“If you charge too little, you are just digging one big hole for the whole creative industry, and especially the people entering it after you.”
Despite of the main topic sounding rather pathetic (or at least that of a 20-year-old girl with a broken heart), I am not going to write about love, body or female rights. Not that those wouldn’t be great subjects. But instead I’m going to actually literally ponder the question – how much do I cost. As a designer.
Lately, our design collaborative (which is a neater name for a small freelancer-based business) has got some call for offers for pretty nice assignments. Big ones, as well. While preparing our offers with creative ideas and uncompromisingly well-thought design, the most difficult thing in the end always seems to be: how much do we charge?
As a young entrepreneur, a starting novice in the city of startups, it’s surprisingly difficult to find the golden path in the price range. First of all, you want each and every potential job – because you need to gain more experience and engage with new customers and contacts. Second of all, you are still pretty excited about getting the chance to do cool assignments – so excited that you could as well do them for free!
But that’s not how this world works. You need to be professional and you need to be aware of your talent and value. If you have a master’s degree and a list of projects on your CV – the most stupid thing is to undervalue yourself. Even, if you would lose the assignment. But there are good reasons for that, I have noticed.
Your rate this time might be your rate the next time as well
First of all, if you charge way too little, you will be stuck in that price. Lets say that the company you are doing the work for likes the cooperation, and they want to give you another assignment – at that point you can’t suddenly add 30% to your previous price. So the amount you charge is rather permanent.
The price has to be right and we are responsible for it
Second of all, if you charge too little, you are just digging one big hole for the whole creative industry, and especially the people entering it after you. It’s too late to whine about the creatives or graphic designers or illustrators or whatever freelancers to be payed way too little when the rates have already been hauled to way too low prices. Price competition is ok and a part of the system, but it is dangerous to start doing assignments for super sale just to gain the customers. Suddenly the customers are used to the low prices, and it’s much more difficult to drag the prices back higher again. We are all responsible for our worth together.
Work = money
Thirdly, you just need to be payed for every hour you work. There’s nothing to add to that. It’s work – even if you work as a freelancer. You need to be able to live, to pay your rent and to buy hypo-allergic food for your dog – exactly like if you would work as an employee.
The boring side costs
In addition, it’s not just about the money you get from the job and which you actually get to spend on shoes and booze. When you work as a freelancer, you have a bunch of flowing costs and social walfair costs that are on your responsibility. This is what many freelancers, especially the rookie ones, often forget. Just like all people, you will also get older (we tend to forget this every now and then) – and at some point you want to retire and need some pension. Even if you would work as a freelancer for a short time, it’s a part of your working life and a part of the time when your retirement money is built up. You also need to pay your health insurance. Well, at least everywhere else except in Scandinavia. You have your unemployment benefit costs. You have your working space and work equipment cost – even though you would work from home office, your computer takes electricity, you have to print every now and then and you should pay your program licenses (although equipment and programs you basically get back as tax deductions). Oh, and last but not least: as a freelancer you are also entitled to have a couple of weeks off every year.
So in that rate you charge, you need to have not only your personal salary but also all these extra costs counted. You also need time for administration, and that time should be payed by your costumers as well. So, when people find the amount you charge outrageous, they should think again who pays their health insurance.
Finding the right rate takes some time
We are still adjusting our final rate. For instance, little by little you learn how much time you actually need for certain tasks. What comes to the rate: we have heard from our potential customers, that our price is way too low. And we have heard that our price is much more than they are prepared to pay. To be honest, I have noticed that a professional customer would never find our rates too high. They know, what sort of costs a company – or a design collaborative – may have.
To help you other rookies count your price, I want to share a pretty good check list and formula for
How much should a freelancer be charging per hour:
1. Your monthly salary = a
Decide how much you want to, need to and are entitled to earn a month. This of course, is the difficult part, but do not undervalue yourself.
2. a x 12
Multiply that number with 12, and you get your yearly salary.
3. 12a + b + c
Add the other costs you have as an entrepreneur (for instance accounting costs, equipment costs, travel costs, workstead rent, softwares, fonts, telephone and internet costs etc.)
4. / 1380
Divide the number with the number of active working hours per year. I think this amount depends on the people, but I have heard that 1000 hours a year is a pretty realistic amount for a freelancer, because you need so much time for organization, meetings, administration or travel. I, however, find that 20 hours a week is rather little. I think that 30 hours a week is a more realistic amount, which would be around 1380 a year (when 4 weeks holiday and 8 days sick leave – which is the average amount of sick leave days – are deducted).
5. x 1,2
Now add your social costs like pension and health insurance. I personally count around 20%. How to use this money depends on the country. In Finland, for instance, there is a mandatory entrepreneur retirement insurance, which is 22,5% – and you need to pay this amount forward. In Germany, you assumably just save it on to an account for rainy days – so choose your savings account wisely.
6. x 1,1
To this amount, you can add 10% for entrepreneur’s risk.
7. That’s how much you should charge an hour.
The result is your total rate per hour, which your customer pays you for your active working hours in that project. The amount is probably much bigger than what you have been charging so far. At least in my case, it was like that. I want to note, that I have made this calculation with the background of working in Scandinavia and Germany. So it works as an example for walfair EU countries. I have no idea what’s the case in China, Turkey or US. But I hope rather similar.
just walk along 