8 Reasons Freelancers Should Charge More Than Employees
Posted November 14, 2011 in Managing Clients, Marketing
One of the biggest issues that beginner freelancers face is deciding how much to charge their clients.
It can be difficult to decide how much to bill for your work. While it is something you do figure out with time, you have to start somewhere.
A piece of sound advice is to decide how much you need to make in a year to be happy (taking expenditures into account), estimate the number of billable hours you will work, and figure out your rate that way.
Of course, even estimating the amount of billable hours you will work can be difficult. A year is a long time, and a lot of unexpected things can happen.
But in the midst of all the confusion there is one certain thing: as a freelancer, you should charge more than you would be making as an employee!
Here are a few reasons why…
1. Accessibility
An inherent benefit to the customer for hiring a freelance worker is accessibility. If they need something completed ASAP, they are not confined to the regular nine to five working hours of a company.
Most freelancers quickly accessible through personal cell phones or personal email.
While getting phone calls at 10 pm may sound like a bit of an inconvenience to you, you can charge the client more because it is an additional convenience to them.
2. Expertise
Most freelancers who succeed don’t go working for themselves without having a bit of experience.
When a client hires you as a freelancer or consultant, they are expecting someone in the know.
When a client takes on a large company to do work for them, they can’t really know what to expect. For all they know, the person responsible for their account just graduated college yesterday.
3. Policy
Oftentimes, employees working for companies have to follow company policies and guidelines.
But is there really a one-size-fits-all policy? I don’t think so…especially when it comes to business.
A company policy may always be the most effective, efficient, or even correct way to accomplish a goal.
Which leads to efficiency and flexibility!
4. Flexibility
It’s pretty normal for a company to operate like a big bureaucracy. And the bigger the company, the bigger the bureaucracy!
Individual freelancers can make alterations on the fly. A company hierarchy doesn’t lend itself to flexibility.
5. Efficiency
When you are your own boss there is no hierarchy of decision making. You don’t have to ask your boss how to approach a certain problem. And your boss doesn’t have to ask their boss.
You are the decision maker. And while this may be a little daunting at first, it provides that work is more efficient.
More efficient work means jobs get done faster. Which means you will probably bill the client less hours than a large company would. Which means you can charge them more per hour!
6. Income Sharing
If you’ve ever had a job doing work for a client through a company, then you know that the company you work for is making a lot more off of you than you are getting paid.
This makes sense.
The company has to make a lot of money off of you so that they can cover operating expenses and still make a profit when all is said and done.
A friend of mine works as an electrical engineer. He gets paid pretty well…in the mid 50,000s. On top of that, the company pays for the gas for his car, and covers his cell phone bill. Not a bad deal!
Taking all of those benefits into account, we can be generous and round up his overall earnings to 65k/year.
In a regular work year that comes out to be around $32.50/hour.
Pretty solid. Until you consider that his company charges over $300/hour to send him out to some clients.
Of course, the company does leverage its contacts and perform all the marketing duties.
And then they have to cover their expenses and send some of the profits upstream to pay higher-level employees. There is a lot of profit-sharing going on!
But as a freelance worker, you don’t have to share your income with anyone. An independent electrical engineer could charge over $200/hour and still save the client money in comparison to hiring a larger company!
7. Benefits
When faced with a decision of where to work, many individuals take benefits like medical insurance into account.
This, of course, is very important.
Companies have the upper hand over individual freelancers in terms of affordable benefits because they get group rates.
That doesn’t mean that you, as a freelancer, don’t need medical insurance!
It only stands to reason that if you are going to be paying more for the benefits yourself, that you should be charging the client more to cover your expenses.
8. Signaling
There are a lot of psychological games in play when money is involved. And with that said, charging too little can actually be dangerous to your business.
Money is a signal of value. When you pay more for a Lamborghini, you expect that it’ll be better quality than a cheaper Kia.
Charging too little can alert a potential client of a couple things: lack of expertise or lack of confidence and uncertainty.
One More Thing…
Have you ever tried negotiating with someone only to have your first offer accepted? That leaves you walking away thinking “I should have offered less!”
It’s much easier to negotiate your rates down, then to negotiate them up once the client agrees.
And as a freelance worker, you are always in the position to negotiate!
Your Turn
Do you earn more now as a freelancer than you did as an employee? Why, or why not?
Share your answers in the comments.
Image by Fr Antunes
Related posts:
- 7 Tips to Help Freelancers Who Charge by the Hour
- Continuing Education – It’s Not Just For Employees
- 7 Reasons to Consider Small Clients
- 5 Reasons Freelancers Can’t Ignore Twitter
- Why You Should Never Charge Hourly
About the author: Eugene Farber (@EugeneFarber) is a writer, entrepreneur and independent content strategy consultant. If you would like an opportunity to win a free strategy session with him, enter the content strategy consulting contest before November 15th!
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21 Comments
Julian
November 14th, 2011 at 9:14 amGreat article.
That’s why I make it a point to get salary info. from my closer friends. To set the price floor in a sense. For instance if friend A get’s X a year I make it my goal to get X + 50% or more.
