Businesses hiring freelancers for the first time often get a bit of a shock when discussions turn towards rates. But there are very good reasons why freelance rates are seemingly high. And it’s not just the expertise. Whether you’re a business looking to hire a freelancer, a freelancer needing to justify your prices, or a new freelancer trying to establish your rates, this is what you need to know about freelance rates.
Freelance rates need to take into consideration the costs of not being traditionally employed
It may sound obvious but employees cost more than just their salary. When a business pays the costs associated with employing staff, it has to pay 1-2 times the staff salary on other expenses. These expenses vary according to location and a few other factors but here’s a list of some the most common expenses:
- superannuation or retirement benefits
- paid annual leave – or a casual loading
- paid sick leave – or a casual loading
- HR expenses (payroll administration etc.)
- office space + associated expenses (e.g. lighting, heating and cooling)
- training and professional development
Some of these costs are applicable to freelancers too. For instance businesses still have to pay any expenses associated with recruiting and paying the freelancer. But most of these expenses disappear for businesses when they hire freelancers. Instead, it’s the freelancers who have to foot the bill.
That means a freelancer’s project fees must take into account those extra expenses. So, a freelancer’s hourly rate should never be the same as an in-house staffer’s rate. Nor should a freelancer’s flat fee equate to the salary of an in-house staffer.
Of course, the question then becomes, what is the equivalent freelance rate for a given staff salary?
Staff rate to freelance rate comparison
Obviously, a lot goes into calculating a freelance comparison rate. Thankfully Nation 1099 has produced a great little online staff to freelance rate calculator that takes into account a great many variables. It even lets you change the input values based on the situation in your country and industry. I’ve used the calculator to produce some rough values to give you an idea of how a freelance rate and staff salary compare.
Note – I live and work in Australia so for these examples, I’m going to use Australian values.
The legally mandated minimum wage in Australia is $18.93 per hour which works out to about $37,400 per year before tax if you work a 38 hour week. According to Nation 1099’s calculator with Australian tax rates included and health insurance removed, when an employer pays that salary to an in-house employee, their actual expenses (excluding costs for a workstation and equipment and the like) are around $77,300 per year. So a freelancer wanting to earn the equivalent of minimum wage in Australia needs to earn about $39 an hour.
To give you a few other benchmark values, the same calculation tells us that an in-house staff salary of $75,000 costs an employer about $164,422 and a freelancer would need to earn $83/h to make that wage. A staff salary of $100,000 costs about $223,632 and a freelancer would need to earn $113/h to make that.
Here’s a quick comparison for US readers:
If you’re based in the US, Nation 1099’s calculator says a freelancer needs to earn USD52/h to earn the equivalent of a $50,000 annual salary and USD104/h for a $100,000 annual salary.
Now, having said all that, many freelancers implement a value-based fee system rather than an hourly rate. They may have an internal hourly rate that they strive for but they often don’t share this rate with the client. This is great for clients and freelancers alike as it eliminates disagreement over how long tasks take and gives the client and freelancer fee and income certainty respectively.
Of course, this does make it difficult for businesses to gauge the cost of a project in advance. It can also cause headaches for newer freelancers who don’t yet know themselves well enough to know how long it will take them to do a project.
Freelancers: If you’re a new freelancer, my best advice is to monitor how long it takes you to complete projects and adjust future pricing to reflect your actual experiences. You might end up undercharging a few clients initially but at least you won’t be basing future fees on guesstimates. You may also want to have a chat to some established freelancers in your field to get an idea of how long it takes them to do tasks. It will take you longer because you’re less practised but that’s a good benchmark to start with.
Businesses: If you’re looking to hire a freelancer to help you with a project and you want to get an idea of how much it’s going to cost you, start by estimating how long the project would take your in-house staff if they had the capacity to complete the project. Then work out their salary for that amount of time and double it. That’s your starting budget. If you triple the staff salary, that can act as an upper bound to your budget and will give you a decent range within which to work.
Of course, that calculation only works if you’re looking to hire a freelancer to fill a capacity gap in your business. If you need a freelancer because you don’t have the right skills in-house, it may be that the skill set you need commands a higher staff salary than that of your existing staff. In that case, do some research into the typical salaries of professionals with the level of expertise you require and then double and triple that value.
If you’re looking to hire a freelance developer (or market your programming skills), Toptal has produced an awesome developer rate explorer that provides great industry-specific fees.
All of the above assumes that the quality of a freelancer is equivalent to that of an in-house staffer. Sometimes that may be the case. But often a professional will move into freelancing because they have exceptional skills that aren’t being adequately compensated for by staff salaries.
If you’re a business looking for the very best person in a given field, expect to pay a premium for the privilege. If you find a freelancer willing to work for significantly less than what you were anticipating, be wary – you get what you pay for.
As an example, Joel Klettke gave an excellent explanation of what a great copywriter offers that a mediocre copywriter cannot. To summarise, he says a great copywriter
- Won’t guess. A great copywriter will do the research required to develop a good understanding of the target audience. This is what is needed if the copy produced is to provide a good return on the client’s investment.
- Won’t burn up hours of time on revisions. A great copywriter will do a great job the first time around. Yes, the client still needs to review the work and provide feedback in order for the project to be the best it can be, but a great copywriter will get a lot closer to the mark the first time around.
- Will lead and manage the project and show the client the best way forward. The client won’t need to micromanage the freelancer. The client won’t need to be an expert. A great copywriter may push back when there’s a better way to do things.
Of course, a great copywriter is only going to do those things if their client provides fair compensation for that level of work. Businesses cannot expect writers to do adequate research if they’re not willing to pay for that research. Similarly, businesses shouldn’t expect writers to challenge their way of doing things if they demand that things be done a certain way.
The same is true of all freelance professions.
If you’re a business, you can get the best out of your freelancer by:
- paying them a fair rate
- clearly defining your target audience (or paying a fair rate for help with this)
- clearly defining your goals
- giving your freelancer the space to meet those goals in the best way possible
A note about content mills
There’s often a lot of controversy over whether working through a content mill is worthwhile and whether they offer fair rates. Like many freelancers who don’t know any better, I started out using a few content mills. I no longer use them but I kept my membership to one just so I could keep an eye on developments in that space.
The other day I saw a writing job posted with a pay rate of 2c per word. If you assume a writing rate of 500 words per hour that’s a measly $10 per hour. That’s less than a third of the Australian minimum wage. Of course, 500 words an hour would be a rough job with little research or thought going into the piece. If a client wants quality work, the word/hour rate would be significantly lower; as would the effective pay rate.
Of course, not all content mill jobs command a rate that low but I’ve never seen one that offers decent rates when you consider the costs of being a freelancer.
Freelancers: Content mill prices aren’t sustainable. If you can avoid working for content mills, do. Apart from anything else, working for pitifully low fees enables clients to expect low fees which only makes it harder for everyone to charge fair fees.
Businesses: If you’re tempted to use the services of a content mill, bear in mind that high-quality freelancers don’t use content mills. Even if you offer a fair price, you’re not going to get a good return on investment. You’re better off advertising for a freelancer on LinkedIn. On that platform, you’ll get a better selection of quality candidates and you can see how candidates perform. For instance, you may be able to see samples of a freelancer’s past projects. Or, better yet, a freelancer may be able to demonstrate the value they’ve provided to previous clients.