You’ve probably heard of the gig economy. Chances are, if you’re reading this then you’re part of the gig economy, a group of people who work as independent contractors and are not beholden to a single employer. Maybe you’re a freelance photographer, model, or a social media strategist, writer, or Uber driver. Or you could even have a “normal” 9-5 and have a side hustle going on and be considered part of the gig economy.
Freedom and flexibility is what draws many people to independent work, and while the perks of working for yourself are wonderful, freelancing also comes with its challenges. Many freelancers struggle to make ends meet; they are not charging their clients what they are worth. Some have only worked on salary, and have no concept of what to charge or how much to save for taxes. Other freelancers have figured out how to work less hours and make more money; it is reported that 19.8% of full-time independents earn more than $100,000.
Know Your Worth as a Freelancer
When you think of freelancers, the image of a writer in pajamas hunched over a laptop may come to mind. Or maybe that’s just me because that is exactly what I’m doing right now. While writing is still a popular freelance position, independent contractors (freelancers) have infiltrated all aspects of the workforce and specialize in anything from graphic design to social media, consulting, and more.
Freelance rates will largely vary depending on your location, experience-level and industry. One of the amazing things about working for yourself is that you get to decide what your work is worth. Freelance social media rates are anywhere $15 and $50 per hour, and an experienced social media manager may make upwards of $125 per hour.
Alexis Grant says on her blog, “Social media consultants charge anywhere from $15-$250+ an hour. That’s a HUGE spectrum, just like all business services consulting. Take these factors into consideration when figuring out how much YOU should charge per hour:
Work Experience. For most of us (who aren’t famous in the digital world), the biggest factor in how much you can charge is your work experience. If you’re new to the working world, you might want to stick with $15-$40/hour. If you have five years of professional experience under your belt, transition into the $45-$75 range, and if you have more than five years experience, you can usually get away with charging $80-$100 or more.”
When you build up your portfolio, you will be able to charge your clients a higher freelance social media rate. The same goes for all creative freelance work.
Many freelancers ultimately come to the realization that working per project rather than per hour is more efficient. There will be times when it may make more sense for you to charge by the hour, for example, if you are doing a short, one time assignment. Other times a client’s billing software may make it necessary for you to bill hourly, so it always smart to be prepared with an hourly rate that you know is enough to yield profit after your expenses are covered.
A popular method for social media strategists is to charge a monthly freelance social media rate.
Monthly fees can vary widely, depending on what services are rendered. Typical social media campaigns can run between $399-$5,000+ per month. The monthly rate can even go much higher, depending on your experience level, whether you are offering agency level service or the caliber of clients you are working with.
Another option to consider — especially if you aren’t sure what to charge a particular business — is to put together several packages, ranging from basic to full-service, and let them decide. – Social Media Strategist Summit
Many freelancers drastically underestimate what they need to charge to make a profit. It is helpful to think of yourself as your own employer and employee.
Essentially, when you get paid, that money is paying your business, not you. As a freelancer you need to look at your total cost of operating a business (even if you are not a registered LLC, every freelancer is in essence their own small business) and then pay yourself as you would an employee.
You may even decide to set up two bank accounts, one for business and one for personal and literally direct deposit a paycheck into your personal account every few weeks.
Jennifer Bourn explains on her blog what many freelancers get wrong when deciding their hourly rate,
“A common approach to figuring out an hourly rate is to divide the salary you want by the number of hours worked each year: 40 hours/week × 52 weeks/year = 2,080 hours $100,000 desired salary ÷ 2,080 hours = roughly $50 per hour
This miscalculation is why we see so many online experts claiming to have made six figures, yet only actually earning an income of $65,000 and struggling to make ends meet in secret. Hitting $100,000 in total earned income (gross) is quite a bit different than keeping $100,000 in personal income (net) after paying all of your expenses.”
Instead of using this approach, which works in theory but often does not yield as much money as you’d like, it makes more sense to get a whole picture of your yearly finances and then work backward to determine what you need to charge to hit your goals.
First you need to calculate what you want your salary to be, then add to that what you will pay in any overhead expenses you need for work (office space rent, higher utilities from spending more time at home, internet, transportation and travel expenses, advertising, office equipment, computer, and legal and accounting fees etc). Finally, add in the cost of your benefits/ insurance as you will likely be paying these out of pocket.
