The Simple Math of Freelancing and Why We Complicate It: Part 2

This is the second of a two-part post.

Oh, the anticipation. We left off last week with a nail-biting cliffhanger about poor Kapil, the talented freelancer who found himself in a pickle. Although he had, if only just, achieved his financial/revenue goals in his first two years as a freelance designer:

  • He was working more hours than he’d expected, and irregular hours at that
  • He was stressed about not knowing what work was coming his way next
  • He needed more time to focus on his business, time he couldn’t find.

Kapil was burning out and was ready to give up on freelancing.

Now, as reward for your patience, I will share with you three useful lessons to be learned from this wiseguy based on making the same mistake myself, more times than I care to admit. Let’s do this.

Lesson I: Start with value

Kapil started with faulty math and a flawed, although prevalent, model. Here’s what I mean. An hourly rate can be and often is so random. We think it’s nothing more than a magic number to pick, and with little to no overhead as a freelancer, the vast majority of what comes in goes straight into the bank or your pocket, depending on your money management ways.

So why not charge a low rate, and still do great (or even better) work. In the end it all works out – win/win proposition, n’est-ce pas? Incorrect.

If you focus first on the value you bring vs. just sticking a dollar amount on what you do in one hour, you are already on the right track. As freelance talent, humans with unique skills and competencies that bring value to our clients, we exist in what’s called a fee- or value-based economy. This means we place a (premium) value on the way we work as opposed to how much it ‘costs’ for us to do what we do. The latter is considered a commoditized model where the hard costs of everything that makes up the final product or service are added up, and then bumped up in order to make money. A.K.A. mark-up or margin. This makes good sense when it comes to things like manufacturing and mass production – not creativity.

Assuming Kapil is good at what he does, and feedback from his clients and peers support this, he must increase and maintain his confidence in order to succeed – without compromise.

Starting with value, Kapil needs to shift how he thinks about his hourly rate. Putting a value to his services in exchange for something of like value. In this case, every hour Kapil works as a professional graphic designer who does excellent work is worth 40 bucks. Top of his class in design school, four years’ practical experience, and he knows his clients love his work: all of a sudden $40 isn’t much. In comparison, that’s one hour’s worth of tips in on a busy night at the pub.

“I should be charging more.” He says to himself.  Ah, there’s that confidence… let’s keep going.

Lesson II: Preserve and protect that value

Kapil has been working for four years, doing what he not only excels at, but has done for four straight years, after four years in post-secondary design school. Oh, and he loves being a designer and only wants to get better, every chance he gets. All to say the combination of the above characteristics not only start him at a high value, but likely enable his value to evolve and increase relatively quickly, taking into account multiple factors: experience, quality, speed, service, and applicable knowledge to name a few.

Yet Kapil continues to undercharge for his hours, while doing his best to deliver excellent design. Where is the logic here? This behaviour needs to stop, because it’s a slippery slope.

Back to our math books

If over the past two years, when Kapil set his rate at $40/hr, he’s increased his overall competencies by ~25% each year (a conservative number for early stages of practical application of an acquired skill) then he’s currently worth closer to $60/hr. two years from now, he would be at a value of >$80K, and that assumes his skills improve at a lesser rate for both years three and four. Go Kapil!

If over the past two years, when Kapil set his rate at $40/hr, he’s increased his overall competencies by ~25% each year (a conservative number for early stages of practical application of an acquired skill) then he’s currently worth closer to $60/hr. two years from now, he would be at a value of >$80K, and that assumes his skills improve at a lesser rate for both years three and four. Go Kapil!

Or am I being absurd? I’ve been known for worse. But here’s the reason for this whole narrative. Call it fiction if you like, but it’s not. It happens to many of us and it happens often. This wiseguy included. What you are worth as a creative professional is up to you. This quote was a game-changer for me about a decade ago:

“No one will ever pay you what you’re worth. They will only ever pay you what they think you’re worth. And you control their thinking.”

Casey Brown, Pricing Consultant.

YOU, Kapil, are the keeper of your value, and no one else.

Lesson III: Your value isn’t transparent:

Transparency is a trendy word these days in the world of business. It refers to being open about how you operate as a business, and in essence shows where a client’s or buyer’s money goes, showing where their money goes. Interesting concept, and a viable one for a cost-plus model like this formula demonstrates:

What being transparent can look like: A one-month project based on cost-plus pricing (like some agencies do)

Team: One of each Account person, PM, Designer, jr. Designer

Materials and resources $2000
Staff salaries $10K
Office/facilities rental $1000
Travel/transportation exp. $250
Misc exp. $250
Total operation cost $13500
Margin/Agency fee (~18%) $2500
Total Price $15000

The problem: When you show a breakdown of costs, the first thing you do is invite negotiation, especially when it comes to your margin.

Is that what your value is? Negotiable? I strongly suggest not.

What NOT being transparent can look like: A one-month project based on value pricing

Team: Kapil as all-in-one bang for your buck

Hourly rate 65
Number of hours (4 wks @ 35 hrs/wk) 140
Note: Rolls include Designer, PM, client service  
Total Estimate $9100

With the above comes a mutual understanding of expectations, deliverables, and any assumptions to consider; rather than breaking down his ‘costs’ which are pretty much non-trackable and none of their business. Who’s running this outfit anyway?  He states his value, which incorporates all the costs at his own discretion within one simple and justifiable rate. Kapil then applies his ever-growing expertise to propose an accurate and informed effort through total hours. Boom.

So, what does a buyer of Kapil’s service have a right to question? All of it, but in this case, and based on the art of simple math, there are only two variables: Hourly rate, and proposed effort.

So, what is actually negotiable here? In my opinion, not the rate at which you value your talent, skills and services. What’s left is your effort, based on the unit of time. If less effort is what they’re looking for, start the discussion by asking where they would like to see effort reduced.

“No problem, you just let me know what you want taken out and I’ll gladly adjust my estimate accordingly.”

They may, and have the right to, ask about changing your rate. For a variety of reasons:

  • They know others that charge less
    • Simply ask why they’re not contacting them instead of you.
    • See what they say, and remember, you can find another client willing to pay that amount, you know you can. You know your value.
    • If it starts to feel like a game, it probably is.
    • “Choose not to play.”
  • They don’t have the money, but they really need it done
    • Why are you still talking to them?
    • Seriously. Thank them for their time and walk away.
    • “No money. No candy.”
  • They’ve got lots of work to give you, or they can connect to more work
    • Although it’s not a typical thing you do, welcome further discussion on details of their so-called ‘offer’
    • Once you have clarity on any future commitments, you’ll gladly consider discounting accordingly
    • “Show me da money!”

Final tip: Your value is a number that’s hard to change. Seriously, as an individual working for and by yourself, it’s virtually impossible without a lot of conversations, marketing efforts, and new-found clients. All efforts, you are NOT getting paid for. Make your rate the one thing you will NOT negotiate, with yourself at the very least. Play around with the efforts, shave off or buffer time accordingly, and always manage expectations from the get-go. This is the kind of control you, and Kapil, need to avoid the pitfalls of feeling unappreciated.

There it is, people. The answer to all our problems as freelancers…

Well it at least it gets Kapil, and hopefully you, thinking differently about how to make the most of your unique and marketable talent. When it comes to making your living it’s no simple task, but learning from your mistakes, and those of others, are just one of a number of ways to appreciate your value beyond just putting a number beside the ‘hourly rate’ field.

Value first. Value always.

Be careful out there!

Until next time,

SP Wiseguy

Share your thoughts

%d bloggers like this: