If you’re comfortable with the technical side of becoming a consultant or contractor but are unsure what to charge for your services, you’re not alone. “How much do I charge?” is a tough question, made even tougher by the fact that discussing money can be awkward, and at times virtually taboo.
As a result it’s not uncommon for the issue to get put off because it’s outside one’s comfort zone. Technical people in particular tend to suffer from an “if you build it, they will come” mentality; we get the technical side of things all figured out and just sort of assume that the rest — customers, money, and so forth — will fall into place afterward. If you’re lucky, it will! But it’s better to do some planning.
The short and simple answer of how much to charge is a mix of “it depends” and “whatever the market bears” but of course, that’s incredibly unhelpful all by itself. It’s time to make the whole process of getting started a bit less opaque.
A stubborn determination to solve my own problems has given me plenty of opportunity to make mistakes and commit inefficiencies over the years; I’ve ended up with a process that works for me, but I also happen to think it is fairly generally applicable. Hopefully, sharing the lessons I’ve learned will help make your own process of figuring out what to charge easier, or at least make the inevitable blunders less costly.
Treat It Like a Technical Problem
Approach the money question methodically, and begin thinking of it early. The longer you put it off, the more tempting it will be to latch on to the first number you encounter and run with it. It’ll feel like progress, but the problem won’t have been solved, it will simply have passed out of your control.
The good news is that while setting the perfect price is an impossible task, it’s not hard to come up with a workable one by following a few steps. That’s the goal: a sensible starting point.
Here are the factors that will most directly influence how much you should charge for your work:
- What your service or product is, and what the market for it is like.
- An objective value of your own work (ideally expressed as an hourly rate.)
- The level of responsibility and risk involved in the work you do.
The good news is that you don’t need to get it all done perfectly right out the gate. You’ll make mistakes and commit inefficiencies; just try to make them in ways that you can learn from, and aim to not make the same mistake twice. First get something workable to start with, and optimize from there.
Define What It Is You Do
First you must define the service or services you provide. Describe what service or services it is you propose to do for clients, and define them in terms of the kind of work that actually gets done. If you do more than one kind of work, stick to one at a time for this process.
Determine The Value of Your Work
Your value will be an objective “fair market rate” for the kind of work you are doing, modified by any special knowledge or particular advantages you bring to the table. That modified rate is the number you will use as a baseline when deciding what to charge, and it will also give structure to any job-specific negotiations. Below are two ways to find the going market rate for whatever service you plan to offer; use whichever best applies to your situation.
1. Find People Who Do Similar Work, See What They Charge
The simplest method is to find people in the same area who do the same or similar work, and find out how much they charge. If you’re fortunate, you’ll have people you can simply ask and receive frank answers and feedback. Otherwise, you’ll probably find people are a bit cagey about discussing money. Jack Chapman gives a useful tactic in his book Negotiating Your Salary for getting this kind of information from people: offer something in return. Tell them you are doing a local survey of how much people in the industry charge for their services, and if they agree to talk to you, you’ll share the anonymous results of your survey with them. Use Google Forms to create a simple survey you can email out individually. When you have results (five or six will do), share the anonymized report with the respondents. The basic transaction of offering something in return — even if it’s just sharing what you learn — is a useful one for interacting with people, especially ones with whom you have no existing relationship.
2. Find Jobs With Similar Levels of Responsibility and Risk, Find Out What Those Pay
Perhaps your work is too unique, unusual, specialized, or cross-disciplinary to have peers or be easily defined, and the previous method isn’t useful. In that case, use this next method instead. Find jobs in the same or related industry with similar levels of responsibility and risk to the work you will be doing. Find and record the salary ranges for those jobs (sites like glassdoor.com or indeed.com come in handy) and work from those numbers. Even if the work descriptions don’t match, jobs of similar responsibility and risk are usually comparable in terms of compensation within an industry.
