An Inside Look at Freelancing--How Do I Know What to Charge? One of the most difficult issues a freelancer must resolve is "What Do I Charge?" A freelancer must set fees fairly and competitively to stay in operation. Unfortunately, those who use freelancers often do not realize that the same basic costs apply to freelancers as apply to any other business. The client sees only the "dollar per hour" rate. This is one reason why a freelanceer should get in the habit of quoting on a per-project basis, rather than on an hourly fee basis. But before you talk to a prospective client, you should have some idea of your rates firmly fixed in your mind--and stick to it. There are times when you will certainly work for a lot less than $77/hr. If this is your sole means of livelihood and the rent is due, any job is better than none. But do you want to spend the rest of your life living as a starving artist? I doubt it. It is not easy to hold out for a higher fee when your stomach is growling because you haven't had the money to buy groceries this week. Only you can decide where and when to negotiate. --The figures I've used below are comparable to an employee, in 1996, earning an annual salary of $45,000. If you keep these figures in the back of your mind, you will find yourself negotiating for what is a fair, living wage, and not feeling the least bit guilty about your negotiations. The example below is created by comparing a consultant's rate to that of an employee earning $45,000 annually. 1. Determine daily labor rate - Multiply the annual salary times 1.5 to account for life, health, dental, disability and retirement benefits. This reflects the real cost to a company of this employee. Example: $45,000 x 1.5 = $67,500 annual labor rate - Divide the annual labor rate by 180, the standard number of billable days in a year. Days in a year: 365 Subtract: 104 weekend days 8 holidays 10 vacation days 5 sick days 24 administration days 34 marketing days Billable days 180 Daily Labor rate example: $67,500 / 180 = $375 daily labor rate 2. Expenses: Statistics show that overhead for a self-employed consultant average 44% of labor. Typical expenses: discount office supplies - paper, toner, pens, pencils, business cards equipment - computers, copier, fax supplies association dues, seminars trade journals advertising postage and shipping taxes and licenses travel Example: $375 x 44% = $165 expenses 3. Profit margin: As a business, the consultant is taking risks and providing service and/or product the same as any other business. Each consultant must determine a reasonable profit margin; this can range from 15% - 40%, with 20% being considered fair in most markets. Example: $375 x 20% = $75 profit 4. To determine daily billing rate: - Add daily labor rate + daily overhead rate + daily profit - Divide by 8, the typical number of hours in a business work day Example: $375 daily labor rate 165 expenses 75 profit $615 $615 / 8 = $77 hour

© 1999 Anne Wallingford

081007 042211 Monday, April 25, 2011