I ran across this article the other day (aimed at graphic designers, but would really work for any creative entrepreneur) that gave some amazing advice in this area! Here's a quick summary, but it'd definitely be worth it read the entire article yourself when you've got a spare 10 minutes.
What should I charge?This is the one area that I have the most anxiety about. I'm constantly worried that I'll anger current designers (and therefore come across as amateur) by underbidding on jobs, and also worried that I'll scare off potential clients by overbidding. It makes it even more difficult by the fact that most designers don't share their prices on their websites. (What's up with that anyway?).
The advice in this article is basically to start with what you feel comfortable with (which is likely well below market value). Chances are good you'll get loads of work at that price (because when you sell for Wal-Mart prices, people come in droves). As soon as you feel like you're getting way too many requests to handle... up your prices. Continue doing so until the workload evens out and you're receiving the amount that you can do at the rate you want to be doing them. By that point, you'll likely be receiving a much higher rate of pay, so won't need to be working so many jobs anyway.
Flat Rate vs. Hourly BillingI am amazed at how many seasoned designers disagree with which of these approaches is "best". It makes me think that there really isn't a universal answer to this question. I like the approach of this article... start out with a flat rate for your Mom & Pop businesses around town and then ease into hourly billing when the projects you get start becoming larger and more drawn out. (I've also heard that if you land a client like Nike or Pepsi, though, you don't want to charge them by the hour. Just tell them up front that it'll be $2 million and they'll be fine with that. However from what I hear, a typical large company seems to prefer paying per hour, more like a contracted worker would be paid. Considering your work for them is likely to take a few months, that probably how they see you anyway).
Whichever way you bill, it's probably best to keep tabs on your "hourly rate" to make sure you aren't being paid $5 an hour. Even if you charge by the job, make sure that you're charging enough to cover all your time and expense. You're a trained professional who is doing a professional job; you should be paid accordingly.