3. Modify Based on Any Specific Personal Value You Add
The data you gathered should give you a range of values to work with. Make an average of these researched values for a rough baseline. Then modify based on the following:
Do you have any extra value you personally bring to the table? (Things that can’t be quantified, like “grim dedication to a task” don’t count.) Think in terms of efficiency you can add or what risks you can remove due to specialized knowledge, training, experience, contacts, or other advantages. The more advantages you have, the more your rate should be towards the upper end of the ranges you researched.- Modification can be in the negative if there is anything you lack that would add inefficiency to your work or increase risk for the client. Ask yourself how well-understood the unknowns in the work you’ll be doing are. Generally, the less comfortable you are with facing the unknowns, the less experienced you are and the more you should adjust toward the lower end of the rates you researched.
- If the rates you researched are for employee salaries, the rate you charge should be higher than those. The reason is that as a consultant you are responsible for some or all of the following: tools, training, workspace, vehicle, equipment, taxes, insurance, health benefits, and other costs. These are costs that an employer normally pays on behalf of employees, and which they avoid by hiring a consultant. How much higher should your rate be as a result? It depends on too many different things to address fully here, but between 1.2 and 1.6 times a comparable employee’s hourly wage is a reasonable range to land in.
- What the market will bear depends on the local market. A service priced at $100/hour in City A may only go for $60/hr in City B. If the rates you have researched are not from your area, look up the cost of living difference between their region and yours, and modify their numbers by that amount. It’s not optimal, but it is a reasonable way to adjust for regional differences.
4. Market Rate + Added Value = Your Baseline Rate
It’s important to remember that the goal here is to identify a reasonable hourly rate that allows you to get started, while avoiding being an obvious blunder that leads to slight embarrassment. Refining what you do and what you charge for your work will be an ongoing process throughout your career.
In summary, your individual value should be a baseline hourly rate derived from what similar work costs in your area (nearer the upper end if you are a seasoned expert, nearer the lower end if you are not), modified by any special advantages or knowledge you bring to bear. That hourly rate should be higher than a comparable employee’s hourly rate, for the reasons explained earlier.
If you feel that you could justify your value to a client by explaining how you arrived at your rate, why it makes sense, and can show the research you did to back that up, then you’re set.
Adjust Your Work and Rate When Needed
Having a base rate for your services is important, but the process of proposing work and a price to meet a client’s needs will usually involve some negotiation. That’s out of scope for this article, but don’t be afraid to get creative with your pricing and services. For example, if low cost is most important to your client, they may be willing to do some of the work (like assembly, testing, or finishing) themselves. Find out what the client considers important, and target those areas with your creativity. You may also be able to negotiate an exchange of services or use of equipment to make up a shortfall.
Those are just a few creative ways to reduce costs without lowering your prices or rates. Be wary of simply dropping your prices unless you have thought carefully about it.
Keep Records So You Know Where to Improve
Keep records and data of what you decide, and why. The reason is simple: your goal is to do more of what works, and reduce or eliminate the things that don’t. Without data, you will have no way to know what is and isn’t working, and your decisions will have to come from subjective, unreliable things like habits and right-feeling hunches.
Don’t hesitate to experiment if you think you can learn something from doing so. It may be necessary to try different things to find what works, especially if you’re providing a new kind of service. For example, a colleague of mine provides drone footage of real estate for realtors. He began by charging the same rate that drone photographers in a major metropolitan city across the country charged. He soon discovered that what people were willing to pay over there was very different from what they’d pay here. He eventually dialed in to what the local market was willing to bear, but only as a result of careful adjustments based on data.
Focus on determining a price for your services that is at least sustainable first, then seek to optimize. None of your errors will be forever, and it will all get easier with practice and experience.
Consider the Forgotten and the Unexpected
Always ask yourself what you may have forgotten, and try to account for the unexpected. If the job will require materials, who pays for them? Will the cost be included in the rate? How will you be reimbursed? Will the project require different kinds of work, such as shop time and programming time, and will you charge for them at the same rate or different rate? What if something goes unexpectedly wrong and you have to start over?
