The Money: Getting Started & What to Charge as a Freelancer
Ok, that sounds great how much does it cost? Uh um money math yikes ready okay just quickly three months salary in the bank and this gets set a lot right where you are in your life and why you're choosing to investigate life in free lance is very personal to you uh, you know, some of you uh maybe in a career change already and like need to freelance immediately because you know you've lost your job or you have a life change, something happened um you know, and you're not gonna be able to get those three months in the bank and that's a bummer you're just gonna have to go for it anyway, but I don't really recommend that people just jump into freelance cold turkey, you know, it's good to do some upfront planning it's good to take a class like this, you know, it's good to have some money in the bank because, um, like I said, there are going to be ups and downs and you're not going toe instantly get a client. I think one of the best ways is actually to start moonlighting, right? So, you kno...
w, pick up a little side project and hope that you can turn that into something something bigger, but don't cut yourself off financially, you know, if you can avoid it um okay, now what to charge? Oh, my god, who has problems with their hourly rate, who has problems with saying their hourly rate out loud? Uh, yeah, right, like hate it totally hate it. Um, but if you don't ask, you're not going to get paid right businesses. The entire, like, organizing principle of a business is to make money, right? And the way is that it makes money, is and grow from this, that and the other thing, but the other ways and minimizes cost. So as a as a freelancer, like hiring, selling your services to another business, that the business that you're selling you to its job is to try to spend less money on you, right? So it's always gonna want to pay you less than then you want to be paid, or oftentimes it's going it's going to do that? So you have to get confident in what, what your hourly rate is. You may never charge an hourly rate you may only charge by the project, but you're going to use this as a barometer for setting your project rates, and you're also going to use this so that you have solid, you know why you charge that you don't just charge because your friend is charging it? You don't just charge it because you think that's what you know what, what it should cost, but you're gonna have a rationale for that. So how do you calculate your hourly rate? Ok, first, um, we already talked about this, but you're worth it, right? You're worth asking for this money, you are skilled, you are talented, you haven't expertise and you are performing a service, and you're worth this money. So if anybody gets tripped up on that stuff, don't, um, or try not to or just remind yourself that you're worth it, even write it down on a piece of paper before you have a phone call, you know, so that when you're on a call, you can look at the piece of paper I am notorious for for discounting my hourly rate before I even get the words out well, usually charge this, but for you all charged that and it's less. Why would I do that? Like, don't do that itself and anybody who's thinking about you don't know that about me, I would like to, like, raise that from public knowledge, but, you know, I have fear around it too. Pricing is an art, not a science, so we're going to come up with this number, but there's a lot else that goes into it on, and then I always try to think after I've done on the mouth and I've like agonized and come up with this number um, I just think to myself, I'm not gonna be happy when the work is done if I make x, you know, and then I'm not going to get super caught up in it, and I'm not going to be the project manager self that's, like, pissed off the employees self, because that doesn't that doesn't get there's no there's, nothing in that, um all right. So calculating your hourly rate first, we're going to start with your expenses. Right? So what is your overhead? What does it cost you to run? Your business overhead is made up of things like, how much is your rent? Are you writing off a portion of your rent, right? You know how much it's square footage of your office views of the square footage of your apartment? You can actually take that as a deduction, you know how much does it cost to have your cell phone? How much is your internet cost? Right. What is your health insurance, these air, all overhead expenses in running your business? Um, and the next is what do you want to get paid as your salary, you get to pick this for yourselves, you get to decide I want to make twenty percent more than I made last year as a full time employee or I want to make you know this amount of money that in my head is like a huge amount of money and nothing that I ever dreamt up from myself but you get to decide the other thing I want to know before we get into the calculation is that you are not going to get paid for a lot of work that you d'oh so j p in the proposals class told us that he spends sixty percent of his time not designing sixty percent of his time not billable right that's like what that seems crazy but but it's true so instead of thinking oh my god this