How to work out your hourly freelance rate: I get asked this quite a bit. Your minimum hourly rate should be based on meeting your overheads spread over your projected billed hours for a set period (1 year is typically a good measure) - this called your break even point. The first step is to identify all overheads you want to cover - what I did in my first freelance year was figure out all my expenses for 1 year, based on the previous years weekly, monthly and annual payments. These overheads include all bills - car registration, insurance, house hold bills, estimate doctors visits, grocery bills, software purchases, house repayments/rent, etc etc, basically everything you pay for in 1 year. You should also budget in some extra $ if you want to save some money (ie. you should definitely do this). In my first year, I was single and rarely left the house, so my overheads were quite low at roughly $15,000. I wanted to save at minimum $2,000 a year. Add these two together = $17,000. My weekly billable hours were about 40 (I did not include administration tasks in this time block) and I wanted about 2 weeks off a year and budget I might be sick for 2 weeks, so my total annual potential billable hours = 40h.pw x 48 weeks = 1920 hours. Of course, when youre first starting out, you have zero or few contacts, so you need to account for this in your work week. Assuming you have a top portfolio, the majority of your time will be spent looking for clients and assignments, at least to begin with and youll be making very little if any money. Assume a conservative figure of projected billed hours - 30% of your total billable of 1920 hours = 576 hours. Divide your break even by projected billable = $17,000 / 576 = $29.50 This is your tentative fall-back line, anything less than this is losing you money. You should aim to do an over-heads re-assessment every couple of years or as your financial circumstances change (eg. have a child, have dual incomes, loss of dual incomes, etc). Now, this is the floor of what you should be charging - you should be working your butt off to be charging much higher AND to fill up your billable hours as quickly as possible. So you need to find the ceiling - or what the market youre targeting is willing to pay, this part tends to be a little more difficult, but these are some of the methods Ive used: 1. Ask around or pay attention to what rates people are charging - just keep in mind that asking around still sometimes has a bit of a stigma, or some people wont respond to the question, thats fine people are entitled to keeping things private, but theres no harm in asking, some people are quite forthcoming. 2. Industry sites often have annual in-house salary reviews - I tend to find these are often a little over blown averages. Ive found discounting by 20% and double for a realistic idea of what you can earn annually as a freelancer (dont be too happy, expenses will quickly erode that nice fat figure). You can then break that figure down into an hourly rate. 3. Ask a client what they typically pay for these services - when you first begin, this isnt too much of a problem, youre a newbie and everyone knows it. Its not okay to do this if youve been doing this for a while as that will typically erode peoples confidence (Isnt this mofo supposed to be experienced?). Once youve done this research, youll probably have some idea of what the ceiling is for your niche - between that and your break even lies what you should be charging, how much youll be able to charge directly depends on: 1. Clients budget 2. Ability to sell yourself 3. Portfolio / demonstrated ability 4. Domain experience Working out your rate isnt a straight forward thing. If you want to charge profitably based on logic: prevailing market conditions (so youre not selling yourself short or pricing yourself out of the market) and financial constraints (outgoing $), youll want to do the above calculations and research. If not, its a crap-shoot in the dark based on gut-feeling - this isnt very pro.
Posted on: Thu, 11 Sep 2014 23:47:03 +0000
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