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Freelancers: What’s your work worth?

FORTUNE — For many, being self-employed offers a promise of doing fulfilling work on your own terms. But along with that independence comes a dizzying array of decisions. One of the toughest of these is how to price your time.

Whether you are an independent consultant or freelancer who charges by the hour, day, week, or project, you are trading time for money. So the question of how you value that time is central to how you negotiate with clients.

“If you don’t value your time, no one else is going to,” says Ben Gran, a freelance writer based in Des Moines, Iowa. “You have to make sure every hour you spend in the chair working is profitable, to make up for all the hours you’re not in the chair working because you’re marketing yourself or doing your taxes.”

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Demand for freelancers is growing, according to a recent report by Elance, a website that connects independent workers with companies. New job posts grew by 41% and freelancer earnings climbed 42% in the third quarter of 2012, compared with the previous year’s quarter. Most notably, sales and marketing projects were on the rise, with social media marketing, strategy, and lead generation all more than doubling from the previous year.

But before you dive into the freelance economy, understand that independent consultants must balance the need to pack billable work into every available hour with the reality that many activities won’t bring in revenue, whether that’s marketing, networking, writing proposals, invoicing or other paperwork. Successful consultants maintain an unrelenting focus on efficiency and time management.

The first step: know your target income. What dollar amount do you need to bring in each hour, day, or week to cover your expenses and make the kind of income you desire? Having a clear understanding of what you must earn makes it easier to turn away work that pays less than you need — or to ensure a given project delivers your hourly rate. Consultants and freelancers interviewed for this article set targets from $50 to $300 per hour, for example.

Next, you must be able to accurately predict how long a given project will take you to complete. Even if you’re being paid hourly, you need to give a client an estimate of the overall cost of a project.

“The most stressful part of any proposal is the final page, which is how much I charge for all this work,” says Tracy Lazarus, a marketing consultant based in Scarsdale, N.Y. “I’ve found a way to provide a price to clients that provides them with a value while providing me with a fee that I’m happy with.”

For each project, Lazarus writes a detailed proposal that spells out every step and what her clients should expect to receive. She might specify that she’ll write five new product concepts, for instance, or that a given document will undergo up to two rounds of revisions. That saves her from unexpected changes or additional work that would add time — and cost — on her end of things.

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“How I make sure I’m not exploited is I’m very specific on the key activities in the scope of the proposal so it doesn’t have a lot of leeway for interpretation,” she says. “If you don’t detail it enough, what happens is you don’t price it out appropriately and you leave money behind, or you forget a step….”

Lazarus also includes a project acceptance form to make sure she and the client are on the same page, and charges a cancellation fee if the client backs out at the last minute. “If you’ve committed and we’ve started working on an aggressive path to a deadline, there has to be a cancellation fee,” she says. “I’ve booked the time and said no to other revenue.”

At the same time, freelancers often have little control over the client’s budget or the rate they are offered. So it makes sense to take a flexible approach to negotiating project rates.

“I always negotiate with clients up front,” says Janine Lossing, a market research consultant based in Potomac, Md. “They have some set fees but it’s never standard.”

Heidi Block, a brand management consultant based in Summit, N.J., was recently offered a weekly rate that worked out to less than her usual hourly fee for 40 hours a week. However, because of her reputation and experience, the client agreed to a 30-hour workweek for the same rate. “I deliver a lot of work … for the number of hours I work,” says Block.

If a client’s rates are lower than you like, you could suggest a larger project, such as a six-month commitment instead of a three-month contract, or a bigger project scope. Because consultants have a certain amount of fixed costs per client — invoicing, contracts, and account management — it can make the project worthwhile.

“There are some efficiencies when you’re only billing three or four clients per month rather than 20,” says Ben Gran. “Suggest other offerings you can provide.” For one client, he began by writing brochures but expanded into proofreading, writing white papers, and even technical writing.

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Lazarus includes a very detailed listing of costs in every proposal so the client can adjust the scope of the project based on the budget. For instance, if she’s proposed interviewing 10 shoppers for a certain dollar amount, the client might prefer that she interview only five women to cut costs. “I give clients a menu: if you want to do A, B and C, it costs this,” she says.

In the end, you have to be willing to walk away if the gap between what the client wants to pay and what you need to earn is too large. You may have to make that call before you take a project — or afterward.

“Don’t be afraid to fire clients,” Gran says. “You keep nurturing the clients who are best for you and weed out the clients who are draining your energy.”