Many people struggle with this question. Some just try to make as much as a full-time employee makes (and ignore that they won't be able to bill as many days). Others follow tips on startup related websites that suggest to ask for 20% to 50% more than an salary would yield (and ignore the additional risk and expenses they have).
Below you will find some numbers to help you calculate how high your hourly or daily rate should be.
- You take more risk than full time employees, phases without income are likely
- You are (should be) more experienced, more productive than the average fte
- You are flexible, will usually only be hired for a short timeframe
- You need savings for retirement (in many countries freelancers don't pay into public pension fonds)
The following numbers are rather low estimates. If you have a family, if you want to buy a house, if you want to save for retirement, if you want to have a better life... just add more as you see fit.
- costs for living (rent, food, clothing, sport, entertainment...) ............. 2000 €
- unforeseen investments (broken washing maching, car crashed...) ..... 500 €
- savings (holidays, new car, school fees...) ............................................ 500 €
==> 3000 € as a minimum net income
While the companies cover the costs for their employees, as a freelance you will have to pay the bills yourself. You will need to buy your own equipment, pay for an office space, pay for the internet connection, pay for commute or traveling, pay for professional trainings, pay for license fees and so on. Also you need to insure yourself.
- costs for working ... 1000 €
- social insurances .... 500 €
==> 1500 € as a low estimate on work related expenses per month
52 weeks per year
- -> 260 working days (-weekends)
- -> 245 working days (-holidays)
- -> 220 working days (-vacations)
- -> 210 working days (-sick days)
- -> 204 working days (-trainings)
==> 17 working days per month
You have to manage your work live (accountancy, ...) and you will have phases of acquisitions between jobs. Let's estimate low and only substract 20%, this leaves us with
==> 13.6 billable working days per month
Why do you need a profit, if you can pay yourself a nice salary already?
You need to build some reserve funds for the times when you can not acquire a new job. You don't earn a salary that will get paid monthly. But you will have bills to pay every month - or a family to provide for.
==> 15% as our goal for profit.
As we started out with a desired net income, we have to factor the taxes in.
The turnover taxes we invoice (and pay) can be ignored as they factor themselves out and are being paid to the state at the end. This leaves us with the income tax. Most probably we will end up in a higher tax bracket. We will use a rough estimation, your real tax rate might vary.
==> 30% of taxes we have to pay on our revenue.
Our estimated (minimum) daily rate should be =>
- 3000 € minimum net income
- (+) 1500 € work related expenses
- (*) 15% profit
- (*) 1.4 (for 30%) taxes
- (/) 13.6 days
==> 523.72 €/day
This results in a (minimum) hourly rate of (523.72 € / 8h) =====> 66.59 €/h <=====
If you would work our estimated 13.6 days per month for 523 € and would do so 12 months in a year, you would bill just over 86,940 € per year.
That sounds nice. But from this money you will have to pay all your work expenses (equipment, licenses, travel costs, office rent... around 12,000 €) and social insurances (around 6000 €) and taxes (around 30%). This would leave you with a just around 48,258 € income in a year, or 4021 € per month.
4012 € are a nice income, but nothing to make you rich. Remember this includes your reserve funds to cover for months without a contract.
Don't worry too much. The companies are used to pay 500 € - 1000 € per day for externals. Some 'consultants' are even asking for twice that much.
Employees cost the companies easily 50% more than just their salary. And they get payed 365 days per year (no matter if needed, sick or on holidays), while you will work on a flexible per contract basis.
Don't compare yourself or compete with the freelancers that ask for dumping prices. Explain to the client which benefits you bring to the table.
Obviously your clients will expect you to be productive from the first day on. And they can also expect you to bill them only the hours in which you did productive work - or in which you spend time in meetings in their office.
I hope you now have a better idea how to calculate your hourly rate. If you ask for less than 60 €/h you are doing yourself no favor - but the companies that hire you.
If you ask for significantly less, you might consider becoming an employee again. You might earn more and you will have more security.
Inspiration and calculation examples are taken from this article (german): - in which 77.39 € per hour are suggested as a minimum (for freelancers in Germany). I rounded some numbers a bit more and might have left out some details. At the end this is just a guide to help you calculate your daily rate.
by Andreas Finger @mediafinger