Eugene
November 14th, 2011 at 9:59 amHi Julian, That’s a great approach. 50% is probably going to be below the markup that companies charge for professional services from their employees.
allena
November 14th, 2011 at 1:25 pmAbsolutely you should- you pay for EVERYTHING! Yeah, the electrical engineer is only gett 32$ cash, but his employer is also paying for his equipment, health, life, retirement, fees, etc. If you made 32 as a cube person, then you should x3 or x4 for your bill rate. If not more!
Jean
November 14th, 2011 at 2:19 pmYeah, it seems like all my first quotes are accepted out the bat. Now I know I can charge more, and negotiating from a very high rate is much easier than sticking to a low one when I know I can make more. Thanks. :)
Olivia
November 14th, 2011 at 2:50 pmGreat article – and it couldn’t have come at a better time for me. I have recently been offered a freelance writing job by a former boss/mentor, and I have been struggling with what to charge.
Thanks!
Eugene
November 14th, 2011 at 2:51 pmAllena, I think that a lot of freelancers coming out of a 9-5 job are so used to making a certain amount that they don’t feel comfortable charging that much more for their independent services…but they definitely should!
And Jean, doesn’t it feel like you’re kind of missing out when your first quote is accepted? :)
Laurie Lewis
November 14th, 2011 at 5:26 pmI know we shouldn’t be using this as a self-promotion forum, but my book What to Charge: Pricing Strategies for Freelancers and Consultants provides many suggestions about setting fair prices and confirms what Eugene says: freelancers should charge more per hour than staffers. By the way, What to Charge was recently named a finalist in the Business: Writing and Publishing category of the Best Books 2001 award.
TheAL
November 14th, 2011 at 6:52 pmHaving to buy the Adobe Suite by myself is almost reason enough. *ha* But, ultimately, having to cover business expenses (office supplies, higher taxes, commutes to clients, computers, software, accessories, maybe an accountant, health insurance, IRAs, etc) is reason enough, IMO.
David Bowman
November 14th, 2011 at 8:29 pmYou’re forgetting one very important reason:
A company hires a freelancer because it doesn’t have the people, time, expertise, etc. to do the job it needs done. Regardless of what the employees make, the employees can’t do the job. The freelancer can. This is one reason why a freelancer CAN charge more.
And a second very important reason:
The freelancer isn’t an employee and cannot expect a long-term salary arrangement. Each job for the client is separate, and each job may be the last. Whether a company hires a freelancer for strategic or tactical purposes, the company isn’t promising a salary schedule that employees enjoy. This is one reason why a freelancer SHOULD charge more.
But the key to making money is to deliver a service that people/companies want, at a level of quality they expect, and at a price that they are willing to pay. The value they perceive in your service must be greater than the value of their resources.
What does this mean? Setting the price high just because you “believe” you deserve more doesn’t mean you will, or should, get more. Be willing to negotiate until you and the potential client find the rate at which they think the value of your service matches the amount you request.
Roni
November 15th, 2011 at 1:02 amOne missing reason is that a 9-5 job is all year job, a freelancer is depending on job flow and there is no grantee that the next job is around the corner, so in order to able to give the client all of the above benefit a freelancers has to make sure that a gaps between works want destroy them.
Eugene
November 15th, 2011 at 10:06 am@David and @Roni
More good reasons! Wish I would have included them in the post :)
web design company
November 16th, 2011 at 12:47 amAll these points and arguments are strong, but most of the employers don’t agree with it, for example my employer is paying me lower than his employee, who is working in his office. I said to him to increase my salary, but he said that i will increase if you will join me in my office.
Web Design Company
November 16th, 2011 at 6:27 amWell yes i earn more in freelance rather than working somwhere else. Freelancing is best but it needs a lot of expertise for sure.
Jeff Schoolcraft
November 18th, 2011 at 12:55 pmhere’s an excerpt of my comments about this article in my latest issue of Freelancing Weekly: http://freelancingweekly.com/issue-2
Eight rationalizations as to why you should be charging more than your 9-5 counterpart. It’s a decent list if you need to convince yourself, but it’s an even better jumping off point for more discussion:
* Do you really want a client where you have to explain your value vs. internal folks?
* Do you believe in your own rate if you need these rationalizations?
* Do you really understand value? One of the best books I’ve read on value based pricing is Alan Weiss’ [Value-Based Fees: How to Charge - and Get - What You're Worth](http://www.amazon.com/gp/product/0470275847)
Also, all other advice aside, the simplest and perhaps truest advice I’ve ever heard on pricing goes something like this (I’m sure I’ll misquote, and I can’t even attribute it): “If you have the skills and never get turned down, you’re charging too little. If you have the skills and never make a sale, you’re charging too much”. Sure, there are other factors involved, I know, but still a nice 5 second test on pricing.
zend framework consulting company
December 17th, 2011 at 2:47 amYour arguments are very strong and helpful for us who are doing free lancing, but employers don’t accept these arguments, but now it will be more easy for me to convince employers about to increase my charges.
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