Then you need to add in what you would like your profit margin to be (typically 10-20%). So if the sum of your salary, overhead expenses, and insurance is $132,000 (this is the number Bourn uses on her blog) and you calculate a 10% profit margin, that means you actually need to make $145,200.
You also realistically won’t be working 40 hours a week for 52 weeks and you won’t be able to bill every minute you spend working. You will take a few vacation days, sick days, holidays, and mental health days and you will have administrative tasks and invoicing to complete. As a freelancer, you do not get paid time off. It is estimated that you will realistically work 1134 hours a year, which means to cover your cost and salary, your hourly rate should be $128.
This may not seem feasible as you begin your career, but it’s a good reference point. The salary can be adjusted, or you may decide working less hours for a higher rate is more important to you than working more overall. Whatever it is that you are seeking to gain by freelancing, this system will help assure you that you have your bases covered.
When billing by the project, many freelancers think it makes the most sense to estimate the time the project will take, multiply their hourly rate by that length of time, then add in some buffers to make sure all your overheads are covered and quote that total as your rate . This line of thinking may be a mistake.
It is actually better to be open to charging different amounts for the same project, depending on who your client is. If possible, try to get a sense of the client’s budget, then build your rate around their budget. For example, it is absolutely fine to charge higher social media freelance rates for a large corporate client with a big budget than you would charge a start up with a smaller budget.
One of the questions I always ask is, “Do you have a budget set aside for this project and is it over X?” This first weeds out low budget clients, and often clients will respond and let you know the budget that they have available.
Just asking for the budget goes a long way. The client won’t always reveal this but if you don’t ask you will never know.
The ballpark question – Often clients will ask you for a ballpark quote for the project. Whenever I get this question I answer with a wide spectrum.
I say something like, “It could cost anywhere from $1,000-$8,000 depending on the scope. Did you have a budget in mind that you were looking to spend?” – Jake Jorgovan
Keep in mind that the client has elected to hire you, and by aiming high you open up the floor for negotiation. They may get you to lower your rate a bit, and that is also fine if you really want the project. The project may be beneficial enough to your portfolio that you consider completing it for a lower rate than usual.
But, by aiming high, you show a client that you know your worth and you know you are capable of producing high quality work. This is true for all freelancers, but women especially often underestimate their rate, which is problematic on both a personal and professional level. With every freelancer who works under market rate, the average freelance rate for the entire industry goes down. Essentially, the service you provide becomes less valuable- so do not be afraid to aim high!
Stats About the Gig Economy
An Upwork study showed that in 2016, 35% of the U.S. workforce was made up of part-time and full-time freelancers. This number has only continued to rise, and new estimates say that about 68 million Americans are engaged in some sort of gig work.
According to a different study done by Intuit, who owns TurboTax and offers an accounting software popular among freelancers, the percentage of freelancers is projected to rise to 43% of the workforce by 2020. The study counts freelancers of all types, including Uber and Lyft drivers, Etsy or Ebay sellers, and what we think of as more “traditional” trade freelancers like plumbers or electricians.
A third sturdy, which informs many of the aforementioned, done by McKinsey Global Institute, is a must read for anyone looking for more insight into the gig economy or the state of the work force in general.
Their study divided freelancers into four categories: Free Agents, Casual Earners, Reluctants, and Financially Strapped. The good news is that 30% of those surveyed fell into the “Free Agent” category, which means they have elected to work independently as opposed to working a typical 9-5 pm.
“Those who do independent work by choice (free agents and casual earners) report greater satisfaction with their work lives than those who do it out of necessity (the reluctants and the financially strapped). This finding holds across countries, ages, income brackets, and education levels. Free agents reported higher levels of satisfaction in multiple dimensions of their work lives than those holding traditional jobs by choice, indicating that many people value the nonmonetary aspects of working on their own terms.” – McKinsey Global Institute Study
40% of participants were in the “Casual Earners” category, which means the pursue a passion or a gig on the side as a means of making extra cash. It is not their full-time job.
Only 15% of the independent workers surveyed in 2016 used a digital platform to find work; a digital platform can be any service which connects people who need a job done to people willing to do the job. Think LinkedIn, Glassdoor and Monster or Uber and Airbnb. This was a surprising finding. “Online gigging” was far more prominent in the 50 largest metros; this is said to be a result of the “rooms and rides” economy, (Uber, Lyft, Airbnb) which are much more prominent in larger cities.