Consider the unexpected, but don’t allow your mind to explode into an infinitely-branching avalanche of BUT WHAT IFs over it. As long as you have not gotten yourself completely in over your head, most unforeseen and unwelcome surprises will be no more than learning experiences.
Everything gets easier with experience, but the best thing you can do right now to mitigate job related surprises is to learn to accurately estimate project time. By following a good project estimation process, you’ll avoid many common pitfalls.
For examples of the kind of unexpected issues that can crop up when doing a job, the experience of building a few hundred Hackaday Superconference 2017 badges had many good ones.
Got tips or knowledge of your own to share on how to price your work? Stories about early success or blunders? Don’t be shy, tell us about them in the comments.
“Life on Contract: How Much Do I Charge?”
*pinky to lips* One billion dollars!
Dammit. You beat me to it.
Why one billion, when you can get one million?
WARNING! Discussing rates with other consultants in the same market can get you in trouble with price-fixing and anti-competition laws. Consult a lawyer or at least grab a Nolo book from your local library before you consider doing this.
This only applies of your bidding on the same tender imho. And even then it would not be an issue if you don’t make any specific agreements like dividing the bid. Hourly wages aren’t really a factor.. one consultant might need one hour another less experienced one 20. And in my experience you want to anyways work with a fixed price to avoid issues billing the client.
Given the “open-source-things-must-be-free!” attitude that’s prevalent in these parts. The answer is simple – ZERO ! Everyone should work for free – for the common good……. (yes, sarcasm).
no you got it wrong. Get paid for the work. Make sure what you develop is opensource.for everyone. But get paid first!
I get paid to develop open source :)
OpenSource !=== Free
what would a company pay you as an employee? take that and times it by 4. Thats how electronics are up charged. so why not get paid the same for your services. Thats what i do. Plus you have to cover so much when working by yourself. taxes, insurance, etc… so much overhead costs. need to be able to pay that. and make them pay for any parts so no out of pocket expense. or buy yourself and charge them more for it. handling fees and what not.
I was told this rule of thumb by my own boss when I was hired over 30 years ago, and it remains true of our wage and rate structure to this day. Contractors often screw themselves charging “wage” rates when they need to be covering overhead for tools, travel, training, unbillable hours, collections, and accounting related expenses. Also, as a contractor you can “pay” yourself for skills that you know are valuable but that corporate stooges might not, like your extensive experience contributing to open-source projects and making online demos that you did instead of getting a bachelor’s degree. Companies that would not hire you at $25/hr because of a “lack of experience” via HR will pay you $125 as a contractor if you have successful positive referrals to demonstrate your level of skill and commitment.
I’m a senior EE (with 30 years’ experience) at a consulting company. My company bills my time at $265/hr, and travel time at half that.
Our ME’s bill at about the same rate.
Now, that includes liability insurance, and such, so you would need to add that cost to your hourly rate. You also want to make sure you have a contract or statement of work, which explains exactly what the client will receive, wh owns the design, and releases you from any liability for use (witting or unwitting) of ideas owned by others.
Yeah, the suggestion for 1.2-1.6x is total baloney.
“The reason is that as a consultant you are responsible for some or all of the following: tools, training, workspace, vehicle, equipment, taxes, insurance, health benefits, and other costs.”
That list should instead read: “health insurance, taxes, health insurance, more taxes, overhead time, even more taxes, health insurance, oh and also a few pennies here and there for tools, training, workspace, etc.
Your rate would depend a lot on where in the world you are located. In Sweden for example, we have very high taxes (go socialism!). A rule of thumb is that If you get a certain wage (before your own taxes that is) of X, you will cost about 2X for your employer, when considering taxes for them etc. This is the absolute bare minimum you will have to charge for your services. Then you would of course want some profit margin (you might not have an assignment to cover for all your time, you’ll need equipment, travel expenses etc.) But yes, I think that’s a reasonable rule of thumb (even here in Sweden) that check what an employer would pay you and multiply it by 4. Alternatively, you can check what a consultant company would rent you out for and charge something similar to that.
