It’s not uncommon for first-time freelancers to find themselves adrift when it comes to knowing how much to charge clients. I know I did. Once the vision of lounging beach-side with a fully-charged laptop propped up beside me dissipated, I felt a sense of panic. I had no idea how to calculate freelance rate per client or project!
I felt lost and unsure about which step to take next since I no longer had the financial structure I used to have back when I had a corporate job. So before I even started to make travel plans, it was vital for me to know my worth as a freelancer.
How did I achieve this? I had to learn how to compute for my rate using all the pertinent details involved in my freelance career. There’s a bit of work involved, but once I had all the values considered, I came up with a foolproof formula to know how much to charge per project or client in the future.
Create a freelance salary calculator spreadsheet
This is an essential first step. Without a spreadsheet, I was always reaching for my calculator and re-entering values. It’s not only an inconvenient practice – it made me look unprofessional, as well. It seemed to my clients that I was pulling random figures out of my head.
The constant elements in my freelance spreadsheet include my yearly income added to my annual expenses (AKA food, rent, bills, travel costs, etc.). Then I divide the total of those two elements with how many days I work per week.
Compute your hourly rate
I further divide the result of how many days a week I work, with how many hours I work each day. That resulted in my hourly rate as a freelancer. With the figure I came up with, it was easy enough to compute for certain freelance projects.
Hourly rates are important for a freelancer because, based on experience, a lot of clients prefer to be charged per hour. It also makes it easier to compute and negotiate for small project scopes using this formula.
Include your vacation and sick leaves
It would be awesome if all of us digital nomads won’t ever get sick, wouldn’t it? Unfortunately, there will always be sick days and times when we feel that we need to take a break from work.
I base my sick leave calculations on what my previous job offered, which was roughly around eight days per year. Because I am now self-employed, I can’t expect to get paid whenever I have to “call in” sick with a client. However, I do have an idea of how much deficit there will be if I do get sick, and how I can recoup my profit loss once I am feeling better.
As for vacation days (which are also unpaid, but much-needed), I used to file for mini-break leaves averaging three weeks back when I was a regular employee. Now that I am my boss and I’ve learned to combine traveling with work, I give myself a maximum of two weeks a year to take a break from work. This does not include traditional holidays like Christmas, though.
Factor in your workspace costs
Sure, you may be nomadic for the most part. But any roof over your head and all the costs that come with it are considered “overhead” and must be computed, as well. Since I prefer to frequent coworking spaces and quiet coffee shops, it’s easy enough for me to calculate how much I spend hourly just being in one place.
Thankfully, most coworking spaces already provide a reliable Internet connection, so the fee is already factored in. However, for those times that I can’t find free WiFi to connect to, I use my gadgets for tethering and providing a WiFi hotspot (which I mentioned in a previous blog post). I make sure to factor in the cost of using those devices, and to include my regular freelancer equipment and accessories like my laptop, smartphone, headset, and other accessories I use on a daily basis.
Don’t forget health and medical insurance coverage
I make sure to include my health care and medical insurance coverage when I calculate the freelance rate based on bills I pay regularly. I used to think they were unnecessary until I got sick and had to pay my entire hospital bill out of my own pocket. It put a big dent in my personal savings, prompting me to work double-time in the next couple of months to recoup my losses.
So even after the company I worked for downsized, I chose to continue the health care program I had with them. That meant I had to pay the fees with my earnings if I wanted continuous coverage and benefits. But after the fiasco I had with not having any form of medical insurance, I figured it was worth it than to have my entire savings account wiped out by hospital and doctors’ bills.
Calculate all your taxes and freelance-related fees (no matter how small)
One of my earlier mistakes, when I went full-freelance, was to neglect all those little fees associated with the freelance lifestyle. I’m talking about transfer fees from PayPal to my bank account, the recurring charges for upgrades I use on my blogs and websites, and all the seeming “loose change” that go with the freelancer terrain.
Well, those loose change certainly add up! I didn’t realize I was paying a lot of money for these small fees, taking a big chunk of my income without being accounted for. So what I did was hire a freelance accountant to figure out those fees for me, along with the proper income tax I need to pay annually. It’s worth it paying someone to deal with the confusing (and often annoying) figures which I admit I have no time for.
The perfect work-life balance will remain a dream if a digital nomad does not know how to make a freelance pricing calculator. You can customize yours according to your career and other details of your freelance lifestyle before arriving at a suitable hourly rate to charge clients. However, you also need to factor in several seemingly incalculable things, such as the time you spend in-between clients, how you advertise to get new ones, and how often you need to take a break to decompress. Once you assign figures to these costs, you can start adding them to your yearly income and then divide the sum by the number of days a year that you work. Afterward, divide the resulting figure with the number of work hours per day.