Pricing Yourself as a Freelancer
I’ve been working as a freelance video editor for over a decade now. Without fail, the most common discussion I have with people is “why does it cost so much?”
It’s a fair question, especially in my line of work. The gig economy gutted prices. Mobile editing apps tell everyone they can totally create a fully edited video with the press of a button. Surely it’s quick, easy work – why would it cost so much?
This leads many freelancers, especially those just starting out, to undervalue themselves. After all, maybe a job does only take them half an hour – they can’t charge much for that, right?
Absolutely you can, and for reasons that stretch far beyond greed.
This is what goes into pricing yourself as a freelancer:
Freelancers Are Small Businesses
As a freelancer, you are not just a free-floating employee looking for someone to engage them for a project. You are a small business, engaging with other businesses, to provide a service.
And what do small businesses have?
Business expenses.
Employees definitely have some work-related expenses, and these can be considerable depending on the industry. But freelancers have all of those, plus regular business expenses. Things like:
Equipment costs
Marketing and advertising
Product licenses
Insurances
Office supplies
And there are costs you might not even expect that are fairly unique to being a freelancer.
In today’s online working environment, businesses love using freelancing platforms to source workers. I, personally, have made great use of fiverr.com over the last 6 years – in fact, I’ve made around $100,000 USD on the platform since starting in mid-2016.
But Fiverr takes 20%.
The other week I completed a gig for $400USD. Fiverr’s cut was $80 – I paid Fiverr $80 to get $320 (not to mention the transaction fee the buyer was charged!)
That means since starting on the platform, I’ve paid almost $20,000 USD to be there.
I’d argue it’s been worth it. Being on the site certainly helped me survive 2020 – but I need to factor that commission into my pricing.
Don’t Forget Holiday and Sick Pay
I live in Australia. Employers are obligated to provide a certain amount of holiday and personal pay each year.
Came down with the flu? Stay home for a few days, still get paid.
Go away for a week on a holiday? Still get paid.
Freelancers don’t get this luxury. If they don’t work, they don’t get paid.
Certainly, there is some flexibility to have working holidays, or God forbid, work while you’re sick. But sometimes you need to rest and recharge. Sometimes you’re laid up in hospital.
Sometimes – shock horror – work needs to take a backseat.
Freelancers need to factor this into their pricing structure. They need to have some money they can set aside to cover them when they’re incapable of working.
Whether it’s illness or just taking the time to recharge, freelancers need to be able to have periods of no productivity where they aren’t starving to death.
Freelancers Need to Set Aside for Retirement
In Australia, an employer is obligated to pay at least 10.5% of an employee’s salary as “superannuation” – a kind of retirement fund – on top of their salary.
So if you earn $100,000, your employer pays $10,500 a year into your retirement fund.
This is, again, something freelancers don’t usually get. Some industries actually do stipulate that contract workers should be paid super, and some freelance employers simply offer it as a bonus. But this is not the case for most jobs a freelancer will do through the year.
As a freelancer, you need to account for this. You need to have a small amount of money you can put aside each job for retirement.
This isn’t your personal savings, this isn’t your business expenses; this is for when you’re no longer working and want to enjoy the last few decades of your life.
Job Insecurity Surcharge
One of the most attractive aspects of using freelancers is that it’s as-needed. A company finds a freelancer for a project, engages them for the length of the project, and then has the option of going their separate ways.
There are no long term obligations, no payroll taxes, no laws around terminations and severance pay.
But that convenience comes at a cost.
The freelancer needs to factor job insecurity into their price. Above and beyond their holiday and sick pay, they need “waiting for the next job to come along” pay.
So businesses pay a premium to get access to top talent for just as long as they need, and then say goodbye when the project is over.
That’s why many freelancers – not all – are more than happy to discuss a reduced rate for ongoing or some sort of guaranteed work. Retainers, for example, are a great way for businesses to secure freelancers at a fixed price, and freelancers to know with some certainty what their income will be.
In Conclusion: Freelance Rates Are Not Employee Rates
When you price yourself as a freelancer, you can’t just price yourself as if you were a typical permanent employee. You’re a small business providing a service to other businesses.
So on top of the money you actually need to have to pay bills, eat, and save — y’know, live — you need to factor in the expenses of being a small business.
Yes, your prices will rise — and I’ll write about dealing with that in another blog — but you’ll be better positioned to have financial security and actually be able to live as a freelancer.