Author Topic: what rate to charge for freelance work?  (Read 5051 times)

mathman

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what rate to charge for freelance work?
« on: March 14, 2015, 02:05:30 PM »
My wife quit her job a couple years ago to stay home with our young child.  Her former employer has asked a couple of times for her to return, in even a part-time capacity.  The opportunity has arisen again, and my wife is considering it. The work (writing mostly) could be done during evenings, from home, and it is something my wife enjoys. She is motivated by at least two other things: the opportunity to earn some additional income as well as to have adult interactions that do not involve children.  The employer wants her to suggest a compensation rate. Any advice on how to determine a rate? Thanks.

(PS: I searched the forums for related posts but didn't find anything. If another post exists already, please send a link.)

lise

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Re: what rate to charge for freelance work?
« Reply #1 on: March 14, 2015, 02:25:55 PM »
A loose formula I've seen is double what they would pay an employee to do the same work. 

dilinger

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Re: what rate to charge for freelance work?
« Reply #2 on: March 14, 2015, 02:42:59 PM »
It depends on a lot of factors.  The formula of just doubling hourly employee pay rate works well for short-term contracts.  The intent for such a high pay rate is to cover not only the contractor basics (self-employment tax, health care, etc), but also to smooth the transition between working and non-working periods.  An employee would be paid regardless of the amount of work available, whereas a contractor is only paid when working, so they're paid extra to account for the time between contracts.

For longer-term contracts, employers often expect a discount.  That seems fair, as the contractor can expect to be working for multiple years without contact lapses, and it can be expected that the contractor will have some downtime (ie, not dealing with a constant barrage of looming deadlines).  I usually charge 75% of my hourly rate for long-term contracts.

There's also a number of other reasons for discounts as well.  I give non-profits discounts, or projects that I think are really cool/fun to work on.  The last non-profit I contacted for, they got 55% of my hourly rate because I liked what they were doing AND it was a long-term contract.

Note that this is assuming your hourly rate is doubled.  For example, if you make $120k/yr full time, that's roughly $60/hr.  If it's a short-term contract, I'd charge $120/hr.  For a longer-term contract, I'd charge $90/hr.  For the long-term non-profit (or fun) contract, I'd charge $65/hr.

The $120k salary is what you see, but the employer is paying additional fees on top that are hidden from you.  Employer tax, health care fees, 401k matching, not to mention the cost of office space, computer equipment, etc.  As a contractor, the extra pay takes that into account.
« Last Edit: March 14, 2015, 02:45:47 PM by dilinger »

Bicycle_B

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Re: what rate to charge for freelance work?
« Reply #3 on: March 14, 2015, 03:38:58 PM »
Enough to make her gulp, but not enough to make them say no!

:)

BlueHouse

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Re: what rate to charge for freelance work?
« Reply #4 on: March 14, 2015, 04:34:32 PM »
I often use GSA schedules to find competitor's billable rates and that helps me justify my own rates.  In theory, I would give a discount to a long-term contract, but I would have to know up front that it's long-term and have a guarantee for a certain period.  Instead, my contracts just seem to go on and on but they could end at any moment.  So I charge the full price with no discount, despite the fact that I've been on the same contract for 4 years now. 

terran

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Re: what rate to charge for freelance work?
« Reply #5 on: March 14, 2015, 08:23:50 PM »
A loose formula I've seen is double what they would pay an employee to do the same work.

At least double was going to be what popped into my head, but I have no good reason for that. Remember that a "fully loaded" employee costs quite a bit more than their base salary in FICA, health insurance, retirement match, workers comp insurance, sick and vacation time, etc.

aschmidt2930

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Re: what rate to charge for freelance work?
« Reply #6 on: March 14, 2015, 09:15:06 PM »
Fantastic question, and one I'm curious to see the responses on. I've always heard the minimum is 1.5 your hourly rate as an employee, so definitely shoot above that.

BlueHouse

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Re: what rate to charge for freelance work?
« Reply #7 on: March 14, 2015, 09:18:21 PM »
http://consultantjournal.com/blog/setting-consulting-fee-rates
This article provides a number of methods.  When my rates were challenged on a contract, I showed them 3 of these models that support my rate.  I would also consider having a minimum charge (daily or half-day).  I have a client that likes to schedule me for hour long meetings in the middle of the day.  That makes 3 or 4 hours that are not-billable on those days. 

