Freelancers: Do you Understand your Costs?
Wednesday, September 23rd, 2009
In an article a few days ago I brought up the subject of transaction costs. The main reason is that many freelancers out there really have no idea how to charge clients or quote for work because they don’t really understand the costs associated with the job. And, quite seriously, understanding transaction costs can also improve your interface design and user experience outcomes.
In short, transaction costs are all those costs of doing business. But there are other costs you should be able to put figures to in a pinch – what are your fixed costs and your variable costs? If you had no business at all this week your fixed costs would include things like the rent (because rent doesn’t change) or mortgage payments. They don’t change whether or not you have work. Whereas your variable costs change with the quantity of work you do – you might use more power, more ink, higher wages to outsourced contractors.
Another cost you should be able to get your head around is the marginal cost of a project. Marginal cost is the cost of doing one more thing. So when someone asks you to design a poster or build a website you can work out quite easily the fixed costs you have to meet in your day to day business, the variable costs that might fluctuate with the influx and outflow of workload, and the marginal cost and marginal benefit (which should be bigger) of taking on the job.