Steve King of Emergent Research is one of most prolific researchers on the gig economy and its interaction with co-working spaces. King says that there are two types of gig workers: those who are “independent” and those who are “contingent.”
Independents act as their own bosses in the truest sense of the word; think small business owners. Contingents work for a company to make their own money; though they may be remote workers they closely resemble traditional employees, however the do not they do not receive paid time off or benefits. It may not be surprising that truly independent workers report being happier than their contingent counterparts, but perhaps more surprising is the fact that contingents seem happier and more satisfied than salaried office employees.
TJ McCue summarized King’s findings in an article for Forbes:
- Almost 60 percent of independent gig workers strongly agreed that they had flexibility, while 38 percent of contingent gig workers said the same the thing.
- Only 27 percent of regular workers strongly agreed they had the flexibility
- 47 percent of independent gig workers said they really liked their hours, while only 34 percent of contingent gig workers and regular workers said the hours were really good for them.
How to Succeed in the Gig Economy
A recent study by the Harvard Business Review (HBR) tracked 65 gig economy workers. All the workers, regardless of occupation, shared a common goal: they wanted to feel productive, valued, and that their work matters. Those studied also recognized that even without the support of a traditional employer/employee relationship, “their independence was a choice and that they would not give up the benefits that came with it. Although they worried about unpredictable schedules and finances, they also felt they had mustered more courage and were leading richer lives than their corporate counterparts. We discovered that the most effective independent workers navigate this tension with common strategies.”
The most effective workers had cultivated 4 types of essential connections: place, routines, purpose, and people.
Productivity was highly valued among the freelancers, as a means of financial success, but also personal pride. Choosing projects that reflected their true interests made these workers feel autonomous and productive. But, the researchers also found that productivity heavily hinged upon place; the best work was done in spaces that “allow easy access to the tools of the owner’s trade and to little else.”
That being said, it is best as a freelancer to carve out a small space to work within your home, or rent an office space. It need not be large, but should be free of distractions. Working in your bedroom or your kitchen is not ideal.
Freelance work can be unpredictable. It does not usually follow a set schedule and weekends don’t mean much. You can take a nap in the middle of the day if you really wanted to, or go for a long walk.
Though it can sometimes be necessary and even beneficial to break from routine and enjoy the freedom of freelance life (say, for example, going for a run when you hit a creative block) HBR found that the most successful freelancers had a solid routine that they did their best to stick to daily.
Most of of those studied did not wake up and jump straight into work. They took their time having coffee, meditating, getting some exercise or visualizing the day ahead, so they were able to start work with a clear plan for the day.
“A big distinction between successful independents and the ones who aren’t or go back [to corporate jobs] is getting to that place of knowing what you’re meant to do. That gives me resilience for the ups and downs. It gives me the strength to decline work that isn’t in alignment. It gives me a quality of authenticity and confidence that clients are drawn to. It’s helpful to building or maintaining the business and serving the people I am here to serve.” –Executive Coach quoted in Harvard Business Review
Once you have an established freelance rate, it is helpful to define for yourself what it is your purpose as a freelancer; and what you are trying to accomplish, If you have work that feels intentional and meaningful, you will ultimately have more success, both personally and professionally.
One of the major drawbacks of working remotely is that many who work for long periods of time at home report feelings of loneliness. People are inherently social creatures. This is one of the reasons why co-working spaces are on the rise, and why you may notice your local coffee shop packed with laptops on any given weekday. The average cost of a co-working space is about $350 a month (though these costs range widely depending on where you live.) Freelancers are more than willing to shell out this cost for the space.
- 77% of respondents stated that they thought the price they paid was fair, while 17% said they actually felt the price they paid was a bargain.
- 90% of respondents reported either being highly satisfied or satisfied with their co-working space.
- Only 4% of respondents said that they likely won’t stay members once two years have elapsed (HBR).
In addition to providing social interaction, these places are also free of many of the distraction of home; there is no laundry to be done or a closet that urgently needs reorganizing when you are working away from home.
How did you decide your freelance rates? What systems do you have in place that help your productivity when working independently? We would love to hear from you in the comments.