The Way We Work: Recent Episodes

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Todays episode covers two different, but related issues. The first is small batch vs. large batch services and products, and then I go on to give a rough estimate of how much you might need to charge as a freelancer compared to working a full-time job.

I realized after listening to this episode, that the connection may not be all that clear between these two topics, but, the type of work you do, the clients you server, weather they are small or large, doesn’t really matter in the end, you just need to approach each differently so that at the end of the day, you can still pay your bills.

If you're a freelancer, it's quite likely that you aren't making as much as you would, just working a full-time job. Considering all the hard work you put in, you should be making a lot more than that, after all, you work hard at what you do.

I've been there, and many of us have been there at some point. So, if the market demands logos for 5 to 50 Dollars on platforms like Fiverr, then how are other agencies, and even freelancers, able to charge 10, 100, 200 thousand dollars when designing a brand identity for a client?

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Welcome to the Way We Work podcast. The show that explores alternative ways of working and the effects technology is having on the way we work. My name’s Steedan Crowe and in each episode, I’m going to explore a topic related to the changing workplaces around us, how to deal with new distractions like open office spaces, and how to navigate new working arrangements like freelance, contract, or work share.

– Pricing is hard

Even if you've spent years working as a freelancer, you are probably still wrestling with how much to charge for the work you do; whether that's how much to quote for a specific job, or what your hourly rate should be. This really isn't surprising, most well established agencies I've worked at struggle with the same thing. There are so many external and internal factors to consider, and after all, the market is also trying to dictate what you charge. This is especially challenging as a freelancer. If you’re new to it, then possibly all you’ve experienced before is coming to work for someone else and getting a paycheque every two weeks. Maybe you get a raise every year, and maybe, if you’re lucky, you can move to a higher paying salary at another company when you have more experience.

– Taxes

Minimum wage where I am right now is $14 an hour, and because we have a decent income tax program for those below a certain tax bracket, you may not even have to pay taxes on what you make. But, it’s a whole different world of tax pain for those making a mid-level salary or for self-employed freelancers pretty much regardless of where you live. That’s because, even if you didn’t have to pay taxes on what you made before, your employer still had to pay a tax on what they were paying you. When you take over that responsibility as a freelancer, you now have to pay both portions of those taxes. And… because you now have to make more money to make up for that extra tax, what might have been tax-free income before, isn’t, because you’re now in a higher tax bracket.

– The market rate

Earlier I mentioned the market dictating what you should get paid. This is known as the “market rate”. So what is the Market Rate for the products or services you’re offering? It will depend on where you live, where you are selling your services or products, and what those services or products are, obviously. To some extent, the market rate matters, and you may get stuck charging it, but the market is terrible at estimating the value of service based work or products. If you could buy artisanal, hand made pottery pieces at Wall-Mart for $10, I don't think anyone would complain about the low low prices. And more importantly, would anyone fight for the artist's rights, because surely art should be valued more than that, and the artist should be properly compensated for their hard work and talent. Would the artist even address how little they’re being paid? Or would they think the solution is to make more pottery? If that was the only place to sell their wears, do they really even have a choice?

— Thinking Beyond The market rate

The market rate for toothpaste where I live is about $3.00 a tube, but what if you make natural, organic toothpaste in small batches and in a custom, compostable, environmentally friendly package (or reusable jar)? What is the market rate for a product like that?

Why would anyone pay so much for handmade, artisanal toothpaste when they can buy it from a pharmacy for a fraction of the cost? They may even have the same ingredients, toothpaste is a pretty simple thing to make. Baking soda, coconut oil, and some form of sweetener, or essential oil is all you really need. Most people can make it at home in just a few minutes. Then why does a small mason jar of toothpaste cost $10 or $20 plus shipping on Etsy instead of the $3 I could pay at the pharmacy? It’s not like the ingredients are even that expensive. The simple answer is, the perceived value of the handmade toothpaste, is higher than the store bought toothpaste. To some people.