I want to pass on some of the best advice I ever got on taking consulting jobs. Simply this:
Only take jobs that look like you are going to rip off the client.
When it looks like this up front, it will actually work out about right in the end. After having worked a couple of jobs where I had agreed to a fixed price and ended up working for about a dollar an hour this was good advice, and has stood me well over time. Maybe I habitually underbid. Maybe most people do. I am not saying that you actually aim to rip people off, just that if it looks like you will, you actually won’t. There it is, take it for what it’s worth.
I do a lot of projects with clients that I feel have something interesting to bring to market, and I have to agree with you. If it seems like you’re going to get paid fairly before you start, you’re going to end up with $1/hr. That said I’ll still do those when I can and a couple of really nice products are available today because I did that. I also have an adjunct teaching gig I really enjoy because one of my charity cases is really well connected. I’d suggest that you don’t just turn down people who can’t pay, but also understand that you’re not going pay many bills working on that stuff.
I love how you phrased that – “Only take jobs that look like you are going to rip off the client”.
I think that’s an interesting shortcut (and the phrasing is catchy.)
It would make sense for someone who tends to undervalue their own work. To *me* the job is a quick A, B, and C. To *them* it’s “make this broken system work again.” The value of the job isn’t that of doing A, B, and C. The value is making the problem go away. So if you always tend to think of your work in terms of being paid to do A, B, and C then only accept the jobs where it feels like you’re being overpaid for that. Thanks for sharing.
Interesting. My experience has been the opposite (as a ME).
The client thinks their custom part is ‘off the shelf’ where all you have to do is press the “GO” button on the CNC machine. In reality it needs to be designed (usually with *damn* expensive software), tested (maybe multiple times), the machine needs to be configured, tools loaded, stock loaded (what grade of material?), jigged, and *then* you can press the go button.
I see it so often where I work, the client sees the job at “10 minutes”, the real job takes two days.
True of a LOT of fields. Artistic especially.
Similar to one I’ve been using: “Quote the highest price you can say out loud without giggling.”
And another tidbit to toss in here. I used to work for a consulting company and they always put a clause in their contract that read “customer satisfaction entirely at customer expense”. This was clever and wise. It meant that the client could ask for last minute changes or things to be redone — but they would pay for the extra work.
Of course it is one thing to agree on a fixed price for a job and another to have an open ended contract.
That’s a curious clause to add. Did any of them ask what that meant? I was with a group for 12 years and we often took jobs at flat rate because that’s what the customers demanded. My task was to get things right the first time and on time. I found that making sure there was a clear understanding upfront helped a great deal. That way, when the customer decided they wanted their finished widget tweaked, it was clear that they wanted a change and that meant a separate charge.
In those days the actual negotiations were way above my pay grade. I think the clause was just there to prevent being abused by a client who continually changed specifications. I don’t recall it ever being slapped in a clients face, but maybe I just never knew. I doubt it. We were always on good terms with our clients.
This clause is quite common, I think. At least it is a typical situation in my job. At a certain point there is a “design freeze” when both parties think they are happy with the design. Every wish that comes in after that, any change, no matter how small it is, is on the customers expense at very high rates.
Of course there’s always the demand for changes, which can be good to “trade in” for own mistakes and necessary changes which come to light too late. It’s a comfortable base for negotiating and may earn some extra money.
I remember seeing a 500,000$ quote to not show a message to the user… Yes, half a million $. The message stayed.
Similar story to Philippe. Worked for a defense contractor. A supplier quoted to $1,000,000 USD to move 1 individual wire 1″ further right in 9 different enclosures. All because the design freeze came and went. Never saw how that one got resolved. The government customer, my employer, and the supplier all went “1, 2,3… not me” all at the same time. :)
This vaguely reminds me of a story from a contractor for NASA back in the 80s. Something that would have made technicians’ work much faster and easier: putting paint marks at set points around the circumference of the solid rocket booster tubes. The suggestion was kiboshed because it would be too expensive.
