Many writers or freelancers are under the general understanding that when a freelancer gets paid, he can keep pretty much all of that money in his pocket. Little do they realize in reality about half of that income will be lost again.
Let’s take a job site for example. Often, when you register for these freelancing job sites, you can use their profiles for free.
This will allow you to bid for jobs and get more work. Trouble is, if you do use the free membership, your profile often gets stuffed way down the line, behind all the others who pays for their membership.
Agent fees
For that reason alone, paid membership is pretty much essential to snatch up regular and higher paying job offers. Let’s assume we pay a yearly membership fee on one of those sites; if we do, one part of your expenses is already accounted for. Once you win a bid and complete the job, the agent (the site) takes another cut, sometimes as high as 8.75% (Guru). Elance charges a service fee of 4-6%, depending on your earnings within the last 6 months and PayPal also charges a fee of around 3.7%. Theirs actually varies from country to country.
Before you say “oh well, those fees aren’t too bad”, think about the time you need to negotiate with each client. Freelancers often forget to factor in those administrative hours, which of course reduces our rate even more.
Workable hours vs billable hours
In reality we can’t work a full 40 hour week without risking burnout while we run a one man or woman show. The reason being, every client needs to be nurtured in some ways.
All this extra time does add up and when it comes down to it, we don’t get paid for it if we fail to factor those tasks into our rates. Every freelancer should be remunerated for these times when they communicate on the behalf of a client (email, skype). It’s part of the job. Plumbers do it, builders do it and many others do it too. Heck, my plumber even charged me a freaking fuel levy the other day. Talking about milking the customer dry.
To do this you will first need to determine how many hours you can feasibly work each week. By work I mean the time you have to design or write. Those should also include email communications with clients and running extra tasks for them.
Your workable hours are the hours you sit down, work focused, without distraction. For most of us, those hours would be within the ranges of 15-25 hours/week. The rest of the week is usually spent doing our own thing, promotion, admin and social networking
Next you need to determine your cost of living and how much money you need every single month to pay your bills and make a living.
What many freelancers forget at this stage is to include their communication buffer zone. If you need 1 hour to write a 400 word article and you factor in 10 minutes of admin time each week with a client, then your hourly rate should include this buffer zone.
Otherwise you end up working for nothing.
Business running costs
Business running costs aren’t really a hidden cost. However, for some they are because people seem to forget about them altogether. Just because we work online doesn’t mean we would have all the extras we do if we weren’t freelancing.
Extras could be:
- Software
- Educational eBooks
- Extra or new computer
- Backup hard drives
- Faster Internet connection
- Cheaper international phone rates
All these extra costs might not be necessary if we just login to check our Facebook account or email.
Income tax
I suppose as long as I don’t know any sneaky ways to setup an overseas account to avoid paying tax altogether, I have to pay income tax and so do you. In some countries this tax can be as high as 30%. If your hourly rate is set at $60 - $20 of those are gone before you can even feel the crispy paper in your fingers.
Having said this, we can’t assume because Bill in the U.S. earns $40/hour that Mary in France would need the same amount. Like I always say, this depends on your area and the cost of living as well as your lifestyle. Mary might well be happy with half of what Bill earns to enjoy the same luxuries or even more.
Outsourcing
At some stages in a freelancers life he needs to consider whether he wants to outsource or not. This decision should not be made lightly, since if you do, your reputation could suffer because it depends on another persons professional integrity and work.
Outsourcing costs can add up quite extensively in a freelancing business, depending on the size of it.
Accounts are another cost to be considered. They are often forgotten as an outsourcing cost.
Plan well - suffer less
It is essential to study these additional costs very carefully before you set your rates. For some reason unknown to me, freelancers also have this “thing” with other people’s rates. If theirs are higher they automatically get judged as the better professional.
Remember, this has nothing to do with quality but with our worth, lifestyle, cost of living and needs. We all believe we are worth more than we charge, including myself. In the end, we have to find a happy medium that works for both us and the client. It makes for a good relationship.