Maybe the problem isn't the market, maybe you're just looking at the wrong market. There is a market for $3 toothpaste, and there are big players who sell in that space. There is also a market for $20 toothpaste, or even $50 toothpaste. Both require different strategies, but if you're the small independent producer, the $50 market is a lot easier to sell to, because you need to produce a lot less volume at $50 than you would to make it work at $3.

Another thought is this. If the market can't accurately tell you how much you should charge, maybe 'you' should be in control of the narrative. It's a story we tell ourselves and others about what our time or product is worth, how good we are, and what people would be willing to pay for our service or product. That doesn't mean you'll be able to charge $1,000 for toothpaste just because you tell yourself and others that you make the best toothpaste in the world. But if you do enough to separate yourself from the rest of the market, there's a chance you might be able to make that work. And at $1,000 a jar, you'd have to sell 1/50th as much toothpaste as the person selling it at $20, to make the same amount of money.

If there are no small batch producers in your market, sometimes, you can look to other markets to get an idea of what other people are charging.... this doesn't mean it's what you should charge, but it's a starting point. Take for instance outerwear. You can purchase a jacket at a box store for $50, or you can get a fancy brand name for $500, and If you really want, you can get a custom jacket made for thousands of dollars.

I believe we should all be getting paid more for what we do, and I truly hope we are headed to a place in society where people are valued for the work they do. Right now, it seems like there are outliers, people who are paid an extreme amount for what they offer, but as more people switch to freelancing, and as the market fractures into smaller niches, there is more opportunity to capture a higher valued portion of those micro markets.

— High value and low value clients

You might ask, “how this is sustainable? No one can afford to pay thousands of dollars for every little thing they buy.” But it works, because we are all highly individual in the current market, and somewhere, there is someone with different priorities than you. I would never pay more than $200 for a jacket, but clearly, there are people who see value there and are happy to pay much more. Additionally, there are mass manufacturers who are able to create less expensive products for those who want the more generic brand. There is something for everyone. Everyone that buys a $1,000 jacket isn’t a millionaire. How many people do you know who pay for top designer clothes, but save thousands a year by not owning a car so they can buy the clothes they want? We all have different priorities.

If you want to appeal to low-value clients, it’s best to focus on volume, and if you’re working for higher value clients, you will have to work harder to get each client, but you won’t need as many. We’ve talked about products, but let’s look at an example of how you can apply this to a service based industry. Plenty of people make decent money selling on Fiverr… others are overworked and underpaid. These are typically low-value jobs ranging from $5 to $100. The trick to making this work is to set a volume-based rate. So, if you’re an editor, you can appeal to the $5 client by offering more of a ‘pay as you go’ structure, editing up to 250 words for that fee, and you can appeal to the $2,000/month client by having a retainer that includes editing up to 100 pages a month.

–– Calculating an hourly rate

That’s fine, but what if you’re not an editor.

Thankfully, I have a simple formula for calculating roughly how much to charge in any service based industry.

As a freelancer, the general rule of thumb is that 50% of the hours you work will be billable. Based on a 40 hour work week, that’s 20 hours of billable time. What are freelancers doing the rest of the time? They’re out looking for new clients, making connections within the business world, working on their business by improving processes, their website, their marketing.

If you have a full-time job working for a large company, at least in Canada, and the U.S., you’re typically getting paid for 40 hours a week of work. You're also likely getting at least 2 to 4 weeks of paid vacation and at least 1/2 hour of paid breaks per day. If you’re fortunate, you may receive medical benefits. This is, of course, an ideal scenario, and I will use this scenario as a metric because there are so many situations and your desired quality of life and income may vary greatly.

So, let’s assume at your paid job you make $25/hour. That’s roughly $52000 a year. Many people would say you need to make twice that per year when freelancing, and that’s pretty accurate. But why is that? We need to take into account things like business expenses, additional taxes, marketing expenses, vacation, and slow months with little work. During those slow months, you’ll hopefully spend a lot of time self-promoting, engaging on social media, writing up new proposals and building better systems for your business, even though you have very little income coming in. You still need to get paid for this time.

