Know Your Worth
It takes balls to charge an hourly rate of €60, €80 or €120. You can’t do this if you don’t believe your work is worth it – it might sound a bit strange, but people can smell that kind of insecurity from a mile off and it will make potential clients wary. Make sure you really own what you’re doing and don’t fall into the trap of selling yourself under value. If you have several years of experience in your field, you shouldn’t be charging the same rate of someone with no experience at all.
The Biggest Mistake Freelancers Make When Calculating Their Hourly Rate
Many online forums and blogs suggest that you simply work out your personal expenses as a basis for calculating your hourly rate, but we disagree.
Consider the following scenario: you’ve just completed your studies and want to start out as a freelance IT-consultant and use your private expenses as the basis for your hourly or daily rate. You’ve managed to get by on €1,000 a month so far and so that’s the amount you use for your calculations.
5 years go by and suddenly you’re married, you have a kid, a car and want to build a house. You’ve decided that your partner will be a stay-at-home parent for a bit and to make this work you’ll need €3,000 a month. But let’s be honest, you can’t suddenly tell your clients that your rates have tripled – when the service you provide stays the same. Yes, of course you may increase your rates based on more experience, but that should be reflected in a gradual increase and not a sudden jump. Increasing your rate based on your personal situation is a big risk – you will most likely lose faithful, long-term clients and it will be very hard to justify. So, what is the alternative?
How to Properly Calculate Your Rate
Let’s work with an example to show you a better way of calculating your rate. When doing this for yourself, simply substitute the relevant figures with your own.
As a starting point, let’s consider the minimum wage in Germany, which is €8.50 an hour (for a 40-hour week that makes €1,473.33 a month) and also the current average wage. According to government statistics (Destatis), full-time employees in the service industry earn €3,970 a month (2nd quarter of 2016). ( Source ). If you were to work 8 hours for 30 days that makes €16.54 an hour. This is, however, not an adequate hourly rate for a freelancer. Why?
Can’t Work, Won’t Work
Even if you start out fuelled by adrenaline and an endless supply of coffee, you won’t be working 24/7 for the majority of the year (or at least we hope that’s not the case!). This means that you need to consider the effect of lost time and non-billable hours when doing your rate calculation.
So, let’s do the maths: a year has 365 days, approx. 52 weeks. That means there are 52 Saturdays and 52 Sundays on which you probably don’t want to work. In addition, there are about 9-16 bank holidays in Germany (depending on where you live). This reduces the number of working days to around 248 (assuming you have 13 bank holidays).
As an employee, you have an additional 25-30 days of paid holiday. As a freelancer, you need to make allowances for this, too, as any break you take will come out of your own pocket.
Next up: sickness. Remember that pesky flu you had last winter that reduced you to a snivelling mess on the sofa for a week? If you’re employed, your employer covers this. As a freelancer, you have to factor this into your calculations. Government statistics estimate that on average approximately 10 days a year are sacrificed to illness. ( Source )
And we haven’t finished just yet: you will probably want to take some time off for further education – for example an online course or even just a day where you take some time out to plan where your freelance business can go next. So, let’s deduct another 5 days for this.
This leaves us with 205 days a year or 17.08 days a month that you can work. If we use the average employee’s wage of €3,970 and divide it by 17.08 we get €29.05 an hour (€3970: 136.64 hours). To help you visualise all these numbers, here’s a little table overview: