The Great Mystery Revealed: What Should I Charge My Clients? Part 4

Posted: May 1st, 2009
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This is the third of a four part series where we explain the science of determining your freelance rates. Today’s post will cover ways of measuring your progress so you are reaching your income goals.

By knowing your desired yearly income, hourly rate and billable hours you plan on working in a year, you still are not guaranteed of knowing if you are on track unless you start crunching numbers and evaluate what you are doing. This way you can make adjustments if you are not meeting your income goals (likely) or you know you’re right on track if you are meeting them (not quite as likely).

Tracking time and income

All of the previous steps are useless if you do not take the time to track your time and income. In order to know if you are meeting your income goals, accurate records must be kept. For time tracking you need to keep track of all time spent working which can be broken down as follows:

1. Admin Tasks: Non-blillable tasks related to your business such as emailing, invoicing and customer support.
2. Promotion: Non-billable time you spend promoting your freelance business.
3. Client Searching: Hitting the job boards and sending out estimates that is preferably done on non-billable time you allocate yourself. You generally have to dip into the billable hours here.
4. Your Work: The billable time that generates your income. The time you spend on each project should also be tracked to see if you are on track with your project estimates.

A good web-based software that I highly recommend and use is Paymo Timetracker which is free of charge.

You must also keep track of all the income you receive and every last cent you spend, whether personal or business, so you know if you are in par with your budgeted expenses and your yearly income goal. Although it is recommended you utilize an accountant, this can add additional expense, though it does tend to pay itself back relieving you of this time spent on crunching numbers (and headaches).

If you do decide to go the do-it-yourself route, I recommend Quickbooks which has a free edition available. It does require some learning and getting use to, but it accurately (and least painfully) accomplishes your accounting chores.

Evaluating your results

After a few projects under your belt, a little income in the bank account and your freelance business rolling, an evaluation should be done to determine if you are on track with your income goals. We’ll need to have handy the following:

1. Your hourly rate, calculated from the last post
2. Your calculated billable hours for the year divided by 12 to get billable hours for the month
3. Your income for the current month (do not deduct expenses)

Each month, take the income total and divide it by your monthly billable hours to get your average rate for the month. Compare this result to your hourly rate.

Is the average rate for the month about the same or higher than your hourly rate? If so, congratulations, you are right on par with your business. Keep doing what you are doing.

Is the average rate for the month significantly lower than your hourly rate? Then there is no need to panic. It is common for new freelancers to spend more time searching for clients and bidding on projects. Even for freelance veterans, there will always be some months where this is the case, too. It is important, however, that you make sure you are taking steps to increase your billable hours spent on projects so this doesn’t carry on month to month.

Eventually, with enough projects done, you will notice that repeat work will increase which will enable you to spend much less billable time on searching for new work. This comes with experience.

How about a little feedback?

I know these series of posts has covered quite a lot of info and there may be some questions still lingering, so I encourage you to post your questions or comments below. I’ll answer them and will likely have a new post for you for issues I didn’t cover here.

More on the author, Johnny Spence
Johnny is the founder of The Freelance Rant and a freelance web programmer with 8 years in the business. Have a visit at his company Oscarrr!web or see what he's up to on Twitter.

4 Comments. Join In!

  • Marie Poulin

    May 2nd, 2009 at 1:52 am

    Great tips in these past few “what should i charge” blogs… I’d really been thinking about it all lately, and I will definitely be making some changes to how I operate.
    regarding time/book-keeping, i HIGHLY, HIGHLY suggest signing up with https://www.freeagentcentral.com
    You can do everything with it: create estimates, invoices, manage projects, track your time, keep all your client details, log expenses, see overall earnings (monthly or yearly), you can track which projects have been paid or have overdue invoices, etc. There is a small monthly fee, but its seriously worth it. You can actually make an account for your accountant to log in. There is just no way I would be able to take care of all that stuff on my own! Its what allows me to compare my hours to my actual earnings, without any math. YAY!

    I’d also love to know how many freelancers out there have written a business plan, and can anyone recommend a good online resource for creating one?
    Thanks!

  • Johnny

    May 6th, 2009 at 10:12 pm

    Marie, I found a good resources for business plans at the Entrepreneur website. I made one for myself, but more of an informal one so I can track my business goals.

  • Jen

    March 5th, 2010 at 3:06 am

    You are awesome! I can’t believe you’ve only gotten one comment on this!

    I have been freelancing as my sole income source for three years now, and I guess I’ve lucked into rates and tracking systems that have worked for me. But I’m excited about all the new information you’ve provided in this series, and I can’t wait to put it to work and see if I can use my time more efficiently. These posts are brilliant, and I’ll be recommending them to anyone who asks me for tips. Thank you so much!
    .-= Jen´s last blog ..I work well under pressure. =-.

  • Johnny

    March 5th, 2010 at 5:21 pm

    Thanks Jen!

    I learned a while back (but way after I started freelancing) about the dollars per hour mentality and how that can hold you back. I don’t know if I presented it as well as I could have, but glad someone finds it useful!

    Johnny