Let’s assign benefits a yearly rate of $7,000 (although buying your own health insurance, depending on where you live, can be quite expensive). So, 52,000 a year, plus 7k for benefits(That’s very conservative), another $2,000 for matched 401k, 4k for vacation. We’re at 65,000/year. Add 10% for operating expenses (7,500) and 10% for marketing for a total of 20% bringing us to 78,000. For those lean months and other unforeseen business expenses, additional taxes (since you’re now in a higher tax bracket) and sickness, I suggest adding 25% to the calculated rate above. $97,500 a year. That’s how much you have to bring in freelancing, nearly twice as much as working a salary job. And remember, you’re only working 20 hours a week for a maximum of 50 weeks a year since you’ll take at least 2 weeks vacation.

That means, to compare to a $25/hour job, you’d have to charge: $97.50/hour as a freelancer to compensate for the extra expenses, and lack of stability. That’s your break-even mark and gives you the ability to save some additional money for slow times and hiring help when you may need it.

There are more conservative calculations that will see you making $50 or $75/hour equivalent, but I prefer to err on the side of caution. You may be able to bill for 30 hours a week, but it’s been my experience that at some point, your work will dry up because you haven’t been spending enough time working on your business, and you’ve only been working in your business. Unless of course, you work 70 hours a week… but, then, why are you freelancing to begin with?

— Why I freelance

I have freelanced and worked remotely for years because of the Flexibility it gave me in the day to day of work and life. I struggled for a long time, working 60 or 80 hour work weeks because I treated my ‘business’ as a job and didn’t appreciate the amount of time required to work ‘on’ the business. Eventually, I figured this out, and started charging an equivalent of $150/hour on all of my projects. This gave me a lot more flexibility, and if I needed to, I could work far fewer hours a week, giving me far greater flexibility.

A couple of years ago, I found that flexibility extremely helpful when my wife and I couldn’t find daycare for our son. I was able to drop our son off and pick him up from school while still freelancing and working from home while my wife worked a 9to5. Eventually, my wife and I started thinking about having more kids, so I started looking for a 'stabler' full-time job and I ended up working at a couple of agencies before I landed where I am now. No matter how you slice it, working a 9to5 doesn’t have the same flexibility as freelancing, but it doesn’t have to be all or nothing. I’ve managed to find a role for a marketing agency that affords me quite a bit of autonomy.

If you have kids, health concerns, are continuing your education, scheduling around a second job, looking after aging parents; then there are different ways to have the flexibility you need to fit work around your life. It doesn't have to be a zero-sum game.

— Other solutions to work/life balance

Freelancing isn’t the only answer to achieving flexibility in your work/life schedule, there are other types of working arrangements that can give you the flexibility you need. Working from home full-time, or just a couple days a week could free you up enough to take a bit of the pressure off without sacrificing your full-time job.

Then, there's the freelance advantage for businesses. Over the years I've worked with a few distributed teams, I've hired Virtual Assistants from another country, and I've managed distributed development teams on software development projects. When you’re a business with people from around the world, you have more top talent to choose from. You’re not limited to the people within a 50 mile radius of your offices.

This works well if you’re freelancing as well. If you’re in India, you could work with a top agency in the UK, and get paid much more than you would be working with a local company.

One of the biggest challenges I see with the shift to freelancing, the gig economy, or what I'm calling the 'flex economy', is the risk of being taken advantage of. Sometimes companies or individuals don't see your worth or value you for your contributions. Historically, freelancers and those with alternative contracts aren’t afforded the same protection by governing bodies such as the Employment Standards Act. This is why it’s so important to know what you need to charge to make an equivalent salary freelancing vs. Working a salary job.

The old guard of 9to5 workers is changing, and understandably so. Businesses have the same challenges we do with meeting financial targets in this increasingly challenging economy. Pretty much regardless of where you live, you've probably seen food and housing prices skyrocket over the past few years, while your wages are still so 'ten years ago'. Even as a freelancer, I've seen a decline in clients willing to pay what I need to charge to make a living. You can structure your services and products in such a way that you have something for low value and high-value clients, or you can focus strictly on one or the other.

— Conclusion

The important thing is to go into this with an understanding of what your objectives are, and what you need to make ends meet. You may be able to make significantly less, working fewer hours. You may want to have more time to work on some product offerings such as courses, a book, educational resources and tools to help offset your hourly income.

