First of all… Don’t be sorry. It’s okay to want to earn a decent living. You’re worth it. If you didn’t think you were, you would never have had the ovaries to make the daunting (and sometimes, frankly, terrifying) decision to leave the comfort of a cushy (if, possibly exploitative) job to begin with. And yet, so many of us are afraid to ask to be paid fairly. More on that here. Let’s move along…
Firstly, work out what you’d like to earn a month. Be reasonable, but not unfair on yourself. Don’t “ask yourself” for just enough to apologetically scrape by, if you’re booked 110% of the time (as so many independent creative professionals seem to feel is all they’re worthy of hoping for), which you seldom will be. But, don’t expect to make enough to be off Ferrari shopping within a month of taking the plunge. Decide what you need and want to be making in a month, as a fair, set salary to yourself, every month.
Now, take this amount and divide it by the average number of working days in a month (21.6). Then, divide that daily amount by eight (the number of working hours in a standard working day). This should give you your new hourly rate that you need in order to earn to reach your new salary projection, if you were employed for 5 days a week, 8 hours a day. Which, of course, you are not going to be. So, there’s one more very important little bit more maths to be done…
Once you have this baseline hourly rate, multiply it by two-and-a-half (250%). That is what you need to quote and charge clients*.
This should cover you for the time in-between projects where you have to work on getting work, update your own marketing, do admin like billing, taxes and chasing down those occasional clients who will inevitably take ages to pay you (which, while never okay, is totally part of the territory), downtime, your personal work expenses, and lean patches where work is scarce.
And, when you are fully booked and at (or near) capacity, this will earn you a nice surplus to cushion you against lean months, and make the risk and extra work you are taking on as a freelancer worthwhile.
The “point-five” part of the 2.5x multiplier is for tax. In the cases of clients who do not deduct tax for you – usually in the form of 25% PAYE – you need to be putting this away somewhere where you won’t be tempted to dip into it. It’s important. Make it a habit and your life will be fine. Don’t, and it will come back to bite you in the bum eventually, and with very sharp teeth.
If you were more or less happy with what you were earning at whichever recent job you are planning to leave (or have left) in order to “go freelance”, find out what they were billing your hours at, to their clients. Then, charge that much. Plus 25% for tax. Simple.
Usually your employers would have billed you out at about 250% to 400% what they were paying you. Give or take. That’s to cover what you cost them, make at least a 100% profit on that, and pay for your share of the coffee, electricity, catered after-hours work, and other stuff you thought were free “perks”, but that you actually paid for all along.
Oh, and don’t forget to add that further 25% multiplier to this amount as well, to cover that pesky tax stuff I mentioned previously.
Sounds greedy? It’s not.
I know, from having explained this “formula” (in truth, it’s really more of a rough guide) to several people in person, that the multipliers seem dauntingly high. But they’re not. Remember, you are providing the exact same service to your clients as you would have via an agency that employed you. So these clients are getting the same value, at least. Probably more, since you’re more invested, and will be handling a number of tasks that would previously have been “outside your silo”. In the case of clients (brands) for whom you’re now working directly, they’ll still be getting more value from you, at less than what an agency would have billed you out at. Remember, for you to do work via an agency, the client would not only have paid for your hours on the work you did, but also for the Creative Directors’, ECD’s, Traffic, Account Managers/Client Service’s, and the lovely resort that Exco went to for their quarterly catch up. So, they’re definitely scoring. You care more, at a lower cost to them.
In the case of contracting to agencies on a freelance basis, that’s the price they pay. Freelancers cost more than salaried employees. They trade off job security and instant payment, for freedom, flexibility of time, and the right to down tools at end-of-day and go home, even if someone else has put in a bad brief and work needs to be redone (or, they can charge more to stay and fix things). Freelancers cost double. That’s the price agencies pay for having temporary staff on call, dismissible when not needed, that can be creatively allocated to different internal budgets, and can get in and do a good job right off the bat. Keep in mind, these kind of contracts will likely be negotiated at lower than your barometer/”daily” rates as outlined above. Just don’t let them beat you down to a point where you’re putting in all the risk and value, and getting none of the extra financial benefit.
Remember, as a freelancer, you take on a great deal of extra risk, and are responsible for your own admin, rent, equipment costs, internet, stationery, phone, and others. Plus, you need to find time for – or fill your downtime with – admin, invoicing, marketing yourself, staying in touch with clients, and all that lovely personal and proactive work you promised yourself you’d do with your new-found freedom.
And finally, don’t be shy to quote. It’s business. Your business. You’re not going to mortally offend someone by quoting more than they’d like to spend. It’s then on them to make a counter-offer. If their max is less than your min, TURN THEM DOWN. If they can’t match your rate, they’ll likely come up as high as they can. If that number suits you, take it. It’s far less likely they’ll lowball you as a matter of “best practice” if they know they know they need to come up to meet you, and not the other way around.
Good luck out there, friends.
Footnote on retainers and long-term projects:
Remember, you will almost always need to come down in cost, the more time a client wants to buy. BUT, only to an extent. Once they want all or most of your time, your ability to service other clients – especially sudden, urgent, short, full-rate-paying ad-hoc jobs – becomes very limited. This doesn’t just affect your income, but causes those clients who usually rely on you, to have to look elsewhere, which can end your long-term relationship with them. So, after a point (for me, this is usually 2/3 to 3/4 of my time – 3 weeks a month, or 3 days a week) you need to either cap the time you’re willing to sell, or start going up again in price. Remember, you’re not after another full-time job, and anyone who wants to put you back into one – temporarily or ongoing – will need to make it worth your while. Retainers are great. But they shouldn’t become full-time employment.
Thanks for the good question, Mark Chaskleston.
*obviously, it’s okay to be negotiable for long-term or retainer-based projects. Determining your baseline hourly and daily rate is simply a useful guideline from which to start working out individual deals on a per-job basis, that are fair to you and your clients.
For a more comprehensive list of tips for freelancing as a creative professional, check out my article, 34 Hard-earned Freelance Tips. If you found any of this stuff helpful, please share it with anyone who you think it might benefit. That is, after all, why it’s here.