The Magical Bar of AUD$75 Per Hour
There’s a great freedom in being a freelancer. Unfortunately it’s not pushed enough that freelancing is, and should be, a business model. In that context I’m here to share something about what I refer to as the Magical AUD$75 Bar.
Working Out Your Real Hourly Wage
If you’re a freelancer – whether or not you charge an hourly rate or a project rate – it’s not beyond your capacity to look back at your records and assess how much you have been charging per hour over the last 12 months. Add up all those hours including the 3am all-nighters… add up every hour you sat and thought about the client’s solutions… and match them to the money that came into your door as a business.
Even successful freelancers have to admit that this financial honesty takes a little air out of the sails. Making $50,000 for the year but working 60 hours per week without holidays isn’t that great. Do the math… you worked for 3,120 hours for a fraction over $16 per hour. That’s chump change.
So to make $32 per hour – still not a decent wage for a skilled worker – you need to attract $100,000 of work through your freelance door and be prepared to do 60 hours work every week of the year without extra financial benefits or holidays.
Adding In Your Overheads
That’s all good and well but as a freelancer you pay for regular hardware upgrades and you have to pay for software licenses. You can live on open source software but why should you have to – this is meant to be a business model.
You also have to pay insurance, some portion of your power bill, recoup your current investment (including education), fund professional development through courses and shaking hands at conferences, your taxation requirements, fees to outsource and value-add to your own services, and you have to factor in the infrequent wages and the need to take a holiday. Every single one of those and more needs to be tracked as money going out of your business.
The biggest unfactored time consumption includes client communication and the hours it takes to get to a meeting and return to the office.
It’s no use getting $32 per hour and then having to pay all of those business costs directly out of your living wage… don’t laugh but I do know professionals working for under $10 per hour going slowly insane because they haven’t worked out that under-cutting doesn’t lead to long term business success. Working lean and competitively is one thing… but paying to be able to work is another.
The Magical $75 Bar
Imagine there is a Magical Bar that says $75 per hour. You may not currently be working there but make that your business objective. Today.
The reason is because at around AUD$75 – although this changes with country and purchasing power parity – you start to earn a living wage that supports your business model into the future. At $75 your business costs are taking you down to a livable wage.
Frame it in your mind this way… this provides your wage PLUS your outgoing business costs. You can have a holiday. You can go to bed in the slack periods without crying into your pillow and disturbing your spouse or partner. In turn, they don’t have to clean toilets to replace your refrigerator.
Why this is Important to Freelancers
OK you’ve read this far and you understand that if you don’t count all of the money going out your business back door then you are probably over-estimating your living wage. Many freelancers work for less than social welfare without the benefits. Sometimes ignorance is bliss… but what about the long-term – where are you going to be in 10 years?
I’m not saying that you should knock back client work when you need ready cash on the table this week. But I am saying that if you want to get ahead in the long-term you need to reframe what freelancing means in your own mind and how you approach the business finance aspect.
Draw that Magical $75 Bar on your whiteboard and leave it there for the year… give it a try. Make it the point where you can say your business is succeeding rather than struggling.
September 9th, 2010 at 1:57 pm
I agree wholeheartedly with your sentiments, but I reckon $100 an hour is the minimum to sustain a forward-looking business model. I do include things like voluntary super as necessary to the business model, mind.
Seven years of freelancing has built me a good brand with real results that justifies that outlay for clients.
Looking around my peers (freelancer web designers doing well after at least 5 years in business), it looks like $120 an hour is becoming standard.
September 9th, 2010 at 2:15 pm
Totally agree… AUD$75 is the absolute baseline I’d hope that the people working for Skittles and a Smile would aspire to. Below that figure there really is no business to speak of… it puts them on minimum wage for an unskilled worker. And that is a little sad, but incredibly common to be working below that in this field.
It quickly gets sucked down too if un-billed hours keep going under the radar.
What can be hard for people to get a handle on is how much benefit is derived from a normal $35 per hour in-house position. Not having to pay those overheads and gaining full employment hours mon-fri.
I think what I’m really driving at is the myth about exactly how competitive one can be as a freelancer with “apparently no overheads”. And its a part of what potentially drives the market downward… the “I’ll do it for $1000″ brigade is massive. But in the end it won’t take them very far.
There’s a business maxim that says “Never compete on price… ever… or at least only ever as a last resort. You compete on quality, service and features”.