Let’s see if I can start this post without triggering a panic attack for any of my fellow writer peeps …
Please take out your math homework.”
I know. <shudder>.
Did you do your homework assignment from last week, in which you were supposed to figure out how much money you need to make to survive every month? If you didn’t, no worries. Once we dive into this week’s lesson, you’ll have a pretty strong incentive for figuring out that number.
Monthly money goals
Last week I spelled out a bunch of reasons why charging by the hour is a bad idea, but there’s one I didn’t mention. That is, if you really want to do this freelance writing thing full-time, it’s a helluva lot easier if you can have a targeted, predictable monthly income goal in mind. Why is that? Because it can give you a benchmark for deciding which jobs are worth taking, and which are going to be a costly distraction.
So right now we’re going to walk through how to set some monthly revenue goals. This may seem like a lot to take in, but I promise I will hold your hand and we’ll get through it together.
In any case, it’s really important to DO THESE STEPS because they will be invaluable in figuring out how to set your rates:
1. Figure out what you need to make every month. Multiply this by 12 to figure out what your yearly income must be.
Don’t forget to add in health insurance — because you’ll be paying all of it if you’re a full-time freelancer. As a point of comparison, my insurance is about $400 per month for me and one kid (I have two kids but one is on a separate policy). That $400 includes the tax break on the healthcare exchange.
2. Get out some tissues for your tears, because I also need to remind you that if you’re self-employed you’re on the hook for paying your own taxes.
Yes, this is such a pain in the ass, but don’t be scared of it. People way dumber than you have managed to handle their own tax payments without having an employer to act an insulator. You can do this.
I’ve never found a great equation for figuring out estimated tax percentages. In general, though, I assume that 30% of anything I make is going to taxes. That may be a little high, but I’d rather overestimate. If anyone has better insight on this, please email me at email@example.com. I’d love to have better calculations.
3. Figure out what you’d like to make every month. Go ahead and multiply this by 12 to see what your yearly income would be if you could pull this off. (And hopefully you can — we’re going to talk about how in a bit, so hang tight.)
4. Now figure out how many hours per week you would like to spend working for clients. That includes writing, researching, interviewing, and communicating with clients via phone, emails, and in-person meetings.
5. Keep in mind that you’ll need some time for general business stuff as well, so set aside some hours for bookkeeping, prospecting and pitching, networking, marketing yourself, and doing whatever it takes to stay current in your skill set. When you’re a freelancer, no one is paying you for that stuff so it falls into a little category called overhead.
Now pull out that calculator.
Determining your target rates
Let’s work with some round numbers here so the math-challenged among us (holla!) can stay on track.
Say you want to bill $100K this year — with about $30K going to taxes, you’ll have about $70K to live on.
To hit that target, you’ll need to bill around $8333 per month, or $1923 per week if you’re working 52 weeks per year.
But wait! Do you want two weeks vacation time? No employer is paying for that, either. If you want to build that in, let’s re-calculate based on a 50-week year. $100,000 per year divided by 50 weeks is $2000 per week.
*Note: A serious downside of Freelance World is that true vacation time can be hard to come by. Unless you negotiate that into a client agreement at the start, clients will probably expect you to produce the same amount of monthly work every month, whether you’re on vacation or not.
Remember all that talk about hourly rates …
So how do you get $2000 a week?
Remember how I told you not to charge by hour? I still stand by that. However, you should have a target hourly rate in your own mind to help you set prices.
Let’s assume you want to work about 30 hours for clients and leave 10 hours for all the other bullshite. Based on a 50-week work year, you’ll need to bill about $67 an hour to hit your target. [That’s $100,000 / 50 weeks to get $2000 per week; then $2000 divided by 30 hours.]
When evaluating a new job, you can then figure out about how many hours per week (or month) the job is going to take you. For example, something that’s going to take you 4 hours per week should be billed at at least $1200 per month. [That’s 4 hours x $67/hour x 4.5 weeks.]
To hit your target, you’d need about 7 similar gigs per month.
However … seven gigs may feel like a lot to juggle every week.
In that case, you might want to shoot for more substantial jobs and have fewer clients.
I find that I like having a mix: a couple small, reliable contracts balanced by a few contracts that require a bigger time commitment. Having to switch gears between different clients can be a brain drain if I have to do too much of it.
Not all work is the same
Does every client get quoted the same rate? Hell no. You should figure out your target rate and then slide up or down from there depending on the work. With your target rate in mind, you’ll have a better idea of where you want to land going into each new job — and you can say no to the jobs that just aren’t in your ballpark.
I just got into a great discussion about this on LinkedIn yesterday. To paraphrase what I said there, different clients get different rates not because I’m trying to be sneaky or because I’m trying to squeeze more money out of them, but rather because one hour on one project may not be equivalent to an hour on another project.
That is, some work is going to require me to break a sweat and some isn’t.
For example, I just finished a blog post on technology solutions for monitoring underground pipelines. That project forced me to get quickly up to speed on an unfamiliar topic so I could write about it in an authoritative way. Plus, it required me to apply my acquired knowledge of technology solutions — which has taken years to amass. One of the reasons I was hired for the job was because the client had the expectation that I was coming in with a certain level of experience, and that I could handle tackling a new and intense subject.
On the other hand, I also just wrote a blog post about February being children’s dental hygiene month. The hour or so it took me to write that didn’t require nearly the effort that an hour on the other post did. Therefore, it got charged at a lower rate.
Of course, theoretically, you could decide to take only jobs that you bill at your highest hourly rate. There’s nothing wrong with that if you can pull it off.
As for me, I find that spending all my client-work hours in intense-research-and-concentration mode can be fatiguing — but my kids are getting off the bus at the same time every day* — I like to have some mental juice leftover to be mom.
*Except for the month of February, when they’re home three days a week.
For a more in-depth discussion of this, please check out Laura Shin’s excellent article in Forbes. She does a great job of crystalizing exactly how this works.
How will I ever make my number?
Right now I can hear some of you thinking something along these lines:
The number I came up with for my targeted hourly rate seems HIGH. Can I really get anyone to pay me that?”
Or maybe you’re thinking:
Wait. Didn’t you mention something about blogging for businesses? So what exactly am I selling to these clients for those rates?”
Those questions, my sweet little muffins, are the topics we are going to cover in the next few posts. And remember: I promised there would be NO GIMMICKS in this series so prepare for some straight talk about assessing your skill set in relation to what the market will bear. Some of you will be ready to go get some work right now and others are going to have to ramp up — but if you’re willing to work hard and turn yourself into a writing ninja, all of this should be attainable.
And really, isn’t that the secret to everything in life? Just be a ninja. Duh.
This week’s homework: Keep working on your numbers.
See you next week!
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