How Much Money Can You Make In The Freelance Economy?

Illustration by Sam Woolley

While I'm a freelancer by choice (and I absolutely love it), I've also experienced some major hurdles with self-employment. The picture isn't so rosy for everyone. For many people, freelancing is less an opportunity and more a burden.

The freelance economy is complicated, so if you're a part of it, let's break it down.

Freelancers, contractors, gig workers - whatever you want to call us, it's estimated that 40% of workers will be freelance by 2020.

Freelancer vs. Gig Worker

Before we dig into how much you can earn as a freelancer or gig worker, we need to differentiate between the two. Both are self-employed, but there's an important distinction when it comes to earning potential. After all, you're a lot more likely to hear about someone who earns six figures as a consultant, tax professional, or even a writer than you are someone who earns six figures on Uber.

When people talk about the gig economy, they're generally referring to the sharing economy: Companies like Uber, Airbnb, and Airtasker, that employ independent contractors to carry out different services. According to a study in 2016, over 4.1 million Australians freelanced during the year 2015, with 58 per cent of freelancers saying they wouldn't return to traditional forms of employment (irregardless of money).

John Liston, the Manager of Strategy and Operations at All Set, said that it's also important to differentiate between the different type of gig services, too.

"Too often people lump all aspects of the gig economy into one uniform bucket," Liston said. However, there is a big difference between contracting through a service that sets your pricing and dictates when jobs are available to you and contracting through a service that empowers you with technology and marketing to reach a set of customers without setting the terms for you."

Uber and Lyft are examples of services in the first bucket. Your earnings depend on the amount of time you have available. The company itself sets your rates and if you want to earn more, you simply need to work more.

"These services are great for gig workers as a short-term income boost but can actually be detrimental to stable career growth in the long term," Liston says.

Freelance is a broader category that might include gig workers but can also include writers, web designers, or someone who owns her own consulting business. While the most don't see much difference between gig workers and freelancers, the major difference is that freelance implies the ability to charge more when you hone a specific skill or level of expertise.

"The second type of service where you set your own terms when working with customers offers a chance to begin your gig on the side and turn it into a full-time job if you are successful."

Examples of services in the second bucket would be Upwork or Liston's own company, All Set. Despite his affiliation, Liston breaks it down perfectly. There are two main differences between freelancers and gig workers: an opportunity for growth and the ability to set your own rates.

How Much Gig Workers Earn

It's hard to gauge how much the average gig worker makes because the nature of their work isn't average. You have different people working different hours in different capacities. For example, one analysis from Priceonomics estimated that 85% of side gig workers (Airbnb, Lyft, Etsy, TaskRabbit) make less than $662 a month. There are some crucial caveats here, though.

First, this doesn't factor in how many hours they work, which almost makes the finding pointless. If the average hours worked per month is 20, then $662 isn't so bad. If it's 160, the earning potential is even worse than it seems.

Priceonomics brings up another caveat. They asked users of their site, Earnest, a student loan refinancing service, so it's not exactly a random sample:

"this data is just reflective of the Earnest user base, who are typically refinancing college loans and therefore may be more likely to be treating these services as a 'side-gig' than the typical service provider who may be more likely to treat it as a fulltime job and have different earning levels."

Finally, it doesn't consider just how different the earning potential is from one platform to another. Uber and Airbnb? That's not exactly comparing apples to apples. Airbnb is more passive income than Uber, which takes up a lot of workers' time.

So let's look at what the average Uber driver can earn. According to Josh Mohrer, their former GM in New York, their drivers earn $33 an hour. This would mean Uber drivers earn upwards of $66,156 a year, which doesn't seem quite right.

So BuzzFeed News interviewed a handful of random drivers, looked at their pay stubs, and crunched their data too. They reported (emphasis hours):

The eight drivers netted hourly wages of $20, $28.17, $36, $44, $49, $49, and $51 - not including one-time referral or sign-up bonuses or one-time deductions. They worked between 5.78 and 42.65 hours per week. Overall, their combined hourly wage during this time was $42... it's important to note that this is still before accounting for other weekly driver expenses such as gas, car payments, car maintenance, and wear and tear..

.if we assume an average weighted driver wage of $28.90 per hour, which factors in just a fraction of driver expenses, and assume drivers work 30 hours a week (again, not necessarily typical, but a middle range of the hours worked by the eight drivers we spoke to), we can assume a rough projected yearly driver salary of $45,203.

This is pre-tax, of course, and it still might not seem that bad for driving your own car and making your own hours. But it also doesn't include retirement benefits, vacation or sick time, and, most importantly by far, the cost of health insurance.