Too expensive to add four little paint marks? No, too expensive because of the cost and effort of changing all the documentation to reflect the changes!
10 x minimum wage.
Don’t be afraid to throw out a ridiculous price to someone if it’s a job you don’t really want to do. I once had a former customer (one job, years ago) approach me for similar work to the old job. I first explained that I wasn’t in that field anymore and would have to charge more than a typical rate for the job (I was working full time and making more money than years ago). She asked what rate I would charge, so I threw out $70/hour, a number I felt was absurd enough to drive her away but also absurd enough to make me happy to give up a few evenings to do the job. To my surprise she accepted. This isn’t to say I’m always worth that hourly rate nor that anyone else would pay that rate, but I never would have imagined being able to charge so much and get away with it. It helped being in a position where I didn’t need the work in order to pay the bills or eat, but I learned something from it.
I don’t know where you live, but $70/hour is a mediocre rate for a software developer, at best. If you make less, you might as well be employed.
Same here (I live in Sweden). 70$/hour is what you will pay a consultant company for a junior consultant. Since I have worked as a consultant for a company and is currently working at a company where we (previously) hired consultants, I know the approximative rates. If you break it down, 70$/hour would be a reasonable rate for a developer. If you wanna scare a customer away, start MUCH higher.
My dad used to tell me that he sold prototyping work on an hourly rate. The interesting twist was that he said to customers that if he couldn’t get it to work they wouldn’t have to pay. That way he only did jobs that he was abolutely sure that he could finish. Might not be the best explanation but the general idea is good. Only accept jobs that you can handle..
Also – multiply the production cost by Pi. That is the retail price
“what would a company pay you as an employee? take that and times it by 4”
That’s not likely to go over very well. I spent 15 years as a contractor in the oil patch on a total of 5 contracts. A more realistic approach is the salaried employee rate time 1.4 to 1.5 to cover benefits you don’t get.
If you have a niche expertise you can charge quite a lot. But you have to offer something no one else can.
I guess it depends where you live. Around here, 1.5 times a normal worker’s salary doesn’t add up at all. It would mean risking all sorts of things and working for chump change. About 3-4 times seems to be a lot more reasonable if you add all the numbers up.
If you look at what employers have to spend on a regular employee around these parts, it’s actually somewhere between 1.5 and 2 times the salary paid to the employee, due to benefits and mandated insurances. It doesn’t make any sense to work for less, as your costs being self employed will inevitably be higher.
To throw things into the mix:
– I try to figure out “bench time” in the contract, for short term contracts I usually charge more because the bench time needs to be divided into less hours… so (merely an example) I may charge $100/hr for a one month contract but can probably afford $70/hr for a year long.
– How am I billing? if it’s through a recruiter and they insist on doing w2 I may charge differently than if I’m doing corp-to-corp. Corp-to-corp has huge advantages (tons more stuff can be expensed), but it also comes with a lot extra paperwork headaches and extra liability.
– What’s the pay schedule? I may give you a discount if you pay net 15 instead of net 90.
It used to be that a good rule of thumb was to take your annual salary (let’s say $70K/year) and divide it by 1000 ($70/hr), but lately I’ve seen employee salaries go up without contractor rates follow, to where the ratio is more like 2000, which is the number of hours you work a typical year anyway, so there’s not a huge financial advantage to contracting: This may be in my market and it’s just anecdotal.
Check RS Means for your area for pricing on such things as cabling, I think each ethernet drop is ± $350 if you provide the materials.
Comically, I rely on folks charging too much for relatively simple projects. I am no captain of industry but I get by. Much of it is personal preference over whether the project is interesting or if I will learn something new to put in my pocket for future projects. Though I must admit lately I have been getting tired of fixing and building things. I am thinking about just cleaning work for standard pay and going back to enjoying it more as a paid weekend hobby. Sometime last year I noticed I had started to push things out of my brain to hold a bunch of useless schematics and pinouts or snippets of code that could be filled with much more valuable memories. I suppose everyone goes thru that at some point. I just lost the hunger at some point. Plus I idiotically run my life by the golden rule, which does not work with business types. I honestly hate money and enjoy bartering way more. A personal flaw in this society to be sure. But I only have the wife and cat to impress at the end of the day and they are happy. The rest of people and their need to rip each other off to live can eat a big ol dick imho. They are not good role models or influences generally.
