So you want, or are about, to become a freelancer? Cheers and welcome aboard. Now comes the time to determine the price at which you will sell your services. How much is your time worth?
I am french, so the following calculations are biased toward the french legislation, but the reasoning behind them is quite international.
First, you might want to figure out what you would earn as an employee. It’s often an easy guess, and easy to verify. However, unfortunately, it couldn’t be further from your true worth. I think there are two leaps forward to take away from this first guess, but I often see only the first explained. So here is my thought on the topic.
As a freelancer, you free yourself from the subordination imposed upon employees. It means you are equal to your client — the person that needs your time. It translates to switching from working under constraints and submission — extrinsic motivation, to working from your own will in collaboration — intrinsic motivation. It’s actually great for creative professions. Which represent most professions nowadays, since software and AI are taking over the world.
But it also means you now need to take your professional life in hand. You are not anymore in the comfortable and secure train track of employment. So before calculating your wage, you need to take into account that you will miss from employment:
• The social security paid by your employer
• 30 or so days of holidays
• Some sick days
• The job security
• Benefits like profit sharing, incentive and bonus plans
• Some advantages in nature
Moreover, finding clients might take some time, so you need to take into account the time you need between two missions. For some professions, it can be as short as a few days, for others it might take a couple of months.
Before diving in the calculations, bear in mind that all the numbers here are indicative, and you might want to adjust them accordingly to your situation.
As an employee, let’s say you expect x € net per month, adding up to 12 x € net per year. You can about double that to level to what you really cost to your employer for your social security and other employment taxes. There are very thin and dubious reasons to think you might be able to get the same social security for less. And you probably should not sacrifice your health in favor of your wealth. You could also add at least the equivalent of two months worth of salary to compensate the lack of benefits, job security and sick days. So you cost about 26 x € a year to any employer — including yourself.
There are about 250 working days per year, minus the 30 days of holidays, an employee actually work around 220 days per year. Mix in the time for prospection, a few intermissions and sick days ; a freelance might work only 200 days a year.
So the cost of around 26 x € a year should be distributed over your 200 working days. 200 / 26 = 7.7 You should consider bringing in at least x / 7.7 € per working day. For example, from a net salary of 3000 € a month, you should consider bringing in at least 390 € a day to cover the cost of your own employment. If you fail to pay yourself this much, you (as an employer) are just screwing yourself (as an employee) over.
That’s right, as a freelancer you are self-employed. And as such you should now think like a business, not like an individual. So write this number down, and put it aside.
Now, in order to set your price fairly, you should weigh in 3 things.
• Your needs — we just covered that,
• What you can, and more importantly, what you want to bring to your client,
• The worth your client will get from your service.
As a business and as a freelancer you should constantly seek to line up these last two forces. It’s really about finding a place where you can thrive and feel purpose, because you do what you love, and it get appreciated and recognized.
The first one is simple enough to grasp. It’s probably what you learned in school, what keeps you awake, what drives you, what you are good at … But the second one, the worth your client will get, is too often overlooked.
Expecting your client to hire you only based on your cost, is like expecting to buy an iPhone for what it really costs Apple. A pure fantasy. The market is governed by what economists call value-based pricing: putting your price not on your costs but on the value you bring and represent.
Or put another way, selling yourself cheap will eventually makes your clients treat you cheaply. And I doubt you would want that.
So it’s true that you should not put a price tag immoderately high. But please don’t sell yourself short. Don’t be afraid to rise up your wage if you think you are worth it and you bring value to your clients.
YOU ARE NOW A BUSINESS
As in any other company, the benefit is expected to be reinvested to increase the value proposition and keep up with the competition. And bring money to stakeholders, but let’s just skip that part.
So spending your dime on cocktails and motorboats might be an option — actually, the bring-money-to-stakeholders option. Or you might consider instead investing toward growing your business, and improving your value proposition. That might be taking some chill time to be better disposed for work, buying some learning resources to be more efficient or tackle more difficult challenges, investing in good hardware and so on..
I don’t see my wage as a finite sum game where my goal is to screw my client over. On the contrary, I see it as a way to measure the quality of my work, and as an investment opportunity to bring more value to my clients.
Picture by Matteo Vistocco on Unsplash