One ongoing question freelancers have, that never seems to really be answered fully, is what on earth should I charge for this project? Sure, there are many rate calculators available and, if we do a little research, can get a rough ballpark figure. Regardless, it still seems an inexact science and, truth is, it is to a degree. It is not just figuring out (or guessing) an hourly rate and using that. In fact, it goes way beyond that.
I’ll try to break this mystery once and for all but a general breakdown of the process should be understood first, which I’ll do for this post.
The Billable Hours
Your billable hours for the year can be simply broken down with the following:
Working a 40 hour week, 52 X 40 = 2080 total hours.
Minus two weeks of vacation, 2080 – 80 = 2000 remaining hours.
Minus 10% of time spent on administrative tasks (emailing, billing, estimates, etc), 2000 – 200 = 1800 remaining hours.
Your billable hours may vary but we’ll use the 1800 hour total as a rough estimate.
It is a common misunderstanding that you need to figure out an hourly rate and multiply it by those 1800 hours to come up with a yearly income you desire. For instance, if you decide to charge $25/hour:
$25 X 1800 = $45,000 yearly income
There are two issues with this, though. The first is that you are not likely to work and bill those entire 1800 hours. A good chunk of that time will be spent searching for clients and promoting your freelance business, especially if you are new to freelancing.
The second issue is that due to that time spent searching for clients, you’ll never reach your yearly income goal unless you charge more per hour. By charging more per hour, you then run the risk of appearing too expensive and find it harder to obtain projects. So what is a freelancer to do?
Well, there is a way to counter these issues and earn the income you desire… something usually you have to learn the hard way as a freelancer. Understanding the proper method can go a long way in helping make your freelance career profitable.
The secret of earning your desired income does not lie in your hourly rate. It is throwing your hourly rate out the door when coming up with an estimate for any client. The idea is to provide a competitive price on a project which is profitable for you, but something you can eventually improve upon and do in less time. Let me explain:
Let’s say you give an estimate on Project X at $500 and you win it. Also, we’ll say you estimated 20 hours to complete it. Isn’t it reasonable to say that the next time you win a similar project for $500, it will take maybe 15 or less hours to complete it since your gain experience and can possibly reuse parts of the first project?
How about the next similar project after that? Maybe it takes 10 hours. You see, the profitability lies in concentrating your services around those skills you are good at or are continually improving upon. As in the example, the fee you charge for the project may not rise, however, the time required for you to complete it decreases and your per hour income increases. This applies to you whether you are a writer, designer or programmer. The better you get at something, the faster you do it.
In a nutshell, this amounts to doing work you really know how to do well (or learn to do well) as much as you can.
This doesn’t mean that determining your hourly rate is not important. This is used in a way you probably haven’t thought of though. It is also true you may be required to provide an hourly rate in some job boards so I’ll touch upon that in the next post. In the next part of this series, I’ll explain the importance of the hourly rate and how it should be used.
And while we're on the subject...