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5 Real Reasons Why You Don’t Earn What You Deserve as a Freelancer

Posted August 19, 2012 in How-To, Managing Clients

You’ve been reading the freelancing blogs and forums. Everyone else seems to be making a good living, but you’re still really struggling.

Yet, you know that you’re good at what you do. What could be the problem?

In this post, I’ll examine five common reasons why freelancers don’t earn what they deserve. You may find that one of these reasons fits your situation.

Reason #1. You Plan for too Many Billable Hours

Although you charge by the project, you have a basic hourly rate in mind when you estimate projects. You may have taken a former or desired monthly salary and divided by the number of working hours in a month.

If you did that, your basic hourly rate that you use to estimate projects is too low.

Let me explain. While most months have about 160 working hours (40 hours/week x four weeks), you won’t be able to bill for all 160 hours. Here are three reasons why:

  • The feast or famine cycle. The cycle is real. There will be days when you don’t have work and you need to plan for them.
  • Unbillable time. We all have time we can’t bill a client for. Think about the time you spend to fill out quarterly tax forms, for example. You can’t bill a client for that.
  • Marketing. Marketing tasks can take a lot of time, but usually aren’t billable. Recently, I spent over three hours on a proposal and didn’t get the project.

If your basic hourly rate takes all of this into account, let’s take a look at your estimating skills.

Reason #2. You Don’t Know How to Estimate

Poor estimating skills are another reason that freelancers often don’t earn what they deserve.

If your target hourly rate is $50.00 (a random figure) and you estimate that a project will take four hours, but it actually takes six hours then you’ve just lost a $100. (Four hours x $50.00= $200 versus Six hours x $50.00=$300)

This is very common problem. Many freelancers underestimate the amount of effort a project will take. You can overcome this problem by:

  • Keeping accurate records of how long it takes you to do tasks
  • Making sure that you really understand the scope of the project

If estimating and billable hours aren’t the problem, then maybe you’ve forgotten to account for your overhead costs.

Reason #3. You Don’t Think About Overhead

Every business has overhead costs, and freelancing businesses are no exception.

As a freelancer you likely have:

  • A phone system
  • An Internet connection
  • Computer software

And those are just a few overhead expenses. I’m sure you can think of more.

For traditional employees, their employer covers all of their overhead expenses. However, as a freelancer, you are responsible for the overhead costs.

That means that you should consider these costs before you set a target hourly rate for yourself.

Another common reason that freelancers don’t earn enough is because they don’t have good negotiating skills.

Reason #4. You Don’t Know How to Negotiate

Are you afraid to say “no” to a client or to challenge the terms they offer? Many freelancers are.

But negotiations are a key part of doing business.

In many cases, a client has some flexibility in terms of price and scheduling. But you’ll never know that if you don’t negotiate. Learn how to negotiate effectively and earn more.

The final reason that freelancers are underpaid is because they are too nice.

Reason #5. You Are Too Nice About Late Payments

Many freelancers are far too nice about late payments. They’re afraid to confront a client who owes them money.

But a client who doesn’t pay on time can actually cost you money. Here’s why.

If you’re like most freelancers, you’re not independently wealthy. Freelancing is how you earn your living.

When you don’t get paid on time, it often means that you can’t pay your own bills on time. It may even mean that you have to pay late fees or be charged additional interest.

So, if a client isn’t paying as agreed, don’t be shy about asking for what he or she owes you.

Your Turn

I’ve listed five factors that can keep freelancers from earning what they really deserve.

Is one of these holding you back? Can you think of any others?

Share your answers in the comments.

Image by Thirteen Of Clubs

Related posts:

  1. 5 Ways to Earn More Than the Average Freelancer
  2. 5 Reasons Every Freelancer Needs An Accountability Group
  3. How to Get Started as a Freelancer and Land Your First Real Client
  4. How Much Money Can You Earn as a Freelancer?
  5. How Using Subcontractors for Projects Can Earn You More Money

About the author: Laura Spencer is a freelance writer from North Central Texas with over 20 years of professional business writing experience. If you liked this post, then you may also enjoy Laura’s blog about her freelance writing experiences, WritingThoughts. Laura is also on Google+.



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23 Comments
  • User Gravatar
    Yoav
    August 20th, 2012 at 6:57 am

    This is an excellent list and should really help freelancers who are having problems in this area.

    Let me add one more consideration: it is possible that you are not earning what you are worth because you haven’t explained to your client (and to yourself) the advantages of working with you. These are the things that differentiate you from the competition: maybe you are more methodical than other, or perhaps you have the ability to take on urgent jobs and finish them quickly without compromising too much on quality. maybe you are very pleasant to work with compared to others, or especially reliable, or uniquely professional and so on.

    Find your advantages and point them out to yourself and your clients. Soon, you’ll be earning what you deserve.

  • User Gravatar
    Laura Spencer
    August 20th, 2012 at 8:58 am

    Yoav, Great addition to the list! Freelancers definitely need to stand out in the marketplace.

  • User Gravatar
    Caren
    August 20th, 2012 at 11:11 am

    Thank you, Laura & Yoav! Your advice has been invaluable. I am planning to start freelancing and figuring out how much to charge has been problematic. I want to start a library organizing service for homes and businesses. I know what professional organizers charge for organizing clothes and papers and I know what my former employer charged clients for my time. Since I have a Master’s Degree in Library Science, I believe I should be able to charge more than other professional organizers but I worry about pricing myself out of the market.

