Courtesy Weather Underground
Independent work. It seems like everybody’s doing it these days, and the numbers back that up.
According to a recent study by The McKinsey Global Institute (MGI), the total number of Americans who work is about 175 million. Of those, 68 million – or 38% - already do their own hustle. And that number is rising quickly.
Although it looks different for different folks (see graphic), gigging on the rise. In fact, Manpower Group found that, globally, about 87 percent of workers are open to the idea of doing contract work on some level, with many citing better work/life balance as a key reason.
Then there’s the money. In 2018, the number of U.S. independents earning more than $100k reached 3.2 million, according to MBO Partners.
And that’s where it gets sticky for most of us. We know we’ve got the skills. Many of us even have some connections to get us started. But do we know what to charge for our services – and are we willing to ask for it?
Despite what the headlines are telling us these days, real U.S. wages are not keeping up. The other side of the 2.9 percent growth widely reported last December is the less-touted 2.8 percent growth in the CPI (cost of living index). This is what my grandad used to call “a wash.”
Both these numbers are compiled by the Bureau of Labor Statistics, who also reported in mid-February 2019 that “real” wages (gross wages adjusted by increase or decrease in the average work week) rose a “real” total of 1.9 percent in the 12-month period ending January 31, 2019. And that’s what my grandad used to call “a losing hand.”
THE MATH: A worker making $48,000 in 2018 saw a $17.50 increase in their GROSS weekly pay, or about $14 net. That’s your wage growth, mid-level workers. Let’s get some fast food to celebrate!
Do you hear that? It’s the sound of a coffin nail on the bygone notion of the W2-only income.
Mining for gold
While the idea of flying solo feels empowering, real wage stagnation is a big reason so many of us are striking out on our own, whether to supplement or to replace our current incomes. But working for one’s self is a lot of… well, work. And to make it worth it, there needs to be sufficient opportunity.
Opportunity for freelancers comes in two basic forms: the amount of available work and the amount of potential reward. It’s that simple. To make it worth the effort, there must be alignment. In other words, the money has to be there.
According to Captain Obvious, the best way to get paid is to charge what you’re worth. But most of us, at least when we’re starting out, undervalue ourselves by up to half. We’re too willing to negotiate down because we’re afraid we’ll lose the work. Which we might, but we might also lose the riffraff. Clients unwilling to pay market rate for your services are not your friends.
My story is like so many others. I knew I wanted to reach my incomes and lifestyle goals with 20-25 billable hours per week. But I set my rates in a naïve way – by doing general calculations about my overall monthly costs (adding 50% and dividing by 20).
I know, right? It sounds good. But what I failed to account for was that I was effectively setting an earning ceiling that would be hard to break through later. Also, I’m blessed with low overhead, but I didn’t build in room to increase it at some point in the future. Like if I hit a lull in my workload and needed to live off savings temporarily.
Reach for the sky
My new work was more complex and required skills that were in high demand. I was elated to be picking up clients so quickly, but as the checks started rolling in, I realized too late it wouldn’t be enough. I started getting a little sweaty. But a friend who had once been in the same boat convinced me to set a more thoughtful rate and put it out there to new prospects. At worst, he reasoned, I’d lose a few and figure out where I needed to be. Gulp. Okay.
He was right. I met few objections and eventually was able to bump most of my existing clients to the new rate over time. True story: a new client told me I was chosen over a similar candidate because I charged more. They figured I must be worth more. They were right, of course.
Let math rule
In short, you must get paid. It’s crucial to calculate your worth in your advantage.
There’s an excellent article on the Freelancers Union website to get you started. Author Lindsay Van Thoen lays out 11 factors to consider in calculating your hourly rate, which boils down to a simple formula:
(Annual salary + annual expenses + annual profit)
÷ annual billable work hours
= your basic hourly rate
Van Thoen guides readers through figuring out how to charge – hourly, daily or per project. She offers the pros and cons of each. Finally, she offers these valuable price-setting guidelines:
- Learn the benchmark rates in your industry.
- Talk to the pros.
- Research your client before setting a price.
- When possible, get a clear budget and scope range before you crunch your numbers.
In reading for this post, I came across several other articles I thought offered great insights. Check out a few if you can, and let’s start a conversation. Do you feel you get paid what you’re worth? What do you think is holding you back?
Fast Company, Suzan Bond. “The Four Most Common Excuses for Underpricing Your Work”
Cashsmarter.com, Aaron Crowe. “How to Set Rates as a Freelancer”
Comstock’s, Cherise Henry. “Freelance Life: 4 Tips for Setting Your Rates”
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