What do I charge for my time?
It’s a fairly normal question for people who have been sararimen all their professional careers and are looking to do some freelance work. Searching for comparable rates rarely helps – web and IT geeks (my line) rarely advertise their hourly rates, same with editors (my wife’s line of work). So how do you figure out what to charge a client?
This is my take on it. It assumes you want to earn the financial equivalent of someone who has a full-time job; someone who works 40 hours a week (not 50, 60, or 70), gets benefits, sick time, training, vacation, and paid holidays. Sound good? Climb on board.
So, first off, decide your salary. That’s why you decided to freelance, right? Let’s say $60,000/yr – it’s a nice, comfortable number. First thing we’re going to do is take half of that, and add it back in. Why? A workplace provides you with all kinds of benefits: workspace, office supplies, office furniture, phone line, computer, printer, fax, paper, pens, electricity, bandwidth, email, coffee, trash service, tech support, purchasing office, training, voice mail, software, insurance, employee discounts, sick leave… just to name a few. I work in Higher Ed, so I also get many spiffy discounts, and access to lots of university stuff. Work for, say, a basket-making company? Bet you get a discount on baskets. It all adds up. But you, you lucky devil, you’re self-employed, you have to supply all these things yourself. So long as you’re putting yourself in the under-$100K range, let’s say that all those things are worth – collectively – about half your salary. So multiply your salary by 1.5. That gives us $90,000. Write that down – that’s how much it costs, per year, to keep you around.
Now, how much do you want to work? Really now. For the sake of argument, let’s use the old standard of 8 hours a day of real, live, billable hours, 5 days a week. Do you want holidays? All said, there’s about 12 valid non-religious (well, save for Christmas) holidays. Vacation? Let’s not be greedy, and take 2 weeks – 10 business days – of paid vacation a year. We already budgeted for sick days in the previous step.
Now let’s do the math. 52 weeks in a year. You work 5 days a week, that’s 260 days a year. But you don’t work on those 12 paid holidays, and you don’t work on those 10 vacation days. That leaves us with 238 working days each year. We liked 8 hour days, right? 238 days at 8 hours a day… that’s 1,904 working hours every single year. That’s our magic number: 1904.
Go back up 2 paragraphs. How much money a year did we need to keep us in beer and cheese-whiz? $90,000 for the equivalent of a $60,000 annual salary. And we decided we wanted to work 1,904 hours a year. Divide the first by the second: 90000/1904=47.27 (rounded).
There you go. If you want to live the life of someone who earns $60,000 year at a 9-to-5 office job with benefits, holidays, and paid vacation, you need to charge $47.27/hr for your time. Or, to make a nice geek equation of it:
(salary * 1.5) / (((52*daysinweek)-(holidays+vacationdays)) * hoursperday)
Don’t have a calculator handy? Fill in the numbers, then cut-and-paste into a Google query. They’ll do the math for you.
Now, I admit, the biggest leap of faith is the first one – that all your benefits add up to half of your gross paycheck. I’ve spent over a decade in workplaces where, to make you feel good about your (often small) salary, they give you a “benefits analysis” each year to tell you what your bennies add up to. And each year, it’s been close to 1/3 of my salary. Add in all the costs of putting you in an office and keeping you equipped with Post-Its and red Swingline staplers… that stuff adds up pretty quick. So, for a ballpark figure, I’ll stick by my 1.5 for sub-$100K jobs until someone gives me a detailed proof otherwise (and you’re welcome to do so).
So, now you know how much you should charge for your time. Or, if you’re a salary-earner, how much your time is really worth. It’s a powerful number, and can change your perspective on things.
Here’s an example: Let’s say I did the above exercise, and my time is worth about $40/hr. I have a house with a yard. It takes me about an hour to tend to the yard, each week, with a basic mowing and trimming. A kid in the neighborhood offers to do the job for $15. Now, if I like tending to my yard, it’s not even a question. But if I don’t – if I consider it an odious task – then having someone save an hour of my time (which costs $40) for $15 is a bargain. See?
Before you all rush off and start applying this to everything in your life besides your freelancing hourly rate, I want to make two last points:
- One – time spent on something you enjoy is priceless. If I like taking care of my yard, then I don’t care if the neighborhood kid offers to do it for free. I like doing it, and that makes it intensely valuable.
- Two – Money has no intrinsic value. Yeah, this is something for a later posting. But the short version reads something like this: money by itself is worth nothing. It is a medium of translation. We used to barter directly – item for item, service for service. Now we use money as a representation of value – a middleman in the bartering process. So don’t fall into the “time is money” trap. Money is nothing. Time is what has the value, money is just a way to represent that value.
There. You’re armed now. Set your rates.