How Much Freelancers Earn

The main criticism of freelance economy is that companies save lots of money by not paying workers health insurance and other benefits while providing workers the illusion that this set up is good for them because they have flexibility. In doing this, they take advantage of workers who are starved for jobs by paying them less and telling them they can take up more work elsewhere. It's a valid criticism.

On the other hand, freelancers often make this work. As a freelancer myself, part of the reason I maintain my freelance status is that I'm allowed to work for other places and earn even more money.

"With a full-time job, you do have the advantage of income security - you won't make less than your salary - but you don't have the ability to earn significantly more," said Diane Elizabeth, a freelance consultant. "As a freelancer, you are usually working on a project by project basis - which means you aren't really committed to a set number of hours per week. That frees you up to add on more clients and earn significantly more."

Bloomberg reports that the number of freelance workers who earn six figures is growing. But there's an important caveat here, too.

These are mostly independent contractors with specialised skills who might earn that much in a full-time job, anyway, like engineers. Time boasts that "45% of full-time freelancers say they make more money working on their own than they would in a traditional job."

Here's the thing, though. if you're working freelance you should be earning significantly more money on your own than you would in a traditional job because there are so many added costs with freelancing. According to Bloomberg, the average freelancer works 36 hours a week at a (pretax) rate of $28 per hour, about the same as BuzzFeed's data for the average Uber driver.

So while you can potentially earn more as a freelancer, it looks like in general, most earn a below average income if you factor in all those other costs.

So what are those costs? And how can you earn more money as a freelancer?

Added Costs for Self-Employed Workers

Self-employed workers also have to consider retirement. Not all full-time employers offer retirement benefits, but many of them do, which encourages people to start saving in the first place.

If you don't have this benefit as a self-employed person, you probably don't think to save for retirement at all.

Finally, self-employed workers have to think about taxes, too. Yes, we all have to pay taxes, but the thing is, many gig workers or freelancers get their paychecks and don't realise money hasn't been taken out for taxes. Come October, they're in for an ugly surprise.

If you work for yourself, you have to pay estimated quarterly taxes throughout the year. You can estimate your payments using a calculator like this, but if you want to avoid a penalty, you have to be pretty accurate.

Taxes are just one example of all the administrative BS self-employed people have to deal with, too. There's also invoicing and more complicated budgeting. Also, it seems like you're almost always waiting on a check.

That said, freelancing can still totally be worthwhile in some cases, you just have to make it work.

How to Make Freelancing Work

If you want to make freelancing more lucrative than full-time work, it comes down to two things: Finding the right clients and learning to negotiate.

"Find companies who are hiring in your area of expertise and approach them as a freelance consultant. You can charge more per hour, since the company saves on taxes and benefits that they would have otherwise paid you as an employee, work fewer hours, since you are working on a project basis, and gain experience working or notable companies. This is how I've gotten the majority of my high paying clients," Elizabeth said.

This isn't easy, of course, but one tip that helps: Put yourself in your potential client's shoes. What do they need? How can you help them? Over at Growth Lab (author Ramit Sethi's project), they put it like this:

Take some time to think about WHY you took the risk to go out on your own and what value you are offering to your customers. After all, if you don't know why someone would buy from you, your customers aren't going to figure it out for themselves.

This is still easier said than done, but it's what you have to do if you want to make it work. In other words, start by getting into their heads.

Writer Paul Jarvis offers some additional tips, which we've covered here, but a few of these include:

  • Offer Your Take on an Existing Product: Offer to improve something the client already has. If you're a web designer, you might offer to improve part of their crappy website.
  • Use Your Existing Contacts: Reach out to people you already know so you can network and meet potential clients.
  • Create Diverse Content and Make Yourself Known: Build a platform for yourself and don't be afraid to put yourself out there.

Of course, the best way to get new clients is to be awesome at what you do, so don't neglect learning new skills and honing your current ones.

"You set your own prices as a freelancer. This is where a lot of people get freaked out and severely undercharge for their services," said Elizabeth.

This is so true it hurts. As a newbie freelancer several years ago, I totally caved into the belief that freelance writers are paid crap. And as a result? I was paid crap. Then I started researching how to negotiate, and as an experiment asked my clients at the time for more money. Surprisingly, all of them said yes, and it completely changed my thought process and encouraged me to embrace negotiating.

"Don't be afraid to ask for what you want — there are a lot of potential clients out there who will be willing to pay for high-quality service, even if you get a few rejections," Elizabeth said.

Finally, if you want to increase your income as a freelancer, it helps to think of your work as a business, even if you're not an LLC, Elizabeth said.

"In many ways, freelance work is the equivalent of being an entrepreneur. You set your prices, you set your hours, you generate your own leads, and you're 100% responsible for the outcome of your work."


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