Why Freelancers Shouldn’t Charge By The Hour
In this article, I’ll tell you why freelancers shouldn’t charge by the hour, and why you should all say “No” to freelancer hourly rates.
Charging by the hour is not a good idea for a freelancer. However, you should be able to determine your hourly rate for internal purposes. After all, you need to know how much you need to charge per project to cover your living expenses as well as your business costs.
So let’s start with a simple calculation.
A Simple Hourly Rate Calculator
Here’s a simple hourly rate calculator that works at a basic level.
Simply take the figure you want to earn yearly and divide it by 2000.
Or, to find out how to figure out your hourly rate to get a year’s salary, multiply it by 2000.
You use the figure 2000 because it’s 50 weeks at 40 hours a week, and because 2000 is an easy number. If you only want to work 20 hours a week or for 40 weeks a year then you use 1000 or 1600 as your figure.
That’ll help you calculate your hourly rate figure.
But…
Here are some other factors for freelance billing calculations:
- You’re going to spend half your time on non-billable work. Marketing, admin, customer service and the like.
- It’s important to be aware of tax. Not only the brackets and tax payable, but also when it has to be paid and the painful process of dealing with the tax office
- You also need to be aware that you don’t get paid as you’re doing the work. Sometimes you’ll get paid immediately. Sometimes helpful clients will give you money in advance and sometimes you’ll never get your money. Perks of the job.
With those things stated… there hourly rate calculations are just for your internal use.
For instance, we’ll say you want to earn £100,000 a year.
Divide that figure by 2000 and you’ll get a figure of £50 an hour. That’s your base figure.
But you need to double that because only half the hours you work are going to be billable. We’ll forget tax and bad debt because otherwise we’ll be here all day.
So, double it and you’ve got a figure of £100 an hour.
Why Charging Freelancer Hourly Rates Are A Bad Idea
I wrote last year in “5 Charging Mistakes Freelancers Make” that hourly charging was a bad idea. I’ll elaborate here.
As a freelancer, self-employed person or business owner, the ultimate guage of your success will be the quality of the work you do. Charging hourly is a way to decrease your success in both directions:
- A client is billed hourly. You are expected to rush and decrease quality
- A client is billed hourly. You are tempted to stretch the work out and decrease the quality
Understand that any work for a client is a negotiation. They want you to do as much work as you can in as little time as possible and for as little money as possible. Your job is to weigh those factors against a) the work you can achieve for them during the project, and b) your reputation.
There’s very little point in doing a quick, cheap job for a client if it means you burn your reputation – and all other people will look at is the quality of your work.
Also, as regards hourly billing as a freelance writer (or any other similar freelancer) they aren’t paying you for the hours you spend. They aren’t paying you for the effort.
They’re paying for an end result. Charging hourly goes against that.
If somebody could make me a millionaire and they charged me £10,000, then I don’t care if they only take five minutes to do the job. I’m still a millionaire at the end of it and have gotten a massive return on my investment.
Also, Not All Clients Are Equal, And Neither Is All The Work You’ll Do
Some work is tedious. Other work is easy. Some work is easy but takes time and some work is difficult but quick. Those things should not be charged equally.
Some clients are massive and you’ll only get one or two jobs from them a year. Some clients will give you regular work that keeps your lights on in the meantime. These things should not be charged equally.
Some work is very taxing. Some work isn’t. As an example from my own work; some sales letters take days of research and then days more to write.
Now, you might think, “Yeah but charging hourly is good in that case, because you get more hours for harder work!”
Not necessarily. See, with difficult projects, often the breakthroughs come when you’re not working. Or you might work 9-5 but the fact that you haven’t had the big idea will keep you up all night turning the problem over in your head.
It’s very difficult to send an invoice to a client that charges 100 hours a week and includes “having an idea whilst on the toilet at 3am.” Most companies are going to query that.
This is all very different to when someone says, “Hey… can you write an email to our list that’s 500 words long and sells a simple add-on to our main product?”
Finally, You Charge By Potential
Add this to a list of Jamie McSloy fails…
You shouldn’t charge a per hour rate for anything, but this is especially true of stuff that’ll make people a ton of money.
Let’s say you’re offering consulting and you charge £50 an hour. That’s well and good when someone says, “Hey… can I have an hour’s consultation” and you discuss their niche site articles and how they can increase conversions. Maybe they’ll switch stuff around and they’ll start making a few hundred or more a month. Your £50 is well worth it and great value.
But let’s say someone says, “Hey… can I have an hours’ consultation” and you plan them a sales funnel in that hour and that makes them $80,000 a year forever.
It makes no sense for you to do this, because you’re robbing yourself. Whilst on the surface it seems like the client is getting a great deal, you’re robbing them too.
Why?
Because they can pay £50 and get a rough idea that they’ll implement and it can make them that huge money.
But if you spent five hours on it and charged £2000 as opposed to £250, you’d both get a better deal. If you added in royalties on that, it would be even better for all parties.
They might have paid you more, but the quality goes up massively because you both have more incentive for it all to work.
The ultimate goal of any business-to-business contract is to create the best end result. The above is how you explain this to clients and to yourself. Hourly rates are the opposite of conducive to this goal for both parties in any case.