Money tips for freelancers
Money tips for freelancers
Set rates that won’t breed resentment later
Hi team! It’s me, Jade. This edition of Money May is made for all my self-employed, independent contractors (like me!) or those that may be freelance-curious and wanna know what it might take to make it on your own financially.
It’s been two and a half years since I’ve seen a salary. There are things I miss. Like on-time and consistent paychecks (professional invoice-chasing should get a section on my resume) and affordable healthcare (is this still on your priority list, USA?) Despite those “luxuries”, becoming self-employed is one of the best decisions I’ve made for myself. Among the time freedom and massive exercise in self-confidence, I’m most grateful to have set up a work world for myself that gives me space to honor my humanhood each day. I schedule my work around my life, not the other way around. Going freelance was my way to make it happen.
When I first dropped into the freelance world, I had a few people in my life already doing it, and though they were helpful and encouraging during my existential sink-or-swim moments, I was so new to the ballgame, that I honestly didn’t even know what questions to ask.
While I’m still navigating the intricacies of how to streamline and market my offerings, and will likely be tinkering with them forevermore, I’ve spent a lot of energy over the last few years solidifying ground rules around compensation that ensure I feel valued, stable, and on track with my ever-up-leveling skillset. It’s been a lot of trial and error, so I’m happy to share what I’ve learned so you can have more trial-and-successes.
I want to reverberate something we mentioned in our Money May intro post: no amount of money can dictate your inherent worth. In our modern culture, where money is our current form of currency, knowing our financial value AND our inherent worth is really important. The tips below are intended to be helpful in finding ways to protect both without sacrificing one for the other. Ready, set, money…
Break away from, or avoid hourly rates where you can
Now look, there will always be exceptions to this, but I’ve found hourly billing can be a bit pigeon-holing. Here’s why:
If you’re building your freelance skills consistently, you’re likely to keep getting better and, depending on the type of work you do, faster at your work. As a freelancer, that means getting paid less for a higher quality deliverable in less time if you’re on an hourly-rate pay structure. And that’s… not nice. This is about prioritizing the value you bring outside of the time it takes you to do the work. If hourly is unavoidable, 1. Make sure your hourly rate gives you room to get faster at your job and still make enough. And 2. Read below!
PS - Rachel has incredible insight on how to set an hourly rate that bakes in all your unique freelancer needs, like time off, health insurance and other expenses. Head to the end of this edition for her step-by-step!
Make your hourly rate your project minimum rate
One workaround I’ve found to the hourly-rate conundrum is setting an agreement around a project minimum fee. This is best suited if you’re working on “small things” (ie. fast things) for a client like building social posts or writing email copy. They may be small projects, but they usually have some of the biggest impact for your client like a sales goal or another metric of conversion on an offering. High-value work doesn’t always come in the shape of a long-haul project.
Plus, though smaller in size and the time needed to do it, there are usually a lot of projects to move through, which requires a unique skill in pivoting your creativity and attention from one topic or concept to another. While you may not need an entire hour to write an email, building in a project minimum fee gives you space to flip ‘n switch your brain to the next small but mighty thing without feeling sucked dry.
Get particular about your scope of work
Scope of Work: the agreement of what specific tasks and duties fall under the rate you’ll get paid. This comes in handy with clients you might spend a long time working with (anything over 6 months). Business needs can change drastically and with a developing relationship with your client, it can be easy to fall into doing more or teetering on the line of tasks that aren’t really what you were originally hired to do. You might be thrilled to start working on new developments and grow with your client, but setting up time to discuss changes and additions to your scope, plus a modified rate that accurately supports it will keep that good energy flowing.
Reduce your offering, not your rate
If you’ve done your market research, accounted for your time, skill, and expertise, planned for taxes and time off (yep you gotta calculate that in!), and budgeted for your unique personal expenses, the rate you’ve landed on is probably fair, but not every client will see it that way.
Interestingly, I’ve spent more time negotiating past full-time salaries than I have in my time as a freelancer, but sometimes it comes up. When it does, and clients ask if I can do the work for cheaper, I take a look at what they can pay, and rework (and reduce) my scope of work to match that price instead of dropping my financial value. It allows me to hold strong on what I know I’m worth, while still being able to collaborate with the client. Their budget limits don’t mean you aren’t worth your rate.
Create or modify payment terms for your stability
Ugh. This one in particular kinda bums me out! If you’re a freelancer, and you haven’t had to chase an unpaid and overdue invoice, please reach out, you’re a unicorn.
For the rest of us, here are the hacks that make this frustrating reality better. Many clients include “standard” 30 or even 60-day net payment terms in their contracts for freelancers, which means your client isn’t due to pay you until 30 or 60 days from when you send them your invoice. Though it might be their standard, it doesn’t have to be yours. Let your clients know what payment terms you’re comfortable with (like “on receipt of invoice” or “15 days”) and request an update.
