Following factors can help you set your freelance rates.

How Much You Should Be Making?
Start by figuring out what you want your annual salary to be. To determine your salary, you might want to pay yourself what you earned as an employee, or; find out what an average salary for your profession is.

Your Experience Level
If you're just starting out in the field, you're not going to be able to pull as much for a project as some one with 10 years of experience. You can set your freelance rates competitively with other freelancers in your area and your experience level. If you're charging as much or close to someone with a large amount of experience, a client is most likely to hire the freelancer with more experience for the money.

Don't Price Your Services Too Low
Many freelancers start off with very low rates just so they can get their foot in the door. This may seem like a good idea at first but in a few months when you want to increase your rates, your clients don't understand why you only charged them $100 for a similar job a month ago and now you want $500 for another job of the same type.

Study Other Freelancers
Basing your rates on what others charge isn't a good idea because there are so many variables like the person's experience, location, etc. However, you must consider the amount others are bidding for the project you intend to take on. Use this information as a very broad guide to get an idea of how freelancers base their rates.

Hourly, Per Project or Both?
Will you work on an hourly rate; or charge one price for the whole project no matter how long it takes you; or will you offer both?

Many freelancers offer both. This gives your client the flexibility of choosing which type of rate they prefer. Most clients prefer a per project fee because they know exactly how much they're going to get charged up-front and don't feel like they're going to get surprised when that two hour estimate you gave them for the hourly rate turns into a six hour project fee.

Hourly Rate Change
Clients are always looking for a freelancer who can cut them a good deal. Therefore, even if you are offering an hourly rate, offer the client a "quantity discount". For example, if your rate is usually $20 per hour, offer your client a sliding rate that means he or she pays $20 for the first three of hours, but beyond that, you'll take a dollar off every couple of hours. So if it is a 10 hour project, the pay scale would look like this:

Hour 1+2+3 - $20, Hour 4+5 - $19, Hour 6+7 - $18, Hour 8+9 - $17, Hour 10 - $16

This decrease in rate should make only a nominal difference in the overall pay to you, but should be impressive to your client.

Freelance Rates As A Range
If you decide to use flat project rates, you need to protect yourself by using a range for that particular piece. For example, that brochure you're working on may be a tri-fold or it could be several pages long looking more like a mini-booklet. If you've only listed one rate for a brochure, you're charging the same amount of money for a project that could be twice the size of a previous project.

Offering a rate range helps you determine where that price will fall when you consult with the client.

Freelance Rates You'll Be Happy With
Set your freelance rates both you and your clients can live with. You can increase your rates as you go along (preferably once a year at most). But making any dramatic changes, especially many close together, is just going to scare off your clients.

Your Clients?
If several clients are way too eager to hire you as a freelancer, rethinking your freelance rates might be a good idea. On the other hand, if clients are very interested in you at first and then stop communicating with you after they hear what your hourly rate is, then you need to lower your rates. In other words, feel customers out to see whether your freelance rates are correct or not.

Your Overhead?
Figure out what your overhead is. Overhead is an expense that is incurred by running your business. Consider following expenses.

Rent
Income Taxes
Utilities
Insurance
Office Supplies
Marketing
Postage and Shipping
Telephone
Accounting / Legal
Travel
Office Furniture
Dues & Memberships
Licenses
Health Plan / Medical Insurance
Disability Insurance
Retirement Savings

The bottom line to your freelance business is that you want to make a good living. If your freelance rates seems too low then raise your rate till you feel comfortable with it. On the other hand, if it is on the higher side then try and reduce your overhead expense.