Well I’ve been told several times I’m too cheap, by both clients and peers. But hey, it’s paying the bills.
My major gripe is that I haven’t landed any *proper* engineering work yet. Last week was simply a ridiculous amount of fairy lights static in a shop window. But hey, that’s probably what I get for making my way as a contractor straight out of uni.
People who live to compete in a fictional zero-sum game market will always end up poor — people who choose these people as colleagues are just stupid…. It is called undermining your own self worth, and degeneration of everyones skill-set.
http://harmful.cat-v.org/people/basic-laws-of-human-stupidity/
It happens to all low economic-barrier markets:
IT: not respected given East Indian / Philippine outsourcing replaced your team for $6.50/h
Web: not respected given East Indian / China outsourcing replaced your team for $5.80/h
Game Assets: not respected given China outsourcing replaced your team for $11.50/h
EE: not respected given China outsourcing replaced your team for $15.20/h
Mechanical: not respected given Poland outsourcing replaced your team for $9.80/h
I am not saying you shouldn’t be competitive. but I am saying intelligent people won’t be in the same global business field anymore.
There is a definitive difference between the meaning of inexpensive and cheap — but stupid people can’t tell the difference, and fantasize about their loyalty being rewarded. This is how management makes savvy profitable decisions, that become business-bankrupting problems a few years later.
Re: China EE work: if I weretold “Ic an get it done in China for 10% of that.”, my response would be: “Fine. I wish you the best. Here’s my card in case you change your mind.”, then go home and wait for the inevitable call.
Maybe not, but some of the Chinese “engineering” I have seen is abominable. For a start, I doubt it would pass radiated emissions testing.
$100/hr if I work from my office.
$150/hr + expenses if I have to go to your site.
Paid every 2 weeks like everybody else. More frequently if I don’t trust you.
I’ll negotiate a little, but keep in mind that I run the clock while the negotiations are happening…
No, I’m not going to make a plan on how to complete your project for free.
No, I’m not going to take your programmer test and solve your programming problems without getting paid.
Contract says I own all of my work until paid.
Don’t try to hide contract terms in the NDA. It just pisses me off.
No, I don’t care if this is your standard boilerplate for developers. If it is shit, I’m not signing it.
No, I’m not your W-2/ W-4 employee. I have a business. 1099 or go home.
No, I don’t give a shit about your company culture or perks. I never want to set foot in your office.
No, I don’t have a bad attitude. I am a professional. This is a business. Cut the BS and we’ll get along fine.
I don’t think you have a bad attitude. But there those who characterize a person looking out for their best interest as having a bad attitude.
That’s more or less the way I deal with clients also and have been very successful. I have a slightly different pricing strategy.
$150/hr for short-term contracts (<3mos)
Less than $150/hr dependent on the duration of the contract.
I'm $100/hr for 1 year contracts.
This has been my basic approach since 1994.
I really don’t want to work for anybody for longer than 3 months. My burn rate is low; 3 months full time and I’m set for the year. I’m still living off the couple of years where I was working constantly…
My experience this is my dad was operated on oil well servicing. company, there’s more contracting in that many realize. A contractor and any employs should worth the median income where they work out of. As starting point calculate how much you need to charge to attain that income as a 40 hour per week employee. To that add estimate income tax SS/Medicare withholding, Workman’s comp insurance, unemployment is insurance,we all should be worth a healthcare plan. You may want to consider giving yourself some six leave and vacation time. Those are tangible numbers to start from. From their you have to decide what extra value your education and experience brings to potential clients. One certainly should set a contract rate for any specialty tools that you have to bring to a job. Any bid offered should include how a client will pay for any changes they add during the job.