In the next episode, I’ll talk about Value-based pricing, and discuss how you can apply that strategy to the work you’re doing now, making even more money. What I discussed earlier would be the minimum income you need to make to replace a 9to5. I trust you’ve done the math for your own situation. But what if you could make even more money, without gouging your clients, but instead, being even fairer to them and yourself with value-based pricing? It’s a win/win situation.

As we go through this podcast series, I want to talk more about how you can find freelance work, how you can maximize your efficiency when dealing with different clients that have different needs. How you can stay focussed, how much you should charge, along with many other helpful conversations. So stay tuned for future episodes, subscribe in your favourite podcast player, and visit thework.show to find the show-notes from this episode.

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Welcome to the Way We Work podcast. The show that explores alternative ways of working and the effects technology is having on the way we work. My name’s Steedan Crowe and in each episode, I’m going to explore a topic related to the changing workplaces around us, how to deal with new distractions like open office spaces, and how to navigate new working arrangements like freelance, contract, or work share. There's so much we can talk about, so let's get into our first episode.

The way we work continues to change rapidly. You're working with different technology today, than you would have 10 years ago. Team messaging systems like Slack have infiltrated even the most traditional of office spaces in the just the last few years, and email is a never-ending task on your todo list. Many of us have to be tethered to our phone, even when we’re not at the office. 

Cell phones are great, but being on call 24/7 takes a toll, and the sorts of things I see happening in many work places, are just promoting burn out, depression, and anxiety. 

With all of this new technology supposedly making our lives better, somehow, some of us still have to deal with fax machines and carbon copies, but it seems that sometimes our biggest challenge is just getting work done. There are all sorts of strategies to manage your work, like Inbox 0, the pomodoro technique, or 43 folders to name a few. But is that the solution, or is it just bandaid for an even bigger shift that’s happening?

The world around us is changing, faster in some ways than others, and we have to change with it. Even the way we work, the contracts we are bound by, are changing too. By the year 2020, it is estimated that 50% of US workers will be freelancers, and that number is expected to continue rising. Using new software in the office is one thing, but how do we adapt to a whole new definition of employment?

I’ve been freelancing for 17 years, I started before it was really even a thing, I didn’t even know what it was called. I was 14 or 15 years old, and it was the easiest way for me to start working, especially as a creative person. Over the years, I’ve also hired and managed other freelancers. I’m not an expert, but I’ve had to deal with a lot of issues as a freelancer over the years. I’ll probably end up covering a lot of different subjects in this podcast series, but the thing I keep coming back to, is Freelancing. I’ve seen so many new freelancers loose their shirt, because they don’t have a clue where to start. And if I can help even just a few people avoid the mistakes I’ve made, then I’d say this podcast is a success. 

So what’s one of the biggest issues I see in the freelance world today? Well there are a few, and it’s hard to pick out just one, but I think most of them come down to not charging enough. 

Platforms and networks like Freelancer, UpWork, and Fiverr can seem very appealing at first, but it's easy to get lost in the noise and get caught in a race to the bottom. These platforms commoditize your skills, by allowing clients to filter and find the lowest price, from anyone, anywhere in the world. Many companies looking for talent on these platforms are specifically looking for the least expensive option. 

If you want to make a living and even flourish as a freelancer, I would suggest staying off these platforms, or at the very least, keeping your engagement to a minimum. If you keep the type of work you do on platforms like Fiverr limited to templated or systematized work, then it’s possible to structure gigs to maximize profits without working yourself to death.

But, If you're prepared to do a bit more work up front and don't feel like sitting around waiting for work to find you, then there are far better opportunities out there, just waiting for the right person to come along. You do have to work at it, but being a freelancer is like running a business, and the best freelancers treat what they do as a business.

As we go through this podcast series, I want to talk more about how you can find freelance work, how you can maximize your efficiency when dealing with different clients that have different needs. How you can stay focussed, how much you should charge, along with many other helpful conversations. So stay tuned for future episodes, subscribe in your favourite podcast player, and visit thework.show for the show-notes from this episode.