Spondulix

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Re: what rate to charge for freelance work?
« Reply #8 on: March 14, 2015, 11:59:55 PM »
One thing to factor in is the time you have to spend on things that you can't bill for - maintaining computers, internet/electricity working from home, invoicing/billing, and the big one - you're paying your own social security tax.

bmcewan

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Re: what rate to charge for freelance work?
« Reply #9 on: March 15, 2015, 11:15:26 AM »
I've done self-employed consulting work for about half of my working years - about 15 of the 30 years I've been in the business. The advice in this thread of 1/1000th your annual rate per year is a good place to start. This is based on double the rate for a 2000 hour year, ie, 50 weeks of 40 hour a week employment. An employer's overhead for Social Security and benefits is about 40% (usually a bit more for lower pay rates, a bit less for higher pay rates). So, if she were making 100k before, her employer was spending about 140k a year on her. You only get paid for the hours you work.

You know you have the right rate if her employer says, "Gee, that's more than we were planning to pay. Well, I guess so." You want to hear hesitation and uncertainty in their response. If they agree immediately, you probably quoted a rate that was too low. If they refuse immediately and cut off discussions, it's too high.

If they come back and say no, she can always ask, "What rate works for you?" Then it's up to her to decide whether that is worth it or not. Also plan to raise your rates 3-5% a year. For multiyear contracts, I write escalations to match the client's fiscal year. This makes it a bit easier for them to budget.

Another negotiating tactic I use is fixed price work. Sometimes, especially for new clients, I know I can complete the work quickly, so I'll quote them a fixed price for a well defined scope of work. Once the client sees the quality and speed of my work, they're happy to go to hourly (it's a better deal for them: with fixed price, I'm taking on more risk for higher pay). Good luck!

dilinger

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Re: what rate to charge for freelance work?
« Reply #10 on: March 15, 2015, 01:12:00 PM »
You know you have the right rate if her employer says, "Gee, that's more than we were planning to pay. Well, I guess so." You want to hear hesitation and uncertainty in their response. If they agree immediately, you probably quoted a rate that was too low. If they refuse immediately and cut off discussions, it's too high.

If they come back and say no, she can always ask, "What rate works for you?" Then it's up to her to decide whether that is worth it or not. Also plan to raise your rates 3-5% a year. For multiyear contracts, I write escalations to match the client's fiscal year. This makes it a bit easier for them to budget.

Excellent points.  For the non-profit that I mentioned above, I started with 75% of my hourly rate, and they came back with "we can't afford that."  I had the choice of looking for a higher paying contract, or lowering my rate for them.  I lowered the rate.  Nothing lost by aiming high.

I'm a red panda

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Re: what rate to charge for freelance work?
« Reply #11 on: March 16, 2015, 07:11:52 AM »
A loose formula I've seen is double what they would pay an employee to do the same work.

At least double was going to be what popped into my head, but I have no good reason for that. Remember that a "fully loaded" employee costs quite a bit more than their base salary in FICA, health insurance, retirement match, workers comp insurance, sick and vacation time, etc.

I only work for double my corporate salary for freelance work, because after the self-employment taxes, it works out to be about the same.

However, if that doesn't work out the same as the going rate in the industry, you could just find yourself without work.  Perhaps it is my field, but here, it seems the companies set the rate, and contractors accept it or not.  When I was doing full time freelance work, I just didn't accept work that wasn't worth my time.  For many people, that is a luxury.

Retire-Canada

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Re: what rate to charge for freelance work?
« Reply #12 on: March 16, 2015, 07:39:20 AM »
The employer wants her to suggest a compensation rate. Any advice on how to determine a rate? Thanks.

(PS: I searched the forums for related posts but didn't find anything. If another post exists already, please send a link.)

I've been a self-emplyed consultant for the last ~20yrs.

There is no set formula, but here are some ideas.

- hourly rate equivalent for salaried rate employee x 1.5 - 2
- special skills and indemand ask for more
- really need work and glad to have offer ask for less
- using your own equipment ask for more relative to cost of it
- sporadic potentially low volume of hours ask for more
- steady long-term work ask for less
- if she gets benefits of any kind ask for less

-- Vik



mathman

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Re: what rate to charge for freelance work?
« Reply #13 on: April 05, 2015, 08:04:19 PM »
Quick update.

Based on your recommendations, my wife came up with a desired number. Both of us were a bit shocked at how large the number was, and she was rather hesitant to even suggest such a large number.  But she did!   The company counter-offered at about 75%, with potential for significant increase for next project.  She is having them cover a loaner laptop with necessary software as well as a couple other home-office gizmos. Ultimately it seems like both parties are satisfied with the arrangement.

Thanks for all of the responses!

Retire-Canada

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Re: what rate to charge for freelance work?
« Reply #14 on: April 06, 2015, 08:38:31 AM »
Nicely done. :)

dilinger

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Re: what rate to charge for freelance work?
« Reply #15 on: April 07, 2015, 03:19:10 AM »
Nice.

Keep track of expenses, as a contractor there are lots of tax deductions that can be taken.