How to calculate your Freelance Charge Rate
As a design teacher and mentor a question I have often been asked is, ‘If I do freelance work how do I work out what my freelance charge rate should be?’ It is a good question and is relevant for all kinds of designers (not just from my own field of communication design). Here is what I say: The simplistic answer is, ‘What the market will bear.’ Ultimately not very helpful, right? So let’s move on from that, though we have to come back to it a bit later. But how do you work out what you should charge? Before we get to that it is worth knowing that there are fundamentally three kinds of jobs that jobs that you, as a freelance designer, will pitch for: • Contract work (either fixed or open-ended) at an agency working indirectly for clients—here you will have to decide if the rate offered is suitable/affordable for you • Fixed price job working directly with clients—here you need to decide if the amount offered is suitable within the requested time-frame, and • Negotiated price job working directly with clients—where you need to work out how much to charge and trust that it will be enough to win the job and not have you starve. You can probably see that in fact all come down to the same basic question, ‘How do I calculate whether the money will allow me to do the work in the time allotted and allow me to survive?’ To answer this question you need to know firstly what the money is for. Then you need to work out how many hours you have available to earn that money.
What does the Freelance Charge Rate Need to Cover?
Your charge rate need to cover must cover four areas: • The time you need to do the creative work, that is, your billable hours. That’s right, this is ONLY time that will pay, the ‘creative bit’ of work that is directly for your client or the agency. • The time you need to other essential but non-billable work, like invoicing, business (of your own business) management in general, pitching for/finding new work—also holidays and sick days. This time MUST be allowed for or you cannot survive. • Other necessary costs like, tech upgrades, software upgrades and licenses, insurance (yes it’s important), rent, travel, phone/internet costs, student debt, and a many other small but necessary things. • An allowance for we might call ‘profit’, that is, a bit extra to allow you to grow rather than just maintain your business, to provide for unexpected costs, or if things are really going well to give your self a little bonus occasionally.
So How Do You Calculate Your Freelance Charge Rate?
The best way I have found is to decide what you want/need to live on. What you want your salary to be. This should be based on what your level of experience is and how much that would earn in your chosen field. Unfortunately, in Australia, there is very little up-to-date information that I have been able find to give you a guide. Remember that comment about ‘what the market will bear’ this is kind of where it applies. You will need to do some research (including an assessment of your own living expenses), ask around, look at job ads and just plain guess (you can change your target salary at anytime of course).
The Money You Need
Let’s say, for arguments sake, that you have determined that, as a young designer with a year or two experience, your take home salary before tax and superannuation (also a good idea) is $44,000 Now, let’s assume that you have calculated that the other necessary costs mentioned earlier have come to $6,600. Your target annual total is then $50,600.
The Hours You Have
There are 52 weeks in the year but it is not feasible to work all of them, so: Allow 4 weeks holidays, 2 weeks of sick days (you may not need them but do it anyway), and another 2 weeks public holidays (in Aus we have on average 10 public holidays during the working week). Total workable weeks, is 44 weeks. This means to live you need to earn $1,000 per week, plus another $150 for the other essential expenses, coming to a total of $1,150 per week. The rule of thumb is that for every hour of design/creative time you can bill for you need to allocate an equal amount for non-billable time. In theory, for a five day working week you will charge for two and half days but your rate must cover all five days. Remember, this is on average so some weeks you might do five days of billable time and other weeks none, and everything in-between. How many hours in a week do you want to work? This is totally up to you. I believe that in Australia the average working week is between 35-40 hours, but as I said, the choice is yours. For the purposes of this example, you have decided that you are going to work a 50 hour week, to start with, meaning that perhaps some of the your working time is done outside of ‘normal business hours’. Of these hours, you aim on average to be able to charge for 25 (remember the rule of thumb mentioned earlier). This means you have 25 billable hours to charge $1,150 which means $46 per hour. Now add a bit for ‘profit’ (item four above), say $4 for simplicity (so a little under 10%). Thus your freelance charge rate would be $50 per hour.
What Does this Mean?
This would mean you could pay yourself $44,000 over the year (it translates to paying yourself $846.15 (before tax) every week for 52 weeks—yay, holiday and sick pay included) AND assuming you have calculated all your other costs correctly they would all be cover too AND you would have made a ‘profit’ of $4,400 during the year too. Pretty neat, huh? Now when you consider the three kinds of jobs mentioned right at the beginning you can determine how many hours would be needed or even whether it is financially viable to do them at all. (Remember though for contract work in an agency you may be able to accept a lower rate if they provide some of the things covered in your ‘other expenses’ costs.)
• I am a designer, albeit one with around 30 years experience. I am not an accountant. I provide this information based on my own experience. In setting up a business, freelance or otherwise, you should always get proper advice from the relevant experts, in this case, an accountant.
• This example covers only charge out rates. Other services you may provide/organise on behalf of a client, like printing for example, and include in your invoices are not covered.
• I have alluded to tax needing to be paid. You should get advice from an accountant on this.
• I have also not mentioned the Goods and Services Tax