The Freelance Writer's Blog | August 1st, 2008 at 6:32 pm #
Well said Monika, especially this part, “For some reason unknown to me, freelancers also have this “thing” with other people’s rates. If theirs are higher they automatically get judged as the better professional. Remember, this has nothing to do with quality but with our worth, lifestyle, cost of living and needs.”
I second that wholeheartedly!
Yuwanda
Monika Mundell (Post Author) | August 1st, 2008 at 9:45 pm #
@ Yuwanda: Thank you, glad you enjoyed the post. I realize that this is a bit of an undiscovered topic, since most freelancers ignore the facts or simply don’t think about the hidden costs.
Peter | August 1st, 2008 at 11:32 pm #
Noticed a spelling error like: “All this extra time does ad up and when it comes down to it.” It should have been “add up”. Full stop was missing at the end of the article. I think the editor of the blog should keep an extra careful eye to these things to reach top world standards.
Otherwise it was nice to read the article.
Monika Mundell (Post Author) | August 2nd, 2008 at 3:36 am #
@ Peter: My bad, that was actually all my fault and I apologize for offending you. It’s all sorted now thanks to you.
I E | August 2nd, 2008 at 4:47 am #
Thanks for all this financial info on freelancing.
lissie | August 2nd, 2008 at 7:58 pm #
I am confused about this thing with paypal taking a % of funds paid to me - I have never seen this - I get a free transfer to my local (New Zealand) account if the amount is over NZ$150, pay $1 if less than that - is it different for Americans?
Monika Mundell (Post Author) | August 2nd, 2008 at 11:06 pm #
@ Lissie: Check your income statement from PayPal. On the very right hand side column you’ll see the fee they take out for every payment you have received. That is what I meant. I see where you are coming from though with your transfer to your account.
I’m in Australia and the same applies to me when I transfer the money. But you still get charged by PayPal to use their account. Hope this explains the situation.
2greedy | August 3rd, 2008 at 12:23 am #
Thanks for all this financial info on freelancing.
Amy Derby | August 3rd, 2008 at 7:14 pm #
Excellent information here, Monika. The extra costs do add up. Although many things — fees etc — get written off under my business expenses, they do come out of my pocket to begin with, and it is easy to forget about such expenses as paypal fees and the like.
Monika Mundell (Post Author) | August 3rd, 2008 at 10:48 pm #
@ Amy: You are welcome Amy, I made the same mistake too when I was just starting out and learned over time that I was selling myself short because I never factored in the hidden costs. Never mind, we all learn from mistakes, don’t we?
Drumsreview | August 4th, 2008 at 2:43 am #
Excellent information here
Harris | August 4th, 2008 at 6:43 am #
Thanks for providing useful information on freelancing. Now I can guess the actual cost of freelancer.
Dark Knight Action Figures | August 4th, 2008 at 12:10 pm #
Thanks very much for the read Monika. So many that romanticize the lifestyle of being a freelance writer forget how much extra work (besides writing) goes into making freelance writing a viable career. All these hidden costs can really drop the dollar per hour rate one is actually making. Unfortunately, in the online world at least, the trend these days tends to be quantity over quality, and writers trying to break in are faced with competition from people who are willing to write for almost nothing.
Monika Mundell (Post Author) | August 4th, 2008 at 6:47 pm #
@ Harris: No sure how you can “guess” as freelancers cost by reading this since I never even mentioned any rates. To “know” rather than guess, feel free to visit any freelancers sites (many do list their rates you know).
@ Dark Knight Action Figures: Hi Dennis, yes, you are correct. The lifestyle can be romanticized for sure. I think once we know what goes on behind the scenes we can deal with the reality a lot better.
It’s like with every business. There are hidden costs we need to factor in and keeping a realistic view will help to make this manageable.
Thank you for the comment. It’s good to see what you guys think about this and by getting all that feedback I learned that there is indeed a huge gray zone.