(Figure out how to fill up the freelance pig. Photo by )
If there’s one question I’m asked by web designers and developers more than any other, it’s how to figure out what to charge for a freelance project. Sure, we want to be fair to the client. But we also want to be fair to ourselves and make a reasonable profit. It’s never a happy time to finish a design or development project and realize we lost our shirt.
There are several ways web freelancers estimate projects. They can charge by the hour, by the project, by retainer, by bartering, by cost per page, or even by a percentage of sales.
The most common methods, by far, are by the hour and by the project. Retainers are less common, but certainly a method to consider for site maintenance, updates to code and designs, email marketing and other ongoing projects and tasks. Bartering is less common, but it does tend to come up, especially for startup clients that are, shall we say, budget-challenged.
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Page rates can be easy to estimate, but there’s always the real risk of scope-creep that eats into profits. That can easily happen when there’s a poorly written contract or, worse, no contract. Being paid a percentage of sales may sound attractive, particularly when the client is selling high-end (read: expensive) products or services. But that type of arrangement can come with a nagging notion in the back of one’s mind that’s difficult to police: Is the client telling the truth about sales numbers?
Winning the Freelance Estimating Game
Whether you plan to bill by the hour, project or retainer, you must know your specific hourly rate to generate accurate estimates. Not the other guy’s or gal’s. Not the going rate. Your rate.
You need to recoup the cost of your time, overhead and also make a profit. In its simplest terms, profit is the money that’s left over after paying yourself and your bills. It allows your business to grow, buy a new monitor when the one you have flickers its last, buy other needed items or put it away for a rainy day.
For many designers, billing a website design project by the hour makes a lot of sense. It’s easy and doesn’t require a lot of arithmetic. Some designers take their best guess at what others are charging or what they think the client might be willing to pay. Others simply pull a number out of the air. All are bad ideas.
You’re unique. Yup, just like every other web designer or developer out there. We all have different setups and our costs vary. Calculating your true hourly rate is a critical exercise to ensure your success and profitability. Your hourly rate should address your target salary, called a draw if you’re a sole proprietor. Sole proprietors don’t usually have a regular salary. Your rate must also account for your overhead and profit target.
Figuring your hourly rate isn’t too tough, but it does require tapping into some of that elementary school math you complained you’d never use.
The Place to Start Is You
What’s your target salary? Even if you’ll be taking a draw, it’s a good idea to have a pre-set amount you’ll draw from the business on a regular basis. It makes both your business and personal money management easier.
Be realistic when coming up with a salary number. Sure, you’re in business to make money, but shooting for a six-figure salary might not be in the cards, at least for your first few years in business. If you’re currently gainfully employed, start with a target that matches or is slightly below your current position’s salary. For the purpose of the following example calculation, I’ll use $40, 000.
Keep in mind that the figures I’m using for this example may not match what you make or what you pay for overhead in your life. But they should give you great insight into the process.
On top of your target salary or draw, you’ll need to figure in other associated costs including taxes, FICA (Social Security in the United States), insurance and more. A safe figure is 25 percent to 30 percent. I lean toward 30 percent. The math looks like this:
Salary: $40, 000
Associated costs at 30 percent of salary: $12, 000
Total: $52, 000
Next, we’ll need to know how many hours there are in a work year. I’ll save you the trouble of digging out that calculator. It’s 2, 080 hours.
If you’re like most people, you probably would like to spend a few holidays with the family and you may get a bad cold now and then and need to take a day off. Let’s factor those things into our equation.
7 legal holidays (U.S.): 56 hours (8 x 7)
2 weeks vacation: 80 hours (8 x 10)
5 sick days: 40 hours (8 x 5)
Total: 176 hours
Subtract that from the total hours and we’re left with 1, 904 billable hours. But you probably do other things around the office, such as invoicing, sales calls, surfing the internet and playing solitaire. You can’t bill for that time, so we’ll need to subtract those hours. Ideally, you’ve kept time sheets. A review of a few weeks can give you a pretty good idea how much non-billable time you average. If you haven’t kept time sheets, you’ll have to give it your best guess and make some adjustments later on when you have some documentation.
A typical target is 25 percent. For those new to web design or development freelance work, it may be as much as 50 percent. Hopefully it’s not more than that.