Mary Mulvihill

If you are new to freelancing, or to hiring “consultants”, then you may be wondering how much to charge/how much to pay.

Well, here’s a simple calculation that I’ve found very useful over the years — both to educate colleagues who are starting to work for themselves, and commercial clients who are new to out-sourcing. (And especially employers “aghast” to discover what some people charge for a day’s work!)

The question for employers is: how much they’d have to charge for a day’s work, in order to earn their current salary. Conversely, the question for a freelance worker is: how much they’d like to earn in a year, and therefore how much they should charge for a day.

Either way, the starting point is the desired annual salary. So, pick a number — you don’t have to tell me what it is!

Next, add 30%. This is to cover overheads — everything which your employer currently provides, or which you will have to provide if you’re self-employed — from rent and stationery supplies to a computer, heat and lighting, IT support and training. . . . (If you will be working on-site for your clients, and they take care of all overheads, then this 30% doesn’t apply, although you should probably allow perhaps 5%, as you will still have some costs as a self-employed person.)

This 1.3 x salary is your target turnover for the year.

Next, divide this by the number of days you expect to be able to charge for your time.

This is often hard to judge, especially these days, and also varies from year to year.

Bear in mind: days off sick and on annual leave, and other days you won’t be productively earning, whether because you are doing your tax return or a training course, or having trouble getting motivated . . . which happens to most freelances at some time

So here’s the calculation: 1.3 x salary/n days where n could be as few as 15 a year, and unlikely to be more than 150.

For example, let’s say you want to end up with a salary of €50,000, and might hope to charge for two days a week, over 40 weeks of the year, or 80 days in all.  Plug those numbers in to the equation . . . and you need to charge: €812.50 per day (plus VAT of course!).  Or let’s say, you expect to earn about €10,000 from bits and pieces,and reckon you could get 20 days consultancy work in the year — well, then, you might have to charge about €2,000 per day.

Or, let’s say you are comfortably employed on a salary of €80,000.  Were you to go freelance, and presuming you could charge a consultancy rate for 80 days in the year, you’d need to charge €1,300 per day to earn the same salary.

BUT these daily rates are probably the minimum — most freelances I know spent the bulk of their time on less well-paid piece work, which means that they need to charge even more for a day’s work when they can, in order to earn a reasonable income.

Either way — and this really is my key point — the daily rate is significantly higher than most people realise or anticipate ( that’s especially true of people on comfortable salaries!.

An alternative and more ‘bottom up’ calculation is to set a target daily rate, and then calculate the number of days work needed to reach your target turnover.

For example, if you plan to charge €200 per day then, apart from allowing yourself 20 days holidays in the year (bank holidays included!), you will need to be sure of getting work for literally every working day in order to hit a gross turnover of €47,000.  And if you’re paying your own overheads, that translates into a net salary of €36,000.

Remember too, if you’re working in a specialist field, you need to allow some time each week just to stay on top of your field — time you can’t directly charge clients for, although it would be reflected in a higher daily rate.

So, there you have it.  I find this most useful when explaining to would-be clients, who haven’t hired freelance specialists before and are “aghast” to hear what the going rate is, but who clearly have no idea what their own daily rate would be.

At the end of the day, it’s all about valuing time — yours, and other people’s. And if you don’t value your time when you charge for it, no one else will. Plus, time is the only resource that’s not renewable, so it’s well worth valuing it properly.

Out of curiosity, I’d be interested to hear from other freelances how many days a year, on average, they get to charge a consultancy rate (if you want to, let me know anonymously, using the comment facility below, and I’ll update the data).