When establishing a rate, some things to keep in mind: client budget, the value of your time, your experience and the skill level required to complete the project.
If the client has a specific budget, then try to work within it. If they are asking too much from you, then explain that your skills require more than they are offering, and that the "said work" will be additional to the budget discussed. Usually we can come to an agreement by being open minded, flexible and confident.
Some clients will attempt to take advantage of prices by haggling with you. Something to keep in mind, even though it is a product, it is also a unique idea, created by you, the designer. Being upfront with people helps establish the tone of your worth. Let them know you can be flexible to a certain extent.
Everyone has their own idea of value, but try not to sell yourself short. Emphasize upfront your skills and experience. I find it helpful to create prices based on a per project basis, vs. an hourly fee. However, if you are freelancing for a local firm, or company, they will most likely pay per hr.
Two key things to keep in mind: Do not underestimate yourself, and, do not take on more than you can handle.
There are plenty of online resources available for creating contracts. About.com is very helpful: Here is a great article by Jacci Howard Bear
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