As part of our commitment to proving that freelancing can be breezy and knot-free, Friz is bringing you the Ultimate Guide to Calculating YOUR Rates in the month of March 2022!
We will be covering considerate factors to pricing, how to strategically use hourly versus project fee, and how to then get that price at the negotiating table. If you think any of your friends could use this advice as well, share this article with them before reading any further!
Calculating your own fee
This week’s topic will cover how to calculate your own fee. While many websites say this is to calculate how much you’re worth, I think it’s more productive to think of this as calculating how much people think you’re worth.
Pricing as Strategy
Now, that’s not to say your livelihood should always be at the whim of undercutting clients, or that you shouldn’t stand up for the genuine value you bring. On the other hand, being keenly aware of differing methods of coming up with an hourly/project/daily rate can elevate your negotiation skill from haggling to persuading!
It’s always far better to let clients realise how much value you are providing them rather than trying to bargain. Freelancing is just as much about billing and quoting as it is about the work you’re charging for. Friz aims to smooth out the actual invoicing and credit process so you can focus on charging fairly!
If you haven’t read last week’s article on Factors to Consider when deciding your charge, do that first, as these usually subtle and invisible (to your client) factors form the basis of this week’s decisions.
How can you calculate your own fee?
Notice the word can instead of do. This is because, like I articulated above, there are multiple ways of doing this. We’ll be going through what resources you can use to come up with a figure, touch on the differences between your freelance rate and an equivalent full-timer’s rate, and lastly, how to calculate the final hourly or project rate.
This is the simplest, and should be the number you fix down first. Your targeted annual salary is simply how much you target to make in a year. This year may or may not include sick days, weekends off, vacation, administrative time, depending on your personal preference.
If you’re just starting out, hopefully you have worked a full-time job before, whether in your field or in another one you’re looking to get away from. Either way, your full-time job salary should serve as a guide. Depending on the reason for switching to freelancing, this number will then vary. If you left your previous job due to:
- Low pay: By all means, target a reasonably higher annual salary. Especially if you’re not the kind to clear your annual leave or take sick days off, you can now use those days to take on more workload that will accelerate your freelance work and bring you more income.
- Poor working conditions: In a toxic industry or had traumatic workplace experiences? Workload was overwhelming? If so, place priority on making improvements for your general wellbeing. Seriously. In Singapore alone, pandemic situations have led to 46% of employees pointing to increased stress levels, 33% feeling burnt out and 20% feeling more isolated. (Source)
If changing roles/industry, target lower salary to account for time spent re-skilling. If not, lower salary targets anyway to remove salary from being a pressurising factor. The point here is to use freelance work and the autonomy to heal first and find your bearings.
- Hatred of employers: Targeting to freelance the equivalent salary to your full-time job can be a very useful measure as a way to prove to yourself in your first 6 months to a year that you can make it without an employer.
If you haven’t had a job yet, look out for job listings and just target a proportion of that salary based on how good your skills/experience and your contact base you think you have. If you are working part-time alongside a full-time job or studies, then this last bit is a bit tricky.
The data for part-time job annual salaries are not as plentiful, and if you can find a workable example, go ahead. However, if there’s no real data, you can try dividing Annual Salary (from a full-time role) by work hours per week, and then multiplying it with the amount of commitment you expect to have.
If you’re a student, or maybe you’re working during your free time because work is dull and inconsistent, you may want to use different metrics that I’ll be discussing below.
For example, students might want to calculate their expenses and charge accordingly, whereas freelancers feeling like their wages have stagnated in their full-time positions should charge for their part-time freelance just about as much or more than their expected pay raise.
Taking the step to become a freelancer comes with giving up medical/dental claims, transport benefits, a company card, and other small luxuries like snacks at the pantry or drinks from the nescafe. The point of stating all these is to show that freelancing, at its core, calls for a greater personal fiscal responsibility. You must be accountable to yourself since no one is running your finances.
Your annual expenses can be tracked from month to month, year to year or even day to day, as long as it is a schedule you can keep to, and that works for the nature of your expenses.
A good tip is to use an app like Seedly to get into the habit of tracking day-to-day expenses, while using a spreadsheet (Tip: You can save on Microsoft Excel by using LibreOffice or Google Docs!) to track larger expenses/liabilities like student loans, mortgages and monthly instalments.
Especially if you are Singaporean, this is a great video on how you can use excel to model and iterate your expenses.
On the other hand, sign up to Friz and use our smart invoicing solution that gives you flexibility to finance invoices beforehand, track your card expenses (minus the 1.5% cashback!) and apply for no-frills credit loans for big purchases.
In last week’s article, we have already covered common expenses such as:
- Medical/Dental bills
- Mortgage, Utilities & Wifi/ Office running costs
- Health Insurance
- Hardware cost
- Hardware depreciation
- Hot Desking
In case you’re wondering about the last point and why that’s relevant, we at Friz have already discussed the strengths of hotdesking in Singapore in a blog earlier this year. You’ll be surprised at how essential it can be to a freelancer’s workflow
This part simply means ensuring that your billable amount is profitable. Because you’re not running a large scale business with a lot of upfront overheads, you want to make sure that you are turning a decent chunk of profit above your expenses.
After all, remember, a salary given by an employer simply is some small percentage of the money your work is bringing in, so in very simplified terms, if you were to hunt out those contracts yourself, you can undercut your employers and still be more well-off than when you were working for someone else.
Of course there are many other factors to this, but this is a universal rule to keep in mind. This article, for example, shows how Malaysian employers spend a significantly less portion of their total income on wages.
In short, to come up with a final amount accounting for profit:
- Tabulate your projected expenses
- Check to see if your target salary covers your projected expenses.
- Ask around or use industry knowledge to figure out what companies are charging for an equivalent piece of work, and find a middleground
- Consider your value in the project. If your work has the chance to create a level of value and trust for your client’s brand outsized from the amount of work done, then charge higher
- Consider your client. If your client is large, then they possibly have a lot more to gain in raw revenue from your work. If your client is small, consider negotiating with them at a lower rate with other upsides like creative control or a flexible timeline.
In total your projected profits for every project should range from 10% to 20%, keeping in mind not to wildly overcharge.
Once we have made our price range certain, now’s time to consider the final step: framing it.
Next week, we’ll be digging into the pricing/negotiating strategy, with examples of sample rates. If this article has been helpful to you, consider sharing it with a friend!
Stay tuned to this series and our other information-rich blogs by following Friz on Facebook or adding this blog to your bookmark bar!