Hourly Rates: You Charge How Much??!!

Imagine you’re a writer or consultant at a first interview with a prospective client, when the discussion finally turns to money. You state your hourly rate. Judging by the “you’ve got to be kidding” look you get, it hasn’t gone over well.

So, what happened here? You know that your quote was fair, because you know what others in your field charge in your geographic region, and you’re in line with that. Besides, you have clients who have paid that without blinking.

From the client’s side, there may be a few reasons that their expectations seem a little offside:

·         Their industry pays workers at the low end due to narrow margins

·         For any number of reasons, the company is struggling (in which case, you may want to run far away!)

·         The company is located in a less-affluent region than the one you normally work in

·         The person who interviewed you is uninformed about outsourcing

Let’s touch on the last point. The interviewer is aware that they pay their employees, say, $20 per hour at the top end. You quoted $45, so where do you get the nerve to charge over twice as much as they pay their top employees?

Perhaps the best way to overcome the objection is to provide the prospect with a breakdown.  As a self-employed person, nobody is paying for your health, drug, life, dental or unemployment insurance.  In total, these benefits can easily cost the employer in excess of 30% of salary, or the equivalent of $6 an hour for the employee getting $20 per hour. Nobody pays you for 2 weeks’ vacation per year, either. So add another 4% or 80 cents an hour that the employer is paying for unproductive time. Depending on the jurisdiction, the employer may also have to contribute to a government pension plan to the tune of 5%, or $1 an hour in this case. Add government workplace insurance premiums at 3%, where applicable, and the actual cost to the employer is $28.40 per hour.

Consider that there will be some downtime in freelance work, through no fault of your own. You may spend 20 percent of your time doing marketing and bookkeeping functions, and may only be able to book enough work for 85 percent of the remaining 80 percent of available time. This means that only 68 percent of the available hours in the year are billable.

If you wanted to have the same disposable income as that top employee, you would have to charge $28.40/0.68 or $41.76 per hour.  But you’ve gained experience in your field that a multi-tasked employee wouldn’t possess. Would you work on average for $20 per hour?  Probably not, so at $45 an hour, you’re really only asking for $2 to $3 per hour extra for your expertise.

Remind them too that you are a contractor, so breaking ties with you carries no financial burden. The same can’t be said for dismissal of a long-term employee when business goes sour.

You can argue with my math, but it gives you some ammunition when you hit an objection. Maybe the interviewer doesn’t care that you can only bill for 68 percent of your working hours. Also, if the market in the client’s region or industry is tough, you should be ready to compromise. Research what others in the area are quoting and adjust accordingly if you really need (or like) the work.