Working as a freelancer: how to calculate your hourly rate

Working as a freelancer: how to calculate your hourly rate – Part 1

As a freelancer, you’re responsible for determining your own hourly or daily rate.In today’s article, we’ll look at the different factors you should consider when calculating your fees.

Additional costs

When calculating your hourly rate, it’s essential to plan ahead. In addition to your running costs, your earnings will also need to cover other expenses. You should therefore allow for all of the following: additional days for illness and holidays, quiet periods with fewer projects, periods of lows motivation, payments to private pension plans, social and health insurance contributions, and back tax payments. Altogether, this amounts to about 20% extra, which you need to include in your calculations. When you’re have a regular job, your employer contributes to these costs. For example, if you earn a gross salary of 3000 euros, your employer will pay this 20% for you, i.e. just under 600 euros per month. As a freelancer, you have to cover these costs yourself.

And of course, your earnings don’t only depend on one month; you should calculate them for the whole year and for the long term. This perspective is particularly important if you are taking on a job which involves working with a client for a longer period of time. You can’t just suddenly raise your fees if you are still doing exactly the same job as before. So for long-term partnerships, it’s even more important to consider how you calculate a fair hourly rate.

Choosing projects

Not every job a good job! Even if a client’s offer seems lucrative at first glance, this can be  misleading. In addition to your work on specific tasks, you also need to consider the bigger picture. You will inevitably spend more time on a project than you are directly aware of. This can range from journey times to research or additional meetings with the customer. You should not take on a job that won’t make you a profit.

It’s equally important to make sure you don’t undercharge. You have made a conscious decision to be self-employed so you don’t want to be paid less than the average employed person. Find out approximately how much you would earn for your line of work  in a permanent position and then calculate the rate per hour. However, this rate will still be too low for you because, as mentioned earlier, you have additional costs to cover and you don’t have an employer who contributes to them.

Profits and risks

Of course, you want to make a profit from your work. It’s no use only earning just enough to make ends meet. Your income must be higher than your expenses. You won’t have the same number of contracts every month, so you should set aside some reserves in case things don’t go so well.

Accidents happen suddenly and you might be unable to work for a longer period of time. As a freelancer, your hourly rate has to factor in certain risks. Unlike employees, you won’t receive any sick pay from an employer, but have to cover the costs yourself. Equipment is another risk factor. As a freelancer, you often work with your own laptop, and you need licenses and other resources. If something breaks unexpectedly, you will have to replace it. Without profits or budgeted reserves, it will be difficult to pay for repairs or replacements.

Calculating your working days

As a freelancer, you can plan your working hours independently and flexibly, but this does not mean that you will actually be working 365 days a year. If you deduct weekends (104 days) and public holidays (between nine and 16 days, depending on the federal state you live in), and, like a regular employee, you allow yourself about 28 days of holiday, and then plan in a few days for illness and further training (5 days each), then you are down to just 210 working days per year. That’s only 17.5 days a month. Suddenly, the number of days when you can earn money seems much lower. If you set your hourly rate too low, you’ll find it difficult to cover all your costs.

In addition to your regular work for your clients, there will also be unproductive phases when you are not doing your usual job. You need to take care of tasks such as invoicing, actively looking for new projects or preparing individual offers for clients. These tasks are an essential part of your job, but you won’t get paid for them. Since this unproductive time is also a part of your work, you should incorporate it into your hourly rate.

Ultimately, you need to consider many factors when calculating your hourly rate. As a freelancer, you don’t have an employer, so you also have to take on this role. Remember to consider the risks and build up sufficient reserves as well. When you’re self-employed, you can decide when and where you work, but you can’t do it 365 days a year. Make sure you plan for breaks and unproductive phases when calculating your fees.

Working as a freelancer: how to calculate your hourly rate  (Part 2)

In our next article in the ‘Working as a freelancer’ series on Friday, 4 October 2019, it’s time to get down to business. We’ll show you how to calculate your hourly rate based on an example.

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