If you’ve started with a client on a set net payment terms agreement, but have to follow up every time because they’re late on paying you, here’s my list of go-to's:
Request a modified contract with updated (shorter) payment terms. They may still not pay by the due date, but you’ll be able to start bugging (I mean, kindly reminding) them sooner.
Include a late-fee percentage in your contract that goes into effect at a certain time after the invoice due date. For example, you might choose to tack on an additional 10% of your invoice total for every month your payment is past due. Your terms can be what you want, but you’ll need to include them in your contract that’s signed by both parties.
Once a certain point is reached past your invoice due date and you haven’t been paid, let your client know you’ll need to cease work until you’ve received payment. I put this into effect when my invoice hits a month past due. It’s not personal. It’s a boundary.
Rachel’s note: Also, have a backup plan - like a collection agency other freelancers swear by - so you can do SOMETHING if they totally ghost you.
Phew! I know. This edition is full of semi-hard truths and some potentially uncomfortable realities around standing up for your financial value as a freelancer, but it’s not meant to deter you. The thing is, self-employed or not, you are the only one that will do you justice when it comes to setting and upholding fair compensation for your work. So what can you do to honor that for yourself?
And if you’re reading this and brand new to working independently, I’ll offer you what I needed to hear when I first started: You are worth the rate you think you are. You know what you’re doing. Keep going. Your skill is valuable.
I promise,
Jade
Got specific questions about making money as a freelancer? Leave a Substack comment or reply to this email with your question and we’ll include it in our end-of-month paid-subscriber Money Q&A.
Rachel’s formula for an hourly rate
Make sure your rate includes time off! This is always something we ask our contractors to make sure they’ve built in. The mistake new freelancers make (don’t worry, I did too!) is taking the salary they think they should earn, divide it by 365 days, divide it by 8 hours = hourly rate or by days = daily rate. But that means you have to work every day, 8 hours a day. And then it doesn’t include all the things you would get as a salaried employee, like: a laptop? Health insurance? Platforms you need for your job, like Canva? Paid time off? Paid sick leave?
TL;DR: It actually costs a lot to employ someone, and as a freelancer, you have to cover these things yourself.
Instead, do this.
Find a salary at the top end of your range for your experience.
After all, as a freelancer, you should be so good at your job you can walk in and just get it done. Make sure you can deliver, though.
Example: 80,000 per year.
Add in what your laptop and platforms cost you a year.
For example, Macbook, Canva subscription, Google Workspace subscription. I would add in a cost for a new laptop every year, not just one year, so you always have money banked for a replacement.
Example: 2,000 a year.
Add in what insurances cost you a year.
As a freelancer, you should have liability insurance at least, and ideally some kind of health/sickness insurance if you are unwell and then can’t work.
Example: 4,000 a year.
What other services do you have to pay for?
Yearly training? Tax filing? Bookkeeper to send your invoices? Add it all up for a year.
Example: 4,000 a year.
Now you have your total cost = 90,000 a year.
Next: Calculate how much you have to usually pay in taxes.
At the end of a year, what do you owe? It’s usually around 33%.
Multiple 90,000 x 1.33 to ensure you’ve built in a 33% buffer zone for your cost. This will increase your base number significantly, which may or may not be needed. But it’s better to upcharge and be totally ready to pay all the taxes. Make sure you have a good tax filer, though, so you can be taking things you buy for the business to lower your overall taxable amount.
Total now = 119,700 a year.
Next: Decide how much time you want to take off.
For example, do most of your clients go quiet mid-December until mid-January? Factor that in as a month. What about summer holidays - are they quiet for a month or so? Do you want to be quiet for an extra month or so? What travel plans do you have this year - weddings? Trips? Etc.
To be safe, we recommend saying you want to be able to be off 8 weeks a year (or 40 working days).
Take your base amount (119,700) and divide it by 44 weeks (52 weeks in a year minus your 8 weeks off).
That gives you 2720.45 you want to earn per week (let’s call it 2721 for ease).
Total now = 2,721 a week.
Next: Decide how many hours a day in a normal workweek you can devote to billable work.
As a freelancer, you have to do your own planning, your own invoicing, your own new business calls. Conservatively, we’d say at least one day a week for this (8 hours), so figure you’re working on 4 working days a week.
2721 divided 4 days a week = 680 a day.
Now the big, final math - whether you bill hourly, daily, etc. to decide:
What do you need to charge to reliably earn 680 per day for 4 days a week for 44 weeks a year?
Hourly = 85 per hour to earn 680 a day, bringing you 2721 a week for 44 weeks of the year = 119,724. The math works!
Key to this: making sure that rate is enough to secure a steady rate of business. If people aren’t biting, need to rework it so you know 44 weeks of the year, you will have no problem earning that 💰.