Use A Full-Time Fantasy To Figure Out Your On-The-Side Freelance Rate

Knowing how much to charge somebody is easy for full-time jobs — it was figured out the day you were hired. What if you have a job, but you're also working freelance on the side, on weekends or for one-off projects? It can seem much trickier, but there's actually a simple way to figure out your rate.

I went from jobs in newspaper writing, where the pay is very stable (no matter how many hours you work!) to Lifehacker (as an independent contractor with a set rate) to freelancing full time. Like most things in my career, the beginnings involved fumbling around, guessing and sending apologetic late-night emails to editors.

Looking back now, however, I think there were was a much more simple means of figuring out my rate.

In August 2011, Melanie tackled this same question but with a notably different approach. Melanie approached freelancing like setting up a business for yourself: figure out your operating costs, average billable hours, dividing those figures, factoring in profit and taxes, and keeping track of important details. Towards the end of her post, Melanie wrote:

You can try several other methods for setting your rate, such as marking up your current salary... or just dividing how much you want to earn by how many hours you'll work, but I wouldn't recommend them because they're not realistic; they don't take into account your everyday expenses or account for long-term success.

It's hard to argue against setting up good estimates in a spreadsheet and using maths to figure out your operating costs. That's the kind of thinking that gets you some kind looks and firm handshakes from bankers and business owners. But some people may not be jumping into freelancing full time. For a side gig, a weekend project, a half-time schedule or one-off job, setting up your long-term business plan can seem intimidating and overly complicated.

So do what I (eventually learned to) do: apply for your own fake job, with your real credentials, and negotiate with yourself to figure out what you should earn.

Step 1: Know Your Actual Expenses

Even if you aren't creating a home office and reading books about marketing, you still need to know what your costs are going to be before you ask for money. Most importantly, you need to know what your tax rate is going to be for the self-employed income you earn.

The rough number I always hear freelancers and self-employed types use is 30 per cent: expect to give back 30 per cent of what you earn in taxes and miscellaneous fees, so charge that extra 30 per cent to clients. And plan to do that in quarterly business activity statements or face a penalty.

You can take expenses off your freelance income, such as qualified business travel and meals, equipment you need to buy and the like. But if this is a side gig, and you're mostly using your home and your personal computer to work, you will mostly just earn some side income and have some of it taxed. Once you know that, you're ready to interview yourself for your freelance job.

Step 2: Make a Fake Resume, Interview for Your Job

Want to drive yourself crazy, alienate friends and seem completely unprofessional? Start asking around to every freelancer you know about their rates, ask people "how much would you pay" for services, and try to figure out exactly how much you should charge based on a very vague idea of how many hours the job will entail.

Want an easier way to figure out what you should charge for your freelance side/weekend/one-off work? Figure out what kind of worker you are. For your Actual Job, you created a resume, you applied, you pitched your skills in a letter and/or an interview, and you negotiated your salary, based in part on what skills you were bringing to the table, versus how much of your work would involve winging it and learning on the fly.

This is why interns are paid a certain small amount and why professionals at the top of their field are haggling over things like jet access and ocean-front time shares. When you're negotiating your freelance rate, why not ask yourself what kind of job you'd be applying for if this was a full-time position, and what would that job pay? It's good advice I received when I asked designer Nicholas Barone about new work I was taking on.

More specifically:

  • Figure out what kind of job you could get, at this firm, in this field, with the skills you've built up.
  • Figure out what kind of salary would make sense for you to earn at that gig, if you were working full-time.
  • Add roughly 30 per cent onto that salary, given the taxes you'll be paying (or use the calculator.
  • Ask for that amount, divided down to an hourly rate (yearly rate, divided by 52 weeks, divided by 37.5 or 40 hours or whatnot).

If you have more than one freelance gig, or you're freelancing in a field that's slightly outside your main field, you'll have to do a bit more pondering. I mostly write for web-based publications about technology, so when another site comes along, it's not too hard to extrapolate to an hourly or per-piece rate. But when someone asked me to do one-on-one computer setup and consulting, I had to figure that out. If I opened up my own shop as a fix-it computer consultant, how much would I want to earn, to live where I live and not eat like a student every night?

Step 3: Be Prepared to Negotiate the Little Stuff

If you think you've come to a realistic number for your hourly rate (or your per-piece/project rate, given a realistic time estimate for that piece/project), you're still not quite there. There could be bits and pieces of a freelance agreement that necessitate moving the number up or down. Retaining the rights to your own work, for example, or being required to take part in long meetings (hint: they are all long).

In general, doing work on the side can be a simple calculation: I'm doing this work, and I think I'd get paid X amount to do it full-time, so here's what you should pay me to make use of my limited extra-hours time to do it for you. It's an easier way to respect yourself and your monetary worth.


Comments

    "... To Figure Out YOU'RE On-The-Side Freelance Rate"

    ftfy :)

    As an Accountant. People work this out ass about.

    * Add roughly 30 per cent onto that salary, given the taxes you’ll be paying (or use the calculator.

    What? You didnt pay tax on your salary in the Past?

    Anyway..... So many easier ways to do this than what is described above. Yes the general principles are ok but so much is missed out that is important.

    * Contractor vs Employee. - Are you still employee even though you contract ?
    * Superannuation
    * Sick leave / Effective lost Public Holidays
    * Workers Comp/ Income Protection
    * Public Liability Insurance / Professional Indemnity
    * Fringe Benefits forgone/
    * Accounting Costs
    * Charged vs Hours actually Worked. Productivity rates
    * Risk Rates

    You can write a book about this.

    .. Seems like the main advice is "ask more than you make now".. really doesn't seem like an effective pricing strategy..

    Investigate the market, consider the actual task at hand, break it down and price each component (people love that).

    I just had to respond to this article. I think what you should realize is that you are only worth what you put in.

    I started as a freelancer about a year ago (IT - programmer) and deliberately made my hourly rate ~ $40 (I was employed for about ~$100 in business before that). Low? Absolutely. Did I get lots of jobs? Absolutely. As soon as my schedule was starting to fill up I started slowly increasing the hourly rate. Currently? ~ $100. This will keep going up as long as I can fill my calendar.

    When I reach my limit, where increasing my hourly rate stops me from being "booked out", that's when I will combine my "fantasy" and the realistic hourly rate that I got from the market.

    Especially when you start off, you just cannot go about "I think I should earn $250 per hour" - well most of us can't. This method will give you a much more realistic view of your hourly rate - as well as confidence and lots of contacts/projects to start with.

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