  • User Gravatar
    Laura Spencer
    August 20th, 2012 at 11:28 am

    Caren, I’m glad you found the information helpful. It sounds like you have a good handle on the market price for the type of service that you plan to offer. Best wishes in your new freelancing endeavor.

  • User Gravatar
    Chatman R.
    August 20th, 2012 at 12:00 pm

    Expanding on what the others have said, I’ve found a lot of freelancers aren’t making what they’re worth because they simply aren’t asking for it. I mean, I was once extremely awkward with talking about my prices, even as I saw notable leaps in my skill and knowledge. While pricing yourself too high is a real concern, it’s still better than pricing yourself at a piss poor rate. These days, I’d rather go too high and negotiate a lower estimate than go too low and be pretty much screwed.

    It isn’t enough to show confidence in just your work anymore. On some level, you have to exude confidence in all of your dealings. The client will be apprehensive in working with you otherwise. If you’re a professional at your craft, you have to own it. You know you’re committed to your work; get proper compensation for it. It’s that simple.

  • User Gravatar
    Laura Spencer
    August 20th, 2012 at 12:38 pm

    Chatman R., Great points. Confidence is a huge factor.

  • User Gravatar
    Paul Clifford
    August 20th, 2012 at 10:09 pm

    So if 160 hours a month is too much, what’s right? 20-40 (or is that too low), 40-80, 80-100? If I need to make a bare minimum of $3,000 a month (to cover all expenses), should I plan to bill for 40 hours at $75/hr? That sounds like a doable rate to me. Anything over that is just gravy for another month or should I shoot for $150/hr knowing that if I only score 20 hours, I’m fine?

    I do videography, web design, and consulting, so I think these are all within a possible wage, but I just keep remembering what I made at my “real” job (that’s what the normies call them) and feel like I’m charging way too much.

  • User Gravatar
    I. Brucher
    August 21st, 2012 at 3:37 am

    Reason #6. Mainly: working for intermediaries instead of working for end-customers.

  • User Gravatar
    Laura Spencer
    August 21st, 2012 at 8:49 am

    Paul Clifford–Are you just starting out as a freelancer? If so, it may take you several months to figure out how much work you will typically get in a month.

    Many new freelancers spend over half their time marketing–so I don’t think you are charging too much if you plan on having 20 to 40 hour billable hours (at least at first). Of course, you should save anything you earn over that for slow months.

    Good luck to you!

    I. Brucher–Good addition to the list!

  • User Gravatar
    Ferb
    August 21st, 2012 at 9:41 pm

    Hi Laura,

    Great reasons, I believed reasons 2 is the hardest reason for freelancer to avoid because sometimes each project might take a longer or shorter period of time to complete.

    I think of a way to deal with it, is to cost customers lesser so they would likely to come back again and if we cost it too high, then they might leave and everybody loves low price.

    Thanks – Ferb

  • User Gravatar
    Mike Arrow
    August 21st, 2012 at 9:57 pm

    For me, the biggest problem has been underestimating the time that goes into finishing each project. When I first began my freelancing business on the web, I only thought about the time that goes into finishing a certain project, I didn’t think about writing up detailed completion reports, Q&A with the buyer after completion of a project, and ending that project by actually receiving pay for that. I probably work twice the hours I projected early on for each project and that equally means I make half of what I should be making.

  • User Gravatar
    Laura Spencer
    August 22nd, 2012 at 8:58 am

    Hi Ferb,

    I wouldn’t recommend trying to position yourself on price, but rather on quality. If you read the comment below yours, you can see what can happen if you underestimate a project.

    Mike Arrow,

    Great example of what can happen when you underestimate. Now that you know the problem, you can fix it. :)

  • User Gravatar
    DHgate
    August 23rd, 2012 at 5:22 am

    “You Plan for too Many Billable Hours” That’s right. Too much plan will spoil everything

  • User Gravatar
    Shift dress
    August 23rd, 2012 at 7:08 am

    I am glad that I have come accross this. Forget about Overhead cost and underestimation were 2 big mistakes a always committed.

  • User Gravatar
    Mitch Mitchell
    August 24th, 2012 at 11:18 pm

    How about finding legitimate people to talk to in the first place? That seems to be my issue; I end up finding people who want writers, but none of them want to pay much for it. What is it with people not understanding what goes into real writing and how to value it? Then again, that’s pretty standard for consulting across the board it seems.

  • User Gravatar
    Paul
    August 25th, 2012 at 4:00 pm

    Thanks for this it’s good to get a reminder of what else you need to think about I always forget about overheads when estimating.

  • User Gravatar
    DesignFacet
    September 4th, 2012 at 8:58 am

    @Mitch It is not just writing, it is across a lot of different professions too. I guess other than lawyers, dentists and a few others that one can not do it themselves. @Laura another great article and thank you for sharing your thoughts.

  • User Gravatar
    Debarshi
    October 27th, 2012 at 2:32 am

    I would like to say I have been a victim of late payments (#5 point) I didn’t asked for money thinking I may loose the client, when i asked it was too late, so nowdays I am not so nice about late payment but always maintain my tone with clients,
    thanks for the share

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