likely to accept your proposal of $200 for a project (that you know will take you two hours) than they would be to accept a proposal for $100/hour. Hourly rates have a ceiling.”

It’s true. Once you’re an expert, going back to per-project contracts can maximize your income while freeing up time. It may be difficult to transition clients to this model if they’re used to your hourly rate (that’s a topic for another blog post), but it’s a good way to go for new clients at this stage in the game.

As for tiered package rates, this is a good way for you as a seasoned freelancer to work with a variety of clients with different needs and budgets and also spend more time on the aspects of your work you enjoy most. Sticking with video editing as our example, maybe $500 is your fee for an editing project, but it’s $800 if they want post-edit color correction. Being able to tier these projects is definitely a luxury of getting to this point, so take advantage of it.

This article first appeared in Forbes on August 21, 2017.

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