is so great I have like all this time on dime not going to be in meetings all day I'm just going to have time to design and I charge an hourly rates so all this time times my hourly rate is going to like blow up my salary this could be so great you're going to spend a lot of time doing the other four things right the marketing the accounting all that kind of stuff eso no I am not crazy I think this is really true for me teo about fifty percent to eighty percent of your time is going to be spent uh designing and the rest of it is other stuff so ready for the math you guys here we go this is a formula to derive your hourly rate so there are fifty two weeks in the year times forty hours, right? So that gives us two thousand eighty hours cool everybody got that vacation how much vacation we're going to give yourselves I'm gonna get myself three weeksvacation right? So three weeks times forty hours is one hundred twenty hours okay? Sick time I'm gonna let myself be sick one week out of the year right another forty hours so what I'm doing is I'm taking this number of this two thousand eighty and I'm going to subtract um the amount of vacation and sick time that I want to take and the holidays right there's ten legal holidays a year so that's eighty hours I'm gonna subtract out from the number of hours in the year and I'm also going to subtract those other four things so in this example I I'm going to spend one day a week doing other stuff right um and I did that by by fifty weeks because of my vacation um and I realized I'm slightly often in the math on the vacation but it doesn't matter because I just picked this number arbitrarily this four hundred hours, right? So I'm going to subtract thie going to subtract six hundred forty which is comprised of the other four things I'm going to be doing in those four hundred hours my holidays my sick time and my vacation right it's six hundred forty so I'm going to subtract that from the two thousand eighty and that's going to give me fourteen hundred forty hours which means in this example I am seventy percent billable right seventy percent of my time I'm going to be billable next is your break even rate so in this example my overhead is five hundred dollars a month on rent right? So five hundred times twelve that's going to give me my rent my health insurance another five hundred dollars a month right my internet phone et cetera three hundred dollars a month so that times twelve the five hundred dollars a month the five hundred dollars health insurance and the three hundred dollars is thirteen hundred dollars times twelve gets me the fifteen thousand right so that's my overhead you're going to have lots of other things in your overhead this is justin example my desired salary I want to make seventy five thousand dollars a year that's what I want to pay myself um and the billable hours we already know are fourteen hundred forty so I'm going to take my own my desired salary of seventy five thousand dollars and I'm going to subtract my overhead right seventy five thousand dollars minus the fifteen thousand dollars of overhead is fifty nine thousand four hundred dollars and I'm going to divide that by the number of billable hours that I have so this is my break even rate forty one dollars in twenty five cents is my break even rate. That is how much money I need to make based on the vacation that I want to take, the rent that I pay and all that to break even in my business. Just keep the lights on, right. The last piece is the secret sauce, which is your profit margin. So you don't just know business is a good business. If it just breaks even, you've got to make money, right? So the next is deciding what your profit margin is, and a good profit margin in business terms is considered ten to twenty percent. You could decide this for yourselves, but in this example, I've decided I want to make twenty percent profit, right? So I'm going to take forty one twenty five times twenty percent, right and that's going to add another about ten dollars. So the hourly rate that I need to charge to make fifty thousand dollars a year, um, with the expenses as I blade them out, right? So my rent, my health insurance and whatnot is fifty dollars. Your turn? I'm not going to make anybody come up here and talk about their financial stuff, but I really want you guys to think about this. I want you to think right this stuff don't what what are your billable hours? Right? What? You're sick time. Do you even have two thousand eighty hours in a year to start with? Or are you only going to do this part time? At which point you guys sliced that in half, right? What your overhead? You know how much you spent on office supplies? And these are just going to be rough numbers. You're going to do it's roughly, but you're going to do it for yourself because I want you to go through the calculations because I want you to have confidence in this number. So when you get on the phone call it's not like, oh, I don't know, you know it's like, no, I need to pay my rent. I need this found the other thing like this is what the stuff costs me, right? So you're going to think about your desired salary in your county, in your profit margin, and you're going tio you're going to do that.