In the face of a weak job market, many are turning to independent contracting. Businesses like contracting work because it is less of a commitment than hiring a full-time employee; contractors like it because it offers flexibility. If you are considering doing independent contract work, pricing your time correctly can make the difference between making a living and barely scraping by.
The difference in pricing your time
Independent contracting is, financially, very different from officially being an employee. There are a lot of little costs that need to be considered. When you are independent contracting, you will need to pay all of your own taxes, consider whether you want to get insurance, and put money toward retirement. You also will not be able to bill every moment you are working when you are self-employed because things like marketing, bookkeeping and billing cannot be billed to a particular client.
By the numbers
To figure out how much to charge for your time in freelancing work, you need to figure out how much your time costs. Add up your office costs, technology costs, supplies, legal, accounting and anything else that you need to spend money on in order to get business done. This includes business licenses and the cost of printing business cards.
There is a Freelance Calculator that does all this math for you.
Now, figure out how much money you have to make to break even. Dig out your personal budget and make sure it is up-to-date. If not, update it; while in the process, make a second “bare bones” budget that includes only the items you absolutely must have. Be sure to research and include the costs of self-employment taxes, health insurance and any retirement or savings you want.
Finally, determine how time you will spend working. Make a list of the days you want to take off annually, including weekend days and holidays. Subtract that from 365. Next, determine how many hours per day you plan on working and multiply by the number of days you will be working. Multiply that number by the percentage of time you will actually be able to bill (normally between 40 and 70 percent), and you have a yearly figure for number of billable hours.
Divide the total cost of business expenses plus personal expenses by the number of billable hours you will have each year or month, and you have your hourly rate.
Things to keep in mind
The number you may come up with for an hourly rate might end up seeming high. Before you succumb to the temptation to reduce the rate, keep in mind that you are offering a service that likely costs less than a full-time employee would cost a company. You have to value your time first, and if you feel you must reduce your price in order to get or keep work, you should make sure you have room in your budget to live on less. Lastly, remember that down the line it will be much easier to reduce your prices than to charge more.