Freelancers, Do the Math
A helpful exercise for freelancers to calculate income and effort each month.
A mentor shared an observation, “Over the years, the people I’ve known who spoke more openly about money ended up with more of it. The people who weren’t comfortable talking about money always seemed to struggle getting enough.”
Making money is an important element of freelancing. It’s what separates freelancing from merely a hobby.
The following exercise is designed to get real about what you want and need from freelancing. Don’t worry about being overly precise. All forecasts end up being wrong, but some can be useful.
If you don’t know an amount or percentage, input your best guess and round up. It’s better to be wrong but conservative (in this exercise) than wrong and overly optimistic. The goal is to establish a baseline to build from.
Write your responses and equations on a sheet of paper or enter them into a spreadsheet.
How many hours per month do you want to work?
How much money do you want to take home per month?
Account for non-billable time, and deduct the time from hours of work. Let’s call the resulting number “Billable Hours per Month”:
- Marketing/Sales (Ex. 10%)
- Operations/Admin. (Ex. 10%)
- Invoicing and Bookkeeping (Ex. 5%)
Example: Sally wants to work 40 hours per month. Each month she spends 25% of her time on tasks she can’t bill the client. She has 30 billable hours per month.
Required Monthly Income
Account for monthly costs, then add the total to the money you want to take home. Let’s call the resulting number “Required Monthly Income” :
- Taxes (33%)
- Professional Services ($)
- Tools, Memberships, and Subscriptions
- Cost of Goods and Supplies
Example: Sally wants to take home $5,000 per month freelancing. She spends $2,000 per month on things like taxes, tools, and supplies. She needs to generate $7,000 of required monthly income.
Lastly, divide the required monthly income by the number of billable hours per month. From the example provided, the resulting rate is $234/hr.
This means if you were to bill hourly, the minimum you can afford to charge per hour while still taking home enough money is $234/hr. Assuming errors in our estimate, let’s round up to $250/hr.
If you’re a lawyer, a $250/hr rate is low.
If you’re a graphic designer, $250/hr is high-end.
Most freelancers either aren’t charging enough or need to work more hours than they expected.
We’ll eventually talk about value-based pricing instead of hourly pricing but for now, the lesson for most freelancers is simple: Tweak the math until it works.