Recently we’ve been talking a lot about how part-time is overtaking full-time as the new employment standard. For many of you, this will be the first time you’ve had to step into the world of freelancing to fill up a standard working week.
If you’re new to the freelance game, putting a value on your skillset can be a bit of a balancing act. On the one hand, freelancers don’t get paid breaks, sick leave or annual leave, and there’s no guarantee that you’ll get anything more than short term work from an employer. Because of these things, there’s a little bit of financial wriggle room to charge an hourly rate that is slightly higher than your salary.
However, I’ve recently worked with a number of Talent who are striking out as freelancers for the first time and asking for a rate that is WAY out of proportion with their typical salary package as well as with what is happening in the job market (and wider economy) right now. In one instance, I had to explain to a Talent who previously earned an $80K salary package and was charging a rate of $500-$600 (equivalent to $125k-$150k salary) per day, why they were not picking up any work from clients.
When I ask Talent why they’re charging that much, they’ll say they’ve been told that it is their ‘market value’. However, inflated freelance rates don’t have so much to do with value as what you can get away with. Whilst employers might have had the budget and the need to pay an inflated rate 12+ months ago when there was plenty of full-time work and freelancers were thin on the ground, it certainly isn’t the case today.
Asking for what you’re Worth vs. Inflating your Rate
Don’t get me wrong. Everyone loves dollar bills and as charging what you’re worth plays an important role in your professional self-confidence and drive; surely inflating your freelancer rate should make you feel even more confident, motivated and professional, right?
The reality is a little more complicated.
Firstly, inflating your rate often means you price yourself out of the market, as clients may not have the budget to hire you on an ongoing/project or regular basis, or may not even be able to afford you in the first place. Budgets have been slashed across the economy in the last six months as businesses switch to survival mode. Even seasoned freelancers are finding their regular clients are unable to pay rates they had no problem managing six months ago.
Client expectation is another issue to consider. If you inflate your price, your client’s expectations around what you are able to deliver will also increase. You may end up in a situation where your work does not align with what the client feels they’ve paid for. You may end up having to issue a refund or whittle your rate down to nothing as you work through hours of endless revisions. It can happen!
There are plenty of great freelance opportunities with big-name brands out there at the moment; let’s get your freelance rate right so you can get out there and rack up a few heavy-hitter projects for your resume and keep the cash flowing in whilst the market is quiet.
Working Out Your Basic Freelance Rate
The easiest way to work out your day rate is to divide your yearly salary package by the weeks, months and days of the year.
$100k package (incl super) / 52 weeks
= $1,923.08 incl super (per week)
/5 days = $384.62 incl super (per day)
/8 hours (standard day) = $48.08 per hour incl super.
Factoring in the ‘Freelance’ Elements
We’ve worked out that your day rate in a full-time role is $384.62. However, as a freelancer, you don’t accrue any annual or sick leave, so you’ll need to compensate for this by increasing your rate. Most seasoned freelancers will round up to the nearest $50 or $100 to balance this out. This number also takes into account your overheads such as your computer costs/electricity/phone bill etc. Using the example above, rounding up would bring that your rate to $450 per day.
The next thing to consider is your superannuation. As a freelancer, you are not legally required to pay your own super in the same way that an employer is. However, superannuation forms an important part of your future financial planning so I recommend you make a voluntary contribution at the end of every quarter.
In a full-time position, 9.5% of your annual salary must be paid into your superannuation fund. Use this percentage as a guide to work out how much of your rate you’ll need to set aside in order to pay your own superannuation. For example, if your day rate is $450, 9.5% ($43) of that needs to be set aside for your super. Your final freelancer rate of $450 per day not only reflects your experience, but it also takes into account sick and annual leave as well as your superannuation needs.
Don’t be Cheeky
Once you’ve worked out your freelance rate, don’t mess around with it. Some freelancers are tempted to push their rate up if they know a client has the budget for it or if they know they are unlikely to get ongoing work. In my experience, this will come back to bite you. Being honest and quoting a freelance rate that is logically linked to your usual salary is the best way to go. You might end up getting the job because you’re the only candidate who doesn’t inflate their prices and sends through a quote that aligns with the client’s budget. Alternatively, a client might have such a positive experience working with you (and trusts you) that they refer you to others within their network.
Best Practices for when you do Decide to Increase your Rate
If you freelance for an extended period of time, you should increase your rate in much the same way that full-time employees receive an annual salary increase.
There is a certain etiquette around rate increases which should be followed:
- Inform your clients well in advance if you wish to increase your rate
I.e. If you plan to increase your rate for the new financial year beginning July 1, you should notify all your existing clients at least a month in advance, in writing.
- Raise your rates annually around the same time
The end of the financial year is an ideal time to adjust your rates, as is the new year.
- Offer existing clients discounts for their loyalty
This is how you establish long-term relationships with your clients and perhaps even leave open the possibility to ask for a retainer in future.
- Don’t increase your rates too sharply (this leaves a bad taste in your client’s mouths)
An annual salary increase is usually around 5%. As a freelancer, I would recommend increasing your rate by no more than this.
Stay honest. Don’t be cheeky. And remember that Melbourne is a small town, so don’t f*%k with your reputation!