Freelancers: Why You're Probably Charging Too Little

6 years ago

Three years ago, when I left my job to freelance full time, I had a hard time shifting my mental math from salary to an hourly rate. When a client agreed to pay $30/hour for my copywriting services, I was over the moon, thinking it was an outrageously extravagant sum. After all, $30/hour x 40 hours in a week x 52 weeks in a year = $62,400, which was way more than the salary I'd just left. (I'm sure some of you are already laughing at that equation, because you know where I'm going with this.)

One of my mentors encouraged me to ask for almost double that rate next time, and I scoffed, worried I'd look greedy. "You can't base your freelance rates on a salaried position," she told me. "This requires a whole new mindset." As I'd realize over the next several months, she was right on the money. Here's why:
  • Freelancers buy their own benefits. Salaried employees get health and dental insurance, while freelancers buy it themselves. That fact alone means a freelancer needs to earn several thousand more dollars per year compared to their salaried cohorts. Some employers also provide 401(k) matching, disability and life insurance, professional development opportunities, and other benefits that freelancers pay for themselves. Check out Freelanconomics for a discussion of these costs.
  • Freelancers pay self-employment tax. Here in the US, employers cover part of Medicare and Social Security, but most freelancers cover both their portion and the portion that would have been covered by the employer, which is often called "self-employment tax." As a result, freelancers need to make more to come out even after this tax. There are other types of overhead involved, too, like office supplies and computer software.
  • Freelancers don't get paid time off. The equation above assumes that you're working 52 weeks a year, which very few people do. If you're salaried, then you get several paid holidays per year and probably some sick time and vacation days, too. Freelancers who charge by the hour only get paid for the hours they actually work, so the hourly rate needs to factor that in.
  • Freelancers rarely bill 40 hours a week. In addition to doing their creative work, freelancers also spend time cultivating new clients, sending out invoices, following up on invoices, tracking cash flow, sending collections letters, updating their website and LinkedIn profile, resending invoices when their clients "lose" the original, and performing myriad other tasks that aren't billable but nonetheless need to get done. Even if you're working 40+ hours a week, it's unlikely that all that time would be billable.
  • Freelancers provide a specialized skill. Whether self-taught or highly trained in a creative discipline, freelancers bring knowledge that many 9-to-5'ers just don't have. It's easy for someone who works in an office doing the same tasks day after day to grow complacent, but freelancers can't afford to let their talent grow stale. Ambitious freelancers stay on top of their game by following industry blogs, attending conferences, networking with other freelancers, or otherwise keeping current, which makes them a valuable asset to their clients.
Now, a few additional considerations. One is that some clients equate higher rates with higher quality work, so setting a bargain basement rate may raise questions about your worth instead of landing you the gig you want. (If you're curious what other freelancers charge, the Editorial Freelancers Association lists some sample rates, though I think some of the editing rates are a bit low for my area.) The other is that hourly rates aren't always the smartest way to price a project, as I explained in the Great Rate Debate.
What do you think? If you went from working full time to freelancing, did you have an equally tough time making this shift? How did you set your rates?

Credit Image: skpy via Flickr

Susan Johnston is a full-time freelance writer who covers business and lifestyle topics for a variety of print and online publications. She also blogs about her adventures in writing at The Urban Muse

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