Day 6 of the 31-Day Blogging Challenge (#31dbc)
Note: This article originally appeared as a sidebar in an article I did for STC Intercom in June 2012. The information is still applicable.
Before deciding how to charge (hourly, page, etc), you need to know what your cost basis is. This is the minimum amount you need to charge in order to make money on a project. I calculate it based on an hourly rate, which you can then convert to whatever type of rate works best for the project you are doing.
Here’s how you do it:
Base rate before profit
[(annual salary when you were working for a company)/2080 hours per year] + [(annual salary X 30%–to account for benefits)/2080] + [monthly overhead/160 hours per month] = base rate before profit
Base Rate after Profit
Now, take your [base rate before profit X 10%] + base rate before profit = base rate after profit.
But, this result doesn’t account for hours that you are marketing and not billable (most freelancers are billable about 1500 hours per year.
Average % non-billable time
So, take your [base rate after profit X ((2080-1500)/2080)] = average % non-billable time
Minimum amount you should charge if you want to make money
Now, take your base rate after profit + average % non-billable time = base rate you should charge if you want to make money.
Here’s an example in USD, assuming a 40-hour workweek (rounded for ease of calculation):
annual salary = $50,000
monthly overhead = $500
[$50,000/2080 hours] + [$50,000 X 30%/2080] + [$500/160 hours per month] = $24.04/hr + $7.22/hr + $3.13/hr = $34.39/hr is base rate before profit
[$34.39 X 10%] + $34.39 =$3.44 + $34.39 = $37.83/hr base rate after profit
$37.83 X (580/2080) = $37.83 X 28% = $10.55/hr to account for non-billable time
Minimum rate you should charge = $37.83 + $10.55 = $48.38/hr (round up to nearest $5), so your actual minimum rate would be $50/hr.
Once you know this number (it will vary greatly depending on your expertise, locale and so on), you can figure out a per page rate or fixed bid rate, if needed.
Assumptions in proposals
In addition, your proposals should always contain assumptions and risk management statements for each likely scenario for a potential problem.
For example, “This project assumes 2 SME reviews and 1 editorial review. Additional reviews will require a change order. If the SMEs do not return their comments by the agreed due date, this will cause a day for day slip in the schedule.”
These kinds of statements are especially important in fixed bid or per page bids because they give you leverage to go back to the client if there is scope creep or delays on the client side.
If travel will be involved, state how you will charge them for it in the bid. I always charge this as a separate line item from the actual work, and provide an expense report and copies of receipts as part of my invoice.