Of course tat’s a baseline to shoot for, and the real world means negotiation. You could find yourself in competition with someone does the same work in their off time from their day job or unemployed. Someone who is taking not reported cash payments. There are plenty of dead beats on both sides of the line. In the event I live long enough my SSDI will morph into SS retirement, and this something I don’t have to worry about, unless I get bored, or my retirement income wont pay for my hobbies.
Loose 20% of your quotes. That way you know the current market value where you live now. Anything else is theory.
If you are supplying materials (buying in materials for the job) factor in at least a 10 per cent addition to the cost. That covers the cost of any problems with the materials, like duff parts being supplied, or your mistakes ruining a part. The 10 per cent is really to cover the risks associated with supply of materials. Don’t forget to add the time it takes to source, order and receive a delivery of parts. Sometimes a client will say something like “is such-and-such a size of tubing available to suit this job (meaning to suit the client’s imagined simple solution they have built into their design. Maybe you could find a supplier and I’ll order some up.” That’s a job in its own right. It’s not a task you should do for free, unless they paid you to do the design in the first place.
As a friend with lengthy experience in engineering said “You should aim to do a great job and surprise the client with the quality and end result, but the client must always pay.” meaning the client must pay properly for every part of the job.
Straight contract (vs employee)? Then take your current salary. 150% of that will bring you pretty close to break even after taxes, insurance, etc.
Note that doesn’t account for additional risk, or other issues encountered as a contractor.
The previous comments pretty well much cover it but many contractors dramatically underestimate what hourly rate is equivalent to what salary. Usually a senior technology job is worth around 1.5 to 2 times the stated salary if you include benefits, bonuses, paid vacation etc. I usually take a full working year as being 1800 hours. That would make the minimum rate for a $60,000 per year job around $45 to $60 per hour and I would expect a contract rate higher than that. Of course, it depends on the market. Sometimes contracting is lucrative and sometimes it is better to take a full time job if you can get one. Of course, how much you can charge is different. I always take the advice of my old boss: “If they don’t flinch, you didn’t ask for enough”. You can always negotiate down but never up.
In the final analysis, there is only one answer, supply and demand determines pricing. Unfortunately, that means there is no such thing as a living wage. Your cost of living, health care expenses, student loans, rent, children to feed are your problem. All that matters to those up above is supply and demand and ‘the magic of the marketplace’. And democracy has been subsumed by back room agreements.
Labor is a trade-able commodity. So is health care, education, water and all other services “except services supplied in the exercise of governmental authority” which is defined as follows:
“a service supplied in the exercise of governmental authority’ means any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers”.
Everything else is on the trading table, behind closed doors. You have no idea.
Our lives could radically change due to WTO action. Buenos Aires is just two weeks away.
See http://www.afsc.org/trade-matters/issues/LaborMobility.pdf
I wrote an article on freelance pricing awhile back (if you’re converting from perm hire).
It’s not perfect but some people have found it useful.
https://roberttisdale.com/freelance-pricing-work/
I noticed a mistake in your article. The linked US Department of Labour article states that “about 30% of your total compensation package” is the combined employer paid benefits. It’s not 30% on top of the employee’s hourly pay, it’s 30% of the total amount the employer pays. That means the employee’s hourly pay is 70% of what the employer pays. So you’d divide hourly pay by 0.7 and arrive at ~$75.71 for the total hourly pay + benefits amount. You can check that $53 is about 70% of $75.71. Good article though, thank you.
I’m glad you enjoyed it.
Is there a particular section in the article you’re referring to?
I believe the math should check out. The purpose of the math is to start with your original hourly/salary rate as a perm hire and then understand the rate after benefits (Since you no longer have an employer paying for it).
If the employer were paying $10 an hour, their actual cost would be ~$13 an hour for benefits + pay.
10 * 1.30 = 13
As a 1099 you would need to charge at minimum $13 an hour (before accounting for everything else) to provide yourself with these benefits.
