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Why Do Freelancers Cost More?

Why Do Freelancers Cost More?

When I talk about the hourly rates that we charge at Don’t Panic Management, I get a variety of feedback. Sometimes people say that I don’t charge enough for our services, some people say that I charge too much. No matter what the feedback is, my answer is usually, “Compared to what?” (Seth Godin made a nod to this today, he always gets to everything first!).

My hourly rate might seem low compared to other freelancers’ hourly rates. It might seem high if you start multiplying it by 40 (hours per week) and then again by 50 (working weeks per year if you count 2 weeks vacation). The former is, of course, my own issue, and is an issue to be addressed another day. If you’re concerned about the latter, however, it’s important to understand the fact that freelancers/contractors don’t work like regular salaried employees. Consider this -

1) We pay for our own equipment.

Remember the days of walking into your office and having a desktop computer pre-programmed with all the software you need and a supply closet with a never-ending supply of all the pens and post-its and staples you could ever need? I certainly don’t.

If my computer stops working, I have to take the time (the precious time) to go to the store and get it looked at. If something is really wrong with, I have to pay to get it fixed or get it replaced (which I did earlier this year). If a client needs a project done in Photoshop, for example, I have to purchase that software for myself or someone on my team to use. That stuff is not cheap.¬†Stamps, printer paper, pens, mousepads, external monitors, ink… they all add up and they’re really not optional for most freelancers, even if the majority of their work is digital.

2) We pay for our own insurance.

I can’t even begin to count how many freelancers/contractors I know who don’t have health insurance. Newer systems like the Affordable Care Act and the Freelancers Union may change this, but there’s a general lack of education around health insurance for individuals, plus the fact that many people don’t think about getting health insurance until they NEED it. Insurance is already extremely expensive for individuals, but if we wait until something goes wrong, rates are even more outrageous. This is a totally broken system, but one that needs to be considered.

3) We pay our own taxes.

Take the amount that you pay us per hour. Then divide it in half. That’s about how much we have to send to the IRS each year because the IRS hates self-employed people.

4) We pay for our own marketing.

Established companies have a reputation and a built-in customer-base to keep revenue flowing. They also have marketing budgets to spend each year.

We may be working toward that as freelancers, using our track record of success to gain new business, but many of us don’t have a cushion of cash to guide us if we have a slow month or two. As a result, we need to invest in our own marketing. This may mean designing and developing a website that showcases our services ($1,500 – $5,000 on average). It may also mean upholding an active social media presence (potentially “free”, but a major suck on our valuable time). For products-based businesses, maybe it’s sending free samples or postcards with discount codes to potential customers ($100 – $10,000+ depending on how many people you wish to reach and how steep your discount code). For service-based business, maybe it’s sponsoring an event, providing free consultations, attending conferences, or even offering speaking services for free to boost awareness (I’ll be sponsoring a relaxation lounge at the Social Brand Forum next month).

These marketing services may seem like something freelancers can skimp on, but they’re not. Our entire livelihood is based on servicing clients. If we aren’t able to gain new clients, we aren’t able to make a living.

5) We work by the hour.

Full-time employees are scheduled to work at least 40 hours per week, right? Yes, they are in the office for 40 hours per week. Does this mean that they actually put their blood and sweat into each hour of each day? No. Because it’s impossible. We can’t work 7 or 8 hours straight each day and be completely effective for each minute of each of those hours. Our brains need breaks. Relating this to “billable hours”, freelancers can probably only handle 5 or 6 of those per day unless we “work” 12 hour days. But who wants that? Not me. A higher hourly rate reflects the cash flow that we need to sustain at least a semblance of “normal” working hours. Are some of us crazy-efficient? Yes. Can some of us handle 8 solid working hours without breaks? Maybe. But that’s unrealistic to expect from a freelancer and is harmful to the quality of our work (not to mention our health and our relationships).

6) We are building our own businesses.

Some freelancers have no desire to grow into anything more than a one-man (or woman) show. Others start to see success very quickly, bite off more than they can chew, and realize they need to hire some support. Now there’s a whole other set of battles (read: expenses) that need to be taken care of and the hourly rate that was once reserved for rent, food, and the occasional cocktail needs to be spent on the livelihood, insurance, and equipment for someone else. The tides turn. The cycle continues.

As much as I enjoy building my business and working to please my clients, I sometimes feel that there is a general lack of understanding for how the hourly pay model really works. To me, it all seemed obvious when I first started. I had to charge more per hour than I thought I did, and it wasn’t because I was trying to be rich, it’s because I was trying to survive.

What’s your experience as a freelancer OR as someone who has worked with freelancers?¬†

  • Dan Perez says:

    Jess,
    As a video producer for hire, you bring up some good observations on the realities of being a freelancer. Those reasons, however, shouldn’t be why people have to pay more for a freelancer – it shouldn’t be the client’s fault that we have these additional expenses. As freelancers, we need to be resourceful in what we purchase for our business. By purchasing my equipment strategically, I was able to almost eliminate the need for a second camera operator and/or boom mic operator, putting that money in my pocket.
    But the real secret is being really really good at what we do AND identifying the types of clients that aren’t afraid to pay more to get more (yes, they do exist). If you do what you do at a high level AND keep working on getting better AND get yourself in front of the right people (the ones who actually care how things get done), you’ll find that you can charge more than you thought you ever could and the client will still think they’re getting a great deal.
    Cheers, my dear :-)

    September 23, 2013 at 12:40 pm
    • jess says:

      Hi Dan!

      I agree with you, it’s not anyone’s fault. I just felt the need to spell these things out because a lot of people still don’t understand how it all works. They don’t think of these extra expenses that we need to handle ourselves (expenses that anyone in a corporate environment may have NEVER had to think about). I don’t feel like I’m getting too many people who don’t see the value in the work that I personally do, but I’ve seen it in the past for my other freelancer friends for sure. I think your second point of actually identifying the right kinds of clients is the most important thing here. I’ve had my share of tough cookies and it’s not worth the blood, sweat, and tears!!

      Thanks for reading, Dan :)

      September 24, 2013 at 3:28 pm

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