Oct 4, 2012

Day Rate Calculation for Freelancer and small teams

As a senior professional I often hear questions like …
‘I am a new designer, IA, consultant, etc.  … and I need to know how much I can charge for my daily or hourly rate.  Should I just charge what others are charging? Is there a reliable approach or method calculating my rate? ‘
The interactive media business is a very competitive area to work in, and indeed very often clients (employer or agency) are trying to set the price.

The daily or hourly rate depends on various factors …
  1. General factors
    • The market rate
    • Holiday season (e.g. between Christmas and New Year)
    •  
  2. Project factors
    • What kind of professional is required – Junior, Senior, Specialist, …
    • What  experience are needed for the job
    • Where is the job located – off-site or on-site – big cities like Paris, London, New York London pays higher hourly rates,
    • For how long is the job or how frequent
    • Does the client (agencies often do) claim working overtime hours (night and weekend work)
    • Is an emergency or a speed job to be done
    •  
  3. Your factors
    • How experienced you are
    • How unique your skill set is
    • Your ability to negotiate

However, if you are or you consider becoming a freelancer, I firmly suggest determining your day rate. You should know the true value of your time and calculate what your daily or hourly rate should be to enable you to work freelance. Moreover you should calculate ‘your price’ because especially young professionals forget making provisions and reserves for contingencies and for pension, disability pension and insurance.

1st  step

First of all you have to keep in mind a freelancer will work a maximum of 220 days a year . But in general these 220 days aren’t realistic. When we will calculate the daily or hourly rate we can just count chargeable days. You will lose days for obtaining and acquisition, book-keeping and accounting, meeting your tax-consultant etc.  and don’t to forget days for vacations, attending conferences and training  and last but not least sick days. And let as be honest there will be again and again time when you have no work.
At the end of all you should calculate with 200 or 180 chargeable working days, and you should be honesty to yourself, how often are u sick or you feel sick and you aren’t as powerful and creative as you’re usually.  – By the way a lot of companies count with 180 days.
Use the following suggestions as a guide and then modify to suit your circumstance and conditions.


2nd  step - total business costs  per year

2.1
x,xxx.xx  $ (€) annually … for … office / room(s) rent
(even if you work in your private flat you should calculate percentage of home rent or renovation costs, electricity bill, etc. )

2.2
x,xxx.xx  $ (€) annually … for … hardware
(Computer, Monitor, Printer, Harddisk Drive, Phones,,Document shredders,  etc. )

2.3
x,xxx.xx  $ (€) annually … for … software
(Office Software (text, spreadsheet, timetracking, etc.), Creative Suite, Diagram Software,  ,  etc. )

2.4
x,xxx.xx  $ (€) annually … for … furniture and equipment
(Tables, shelves, seats, kitchenette,  coffee-maker, fridge, etc.)

2.5
x,xxx.xx  $ (€) annually … for … communications
(Mobile Phones, Telephone, Faxline, Internet,, etc.)

2.6
x,xxx.xx  $ (€) annually … for … fees
(Legal, Organizations and or professional associations, - Some fees are annually but some  fees will happen as one off blocks usually right at the beginning. If this is the case try to divide the cost over 2-3 years to get an amortized amount., etc. )

2.7
x,xxx.xx  $ (€) annually … for … office supplies cost
(Cleaning, postage, books, magazines and all those miscellaneous items,  etc. )

2.7
x,xxx.xx  $ (€) annually … for … travel
(Think about airfares, taxis, buses, petrol, motor vehicle tax, road tax,  toll, etc. )

2.8
x,xxx.xx  $ (€) annually … for … insurance
(Consider business insurance, health, inability to practise one’s profession, office and contents insurance,  etc. )

2.8
x,xxx.xx  $ (€) annually … for … advertising and promotions
(Business Cards, Give-aways, Yellow Pages listings, printing costs for mailers, banner ads,  etc. )

2.9
x,xxx.xx  $ (€) annually … for … education
( costs of seminars, trainings, conferences, …  etc.  for instance I invest 5 to 10% of my annual gross income for education and training)

2.10
x,xxx.xx  $ (€) annually … for … different other things
(For all those costs that don't fit under any other heading or I might have forgotten ;-) ,  etc. )


3rd    step - total private costs per year (for yourself and perhaps family)

3.1
x,xxx.xx  $ (€) annually … for … rent / mortgage payments
(including additional costs, renovation costs, electricity bill, etc. )

3.2
x,xxx.xx  $ (€) annually … for … daily expenses
(All those day-day things like food, entertainment, life...,  etc. )

3.3
x,xxx.xx  $ (€) annually … for … longtime expenses
(Car, Motorbike, Clothes, ...,  etc. )


3.4
x,xxx.xx  $ (€) annually … for … communication
(Landline-, Mobile Phone, Telephone, Internet,, etc.)

3.5
x,xxx.xx  $ (€) annually … for … fees
(Legal, insurance, etc. )

3.6
x,xxx.xx  $ (€) annually … for … holidays and vacations
(…, etc. )

3.7
x,xxx.xx  $ (€) annually … for … insurance
(health, inability to practise one’s profession, house and contents insurance,  etc. )

3.8
x,xxx.xx  $ (€) annually … for … pension, disability pension and insurance
(…,  etc. )

3.9
x,xxx.xx  $ (€) annually … for … different other things
(For all those costs that don't fit under any other heading or I might have forgotten ;-) ,  etc. )




Remember, as mentioned before, your hourly rate should always take into account factors like market demand, industry standards, skill level and experience.

When all is said and done you have to keep that in mind, the aim of the business is making a profit, because you do it for living and your family, to pay bills and one or two things that make fun.
On the one hand you should know what is your ‘ideal hourly rate’ and in any case your 'break-even hourly rate'.
If you can't beat certain competitors on price then quality of service and the personal touch to your clients will often make the difference.
BUT on the other hand you should know for what kind of business you will never work …
e.g. for ethical reasons 
( I declined several times projects offers regarding investment funds - The aim of these projects  had been to support and to promote hedge funds or short sale funds* and funds that deal with basic foods and drinking water.)


A business that makes nothing but money is a poor business!
Henry Ford

‘A man may be born a jackass; but it is his business if he makes himself a double one!‘
Martin H. Fischer

PS: short sale funds* = in Germany better known  as ‘Leerverk√§ufe’ or ‘Blankoverk√§ufe’




Form my German Colleagues I have a Link to a real good Day Rate Calculator:
(only available in German)




The http://bdg-designer.de/ developed a day rate Calculator.




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