Benefits+pay = total cost to employer, and the total cost to the employer is comprised of 30% benefits and 70% pay. We know employee pay, and know it accounts for ~70%.
(benefits + pay)*0.7 = employee pay
Solving for (benefits+pay) we get:
benefits + pay = (employee pay)/0.7
So for your $10/hr example it’s 10/0.7=14.29. We can then verify that 10 is 70% of 14.29 (14.29*0.70=10.003)
Total cost to the employer isn’t 130% of the amount paid to the employee; it’s 142.9%
You’re absolutely correct!
Thank you for correcting my mistake. I’ve updated my article to reflect the corrected math.
I guess it’s a good thing I’m not a freelance mathematician ;)
I remember reading that article in the past — thanks for sharing!
I also see a pleasant side effect of you sharing it here was the exchange that brought up a correction. Great stuff!
No problem, I’m glad you enjoyed it.
Definitely glad someone corrected my math. Certainly don’t want to underpay myself :)
Thanks for posting yours as well, some good stuff.
I ran a business and there are a couple of things to keep in mind.
Have a contract to make sure you get paid and add to yourself more rights to your own work so that you retain ownership of your work. You can also have problems if the requirements to the work is still being held up in the air by a company’s committee.
You cannot charge more than the market is willing to pay.
Did you ever notice that companies that service heaters charge different prices depending on the zip code? It is because they decide that rich areas can pay more than poorer real estate areas.
I think of my own employer. My employer makes millions of dollars but doesn’t want to pay anything so they don’t upgrade. So it also depends on how well the employer is doing financially.
My employer wants to make more of a web presence too but they don’t want it unless it is done right so they are talking hundreds of thousands of dollars and only certain companies can provide what they want. They don’t have the money right now because they have other priorities which will come before doing a job.
i do primarily residential remodel and service work as an electrician.
i’m an employee- 20 years in the trade- no real desire to run my own company
something i’ve really learned from my present (10 year) employer is that our customers are real people with real lives, with real issues going on, problems, pains, sorrows and joys- so treat them as such.
we’re normally billed out at 125 for the first hour but i have the freedom to be flexible with that.
if i end up at some ol’ janes place whos obviously on a fixed income and i’m there to 1/2 hour – of which 15 minutes was chatting and helping her feel safe about me being there and the other half is taking out the broken light bulb out of her light fixture and helping her hang a picture i charge her 30 bucks for the trip charge- why?
because if you treat a person like a person then you will have a customer for life and free advertising for life.
Keep your first contracts short; it is tempting to go for longer term contracts because you want to get some money in the bank and achieve a level of stability and insulation from sudden drops in the market, but that will lock you into a given contract rate for too long. Short contracts mean you can adjust your rate to optimise.
I compromise between taking a lower rate on something that attracts my attention, cuts down on travel and higher rates where travel is a problem. Equally, I get paid more to help recover a situation which has got out of hand, but is less satisfying to work on something soul-destroying just fixing someone else’s cock-ups. In my line of work – IT architect, contractors rarely get to see any given project from womb to tomb. Some customers I just find satisfying to work for, where I feel I can make a real difference; I have one such customer where I work a couple of days a week, and for them I charge 20% less than anyone else. Don’t tell ’em!
Now what the f.. are all these greedy oil company workers doing in a hackers forum. They will never get the filesharing spirit – or they want it for free but won’t give it… Piss Off !
Bear in mind if you choose to work as a consultant: the ‘big corporations’ whose thunder you steal (and/or whose ‘secrets’ you reveal) will blacklist you from regular employment. They don’t want you doing for the customer what they’ve been doing poorly for many, many years. And they don’t want you revealing their trade practices and deliberate obfuscations to a customer base that they’ve had duped for as many years.
Safer for your career to play both sides of the fence; but then, you have to look at yourself in the mirror:
“Make friends for yourself with dishonest money.” Jesus of Nazareth
“if I were two-faced, would I be wearing this one?” Abraham Lincoln