During my first year as a freelancer, any time a prospect would ask for a quote, you would have seen me celebrate for a minute or two, and then change my expression completely and mutter something like: ‘Oh, crap, what do I do now?’ That’s when I realised it was time to talk money. And I absolutely dreaded that.
Coming up with the right fees is a recurrent problem among freelance writers. The thing is, it’s more than just a technical business issue: it’s the point where many uncomfortable questions converge, like how much you think you’re worth as a professional, the (mostly unfounded) fear of losing the client if you go too high, and the (real) risk of ending up working for a fee below the minimum wage.
The moment when I stopped hating providing rates (still not fun, though) was when I learnt that if I wanted to solve the ‘how much should I charge client X?’ dilemma, I first needed to answer a more important question.
What’s the bare minimum I should charge?
Whenever a freelance writer quotes a flat rate instead of hourly or per word, there’s usually some simple math involved:
internal hourly rate × estimated time to complete the assignment
The best way to think of hourly rates is in ranges. On one end, you have a ceiling, the maximum fee you’re comfortable quoting at that point in time. If you want to grow your income, that should always be slightly higher than the one you quoted last time for the same type of assignment.
On the other end there’s the floor, or the minimum amount you need to earn for your freelancing business to be sustainable. If you go below, you’re actually making less money than you’re spending just for living, breathing and working.
While ceilings are made to be broken, with floor fees you should never start digging, which is why knowing them is so important.
And here we come to the second thing I learnt: the best way to curb the internal conflict about pricing is to inject it with data. In this post I’ll try to explain how I do it.
In a nutshell, the formula to calculate your minimum internal hourly rate is:
minimum gross income ÷ billable hours
Let’s unpack that.
Calculating your minimum gross income
The starting point is the bare minimum you need to live on and keep your business running, with little or no budget for nice-to-haves. (Think of holidays, fancy restaurants, travelling to writers’ conferences or paid training courses.)
Let’s suppose that that amount is 30,000 per year (I’ll keep it currency neutral): 27,500 as living expenses and 2,500 as overhead. That makes 2,500 per month, or 7,500 per quarter.
The next step is to add taxes. Every country is different, but let’s assume that you can deduct business expenses and that your expected tax rate will be 33%.
Here’s how you go from net to gross:
minimum living expenses × 100 ÷ (100 – tax rate) + overhead expenses
In our example, it would be: (27,500 × 100 ÷ 67) + 2,500 = 43,545. About 3,630 per month or 10,885 per quarter. That’s the minimum you should be invoicing.
Calculating your billable hours
Billable hours are the time you spend doing client work. Everything else (looking for new clients, doing your taxes, chasing payments, writing this blog post, etc.) is unbillable.
The only way to know the exact quantity for each type of activity is to track your time. Personally, I’ve been doing it since I started freelancing, and I would recommend any freelance writer do the same. However, if you think that’s too much, make sure you track at least client time, project by project, and then estimate the unbillable part. That’s going to make a huge difference at the moment of quoting your fees.
Let’s suppose that after a few weeks of tracking your activities you find out that that, on average, you work 30 hours per week, where 60% (18) are billable and 40% (12) are unbillable.
If we estimate that there will be three weeks when you won’t be working because of holidays, emergencies, sick days and general major disruptions, a reasonable yearly projection will be: 30 × 49 = 1,470, where 882 are billable and 588 unbillable.
Now we have both elements for the final step: 43,545 ÷ 882 = about 49
49 is the minimum hourly rate you should charge. And remember, that’s just to scrape by: no holidays, no second screen for your computer, no travelling to marketing conferences.
There’s one important caveat, though: all that is based on estimates, so expect to adjust that number several times during a year to roll with the punches of your current reality. For example, you may have to budget for unexpected expenses, or client work may be less than in previous quarters. In either case, the minimum fee will increase.
Now that we’ve found data, what are we gonna do with it? (Paraphrase intended.) Go ahead and quote as high as you feel comfortable, considering the type of client, how much you need to work, how important that sample will be for your portfolio, etc. But be aware that now you have a lower limit you should not pass. Unless you really have to.
Robert McGuire’s at Nation1099 has a different approach to the question of minimum fees for freelancers.
The app I use for time tracking is called Harvest, which is also great for invoicing. (Referral disclosure: if you sign up for a paid plan using this link, we will both receive a $10 credit)
The app I use for budgeting: YNAB. (Referral disclosure: if you sign up for their service using this link I get one month for free)
Image by Nattanan Kanchanaprat from Pixabay