freelancing 101: don’t worry about what “they” are charging, here’s how to set YOUR freelancer rates…

Freelancers often wonder how much they should charge. It’s a thorny dilemma: Quote too high a price, and the potential client may decide to hire someone else. Go with a lower number, and you may end up earning less than you could have.

That’s why you’ll see freelancer forums and discussion boards peppered with questions about how much the poster should quote for a potential gig.

But they’re going about it all wrong. While, yes, it helps to know the general price range for certain types of work, the reality is that the range can be quite wide.

For instance, writers for content mills may earn as little as $15 a post, writers for esteemed magazines could earn $20,000 for a lengthy story, and some authors can receive millions for a book advance. Even for articles of the same length — say, 1,000 words — some outlets pay as little as $100 and others pay as much as $2,000 (or more).

So, to determine what to charge, don’t look for the answer from others: Figure it out from your own numbers.

Three factors will affect how much you can or should charge: Your budget, how good you are at what you do/the price you can fetch, and how much time you have.

Of these, time is the most fixed variable: you can always drastically cut your costs or improve your skills and so earn more, but increasing the amount of time you can devote to work isn’t easy unless you are already limiting your work time due to easily changed outside factors.

That means that how you “spend” your precious time every month will largely determine how much money you earn: Squander the time on low-paying gigs, and you won’t earn a lot. Alternatively, assuming you’re good enough, you can devote it to lucrative ventures to rake in the dough. The only thing you have to make sure to do is hit your basic budget number so you’re not falling into the red. Once you do that, you can choose to expend the leftover time on passion projects that fulfill your soul, professional activities such as conferences that may not give an immediately financial payout, or on cash cows that, say, will pay for your upcoming trip to Chile. The choice is yours.

Drawing from a presentation I gave recently on financially successful freelancing (though it was aimed at writers, the principles apply to freelancers of all sorts), I’ll outline various strategies that you can use to determine your rate (or the minimum rate you’re willing to accept). In the companion piece, I show how you can also negotiate raises with clients. Before we proceed, a quick note that all the numbers in these examples are completely fictional. Hopefully, however, they are somewhat plausible.

1. Create two budgets: Your bare-bones budget and your desired budget.

Bare-Bones-vs.-Desired-Budget

This example, shows a single person with $1,000 in rent, $100 in transportation (public), etc. I’ve shown that even with their bare bones monthly budget, they should max out their Roth or traditional IRA to hit the $5,500 a year limit ($6,500 for those 50 and older). If they’re really clamped down on expenses, maybe they can get away with spending only $150 a week on all other expenses.

In the desired monthly budget, their essentials haven’t changed, but if they earned more, they would put more money toward their emergency fund, another retirement account, plus save for something fun like travel or buying a house. Also, their weekly “allowance” would be a more relaxed $300 per week.

For more details on how to calculate your budget on a freelance salary, check out this article. (Be sure you also know how to do your taxes as a freelancer, how to figure out a retirement plan and how to insure and structure your business.)

2. Compare the rates you can charge clients against your budget.

Your-Rate-vs.-Your-Expenses

If your expenses are more than the amount you can fetch in a month given your experience, then you may want to get more experience, take some classes or otherwise improve your skills so you can charge more. Or, see if you can cut the expenses of your bare-bones budget even more. If you live alone, getting a roommate will cut the costs of what is likely to be your largest expense — housing.

This chart shows four scenarios — one in which you’re only able to charge an amount that, when multiplied by the number of hours per month, will net you less than your minimum expenses, and then three others at varying levels of comfort. In the first scenario, however, this person would be losing about $700 per month, which, over the course of a year, would amount to $8,400 worth of debt. His or her course is unsustainable. But using the next techniques, he or she could potentially turn things around and end up with one of the other outcomes.

3. Create a business plan.

I picked up this tip about business plans from freelance journalist extraordinaire Virginia Sole-Smith. The two main goals you want to outline here are your professional and financial goals for the year. For example, as a journalist, I might say my professional goals are to 1. write for three new publications, 2. write that essay burning a hole in my heart, and 3. break into one of any five dream publications.

For my financial goals, I might look at what I made over the previous year and decide I’d like to earn at least 10% more. Or, maybe I’m just beginning freelancing, and I decide my goal is to earn what I made at my previous full-time job (though because I’d be paying my own health insurance and self-employment taxes, my take-home would be smaller). I might also decide I want to raise my rate with one particular client or two.

4. Project your annual earnings.

Based on the current clients I have and the work I did over the previous year, I may be able to project how much I can earn. Here’s a scenario for someone whose goal is to earn $50,000, roughly 10% more than what he can be fairly confident he’ll earn based on last year’s revenue. He has one regular client paying $1,500 a month, two clients he can usually count on for $250 and $500 per month, and he re-sells articles for an average of $150 a month. When he looks back at the previous year, he sees that he earns roughly $1,500 a month in irregular assignments from a slew of other clients.

50000-Goal-Projection

 

5. Bake in overhead.

You will not be working 8 hours a day directly on projects. Since you are now running a business, you will likely end up spending time on work-related things that aren’t necessarily for any particular client but are important for your business. This amounts to about 30% of my time and is the same for some other freelancers I know. For me, that 30% encompasses activities ranging from bookkeeping, email, phone chats with clients, giving interviews, doing webinars and Twitter chats, and more. Figure out what this number is for you, though 30% is a a good start.

Using an indispensable calculation created by my friend and fellow freelancer Katherine Reynolds Lewis, you can see how much you need to earn per hour in order to hit certain salary goals. Assuming you take four weeks of vacation and allocate 30% of your time for essential work activities that aren’t necessarily spent working for a client on a specific project, you’ll need to earn these per-hour amounts to hit these salaries:

Rates-by-Hour

6. Based on that, set quarterly, monthly or even weekly goals.

For simplicity’s sake, let’s say you want to earn $100,000 a year. That’s $25,000 per quarter, in the ballpark of $8,000 per month, and about $2,000 a week. Assuming 28 hours per week, that’s $71 per hour (or, if you calculate it exactly, it’s $74.40). read more..

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