The reason so many self-employed freelancers are knackered!

Recently, we were helping a newly self-employed freelancer work out his price for a quote he was asked to do. He thought the quote should be for £135 per day, but we worked it out at £294. Big difference!

What had he missed?

Our freelancer had calculated the quote using his most recent salary divided by:

52 weeks, to get his weekly rate, or
260 days (52 weeks x 5 days), to get his daily rate.

When he was employed, though, he was getting paid for 40 days’ holiday per year — something he no longer gets now self-employed! So, if he wants to keep this amount of holiday as a freelancer, he needs to base his calculations on working for 44 weeks of the year rather than 52.

Also, now he is self-employed, he has added admin to do – creating quotes, keeping his accounts up to date 😉 and meeting with prospects, for instance. (As an employee he used to be paid for answering emails, chatting to colleagues and doing research as well!) To help us calculate his daily rate, then, we assumed he’d need an average of one day a week for admin on each of the 44 weeks he’d be working.

So, to continue taking 40 days (8 weeks) of holidays per year, working 4 days a week on billable work (and one day a week on non-billable work), his new daily rate (rounded up) is £294. He’d got £135.

The sums in detail…

His basis for calculating the quote…

£35,000 annual salary divided by 260 days = £134.62 per day

Our way of calculating the quote…

1️⃣ First, we have to gross up his previous £35,000 annual salary with paid holidays to get his new ‘salary’ with unpaid holidays and unpaid admin days:

➡ £35,000 salary divided by 176 days (260, less 40 days holidays, less a further 44 days for admin), multiplied by 260 days = £51,704.54

2️⃣ Then, we work out the daily rate based on billable availability:

➡ £51,704.54 salary divided by 176 days = £293.77 per day

Why is this important?

The self-employed freelancer’s way would have him working 5 days a week on client work, with no holidays in the year, and having to do admin in the evening or weekends. Sadly, many self-employed people are in this situation because they didn’t calculate their daily charge-out price correctly.

Newly-armed with this information, he now knows if he charges less than £294 he will be cutting into either his admin time or his holidays. These are both options, especially if he gets efficient at quotes or is happy to have fewer holidays. At least using our method, he’s fully informed of what he’s doing rather than getting caught out.

📢❕ The above doesn’t take into account any additional costs such as software. So, if you have lots of other outgoings other than simply your time, you’ll need to add those costs into the calculation.

Get good at pricing effectively…

Check out the online course ‘Pricing effectively’ to ensure your prices are in that sweet spot where you’re making a profit yet customers also feel they’re getting a bargain! The course includes information on pricing effectively whether:

You charge per hour
You charge per project or task
You’re selling products.

This course is free to Financial Resilience Hub members😊. If you’re not already a member, you can:

Buy the course for £49.99 (price correct at time of publication), or
Join The Hub for Q&A sessions, weekly finance and business tips, in-person and online workshops and access to a growing resource of bite-sized online courses available 24/7. Uncover the full membership benefits.

ABOUT THE AUTHOR

Helen Monaghan is a Chartered Management Accountant, accredited NLP Practitioner & Finance Coach. Both a psychology graduate and an accountancy graduate, she has authored three business books, which beautifully bring together psychology, finance, and tax to empower the reader about money. Helen is the CEO of HM Finance Coaching & Advisory Ltd, a company that provides financial education and business mindset coaching to small businesses across the UK, in addition to accountancy services for limited companies in Scotland and across the UK. Helen is also the founder of The Financial Resilience Hub – find out how we can support you, and your business, to be financially resilient through our monthly membership.