Find out how to set freelance writing fees effectively, so you never undercut your earnings and set yourself up for failure with common rate-setting mistakes many freelancers make.

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Setting appropriate freelance writing fees is difficult for many freelance writers, but it doesn’t have to be. Setting the wrong freelance writing rates can kill a freelance writer’s career, leading to a lack of clients willing to pay the rates or burn out from being forced to take on too much work at lower freelance writing fees just to scrape by.

There’s also another issue in that if writing rates are set too low in the beginning, they can be extremely difficult to raise later on (at least significantly).

Keep the following tips and formula in mind when setting freelance writing rates to get them right the first time.

Don’t Confuse a Freelance Writing Goal with a Salary

Sometimes freelance writers have the misconception that to quit (or replace) a full-time employee position, they should target yearly freelance earnings equivalent to an employee salary. However, the two totals aren’t even close to meaning the same thing. Don’t look at an employee’s salary as a goal when setting freelance writing fees. Instead, freelance writing rates are more comparable to an employee’s total cost to their employer. That includes the salary, any employer contributions to health insurance, retirement savings, or other benefits, the employer’s portion of Medicare and Social Security taxes (in the US – the employee only pays a portion whereas a freelancer pays both the employee and employer amounts as self employment tax), and any other expenses incurred for the employee (from phone calls and basic office supplies to expenses such as the cost of running a marketing campaign).

Use a tool like Salary.com to find the average salary plus bonuses plus benefits for an employee in your area doing similar work to what you offer as a freelance writer.

Differentiate Working Hours from Billable Hours

Freelance writers (especially new writers) planning to freelance full-time often set their freelance writing fees based on a forty hour work week. What they neglect is the fact that forty hours only represents a freelancer’s “working hours.” Not all of those hours can be billed out to clients. Those, in turn, are called “billable hours.” After accounting for administrative work, financial tasks, and marketing, many independent professionals will find that their billable hours are just over half of their total working hours.

Don’t underestimate the time administrative and marketing work can take. Solid record-keeping is important for any freelance writer, and even when your schedule is filled, you should never stop marketing (never wait for a slow period to begin marketing). I offer a variety of marketing tips for writers at AllFreelanceWriting.com.

Diversify Your Writing Income Streams

Billable hours, by their very nature, are limited. All freelance writers will eventually get to the point where they can’t work any more hours, so the only way to increase their income is to increase their freelance writing fees. Is that really the only way? There are actually other options, such as outsourcing work to sub-contracted writers while keeping a cut of the writing fees. An option that I prefer and recommend is to turn your writing services into products that can serve as passive, or close to passive revenue streams. You can do this with e-books, pre-written content, self-published books and more, all of which can be set up with an automatic sales and fulfillment process (meaning you only have to worry about marketing – even that tones down when word of mouth picks up).

Freelance Switch (a freelance blog) offers an excellent article on diversifying freelance income streams.

Another resource I recommend on the topic of diversifying freelance writing income to maximize earning potential is the Six Figure Freelancer e-book (read my review of Six Figure Freelancer).

Tips & Tactics

• Choose your salary goal based on the cost of an employee in a similar position to a company, and not based on an employee salary (the two numbers aren’t comparable).
• Remember that you won’t have forty billable hours in a full-time working week as a freelance writer, and your freelance writing fees should be set based on billable hours rather than working hours.
• Know that you won’t work a full fifty-two weeks per year when calculating your ideal freelance writing rates. I usually recommend going with forty-five weeks to account for holidays, vacation time, sick days, etc.
• It’s a good idea to “pad” your final calculation by adding around ten percent and then rounding up. This accounts for unexpected issues such as slow periods of work, an extended illness, etc., so you won’t be put in an impossible financial situation that may force you to quit your work as a freelance writer.
• Here is an example final calculation / formula (based on a salary goal of $60,000 per year, forty five work weeks, and twenty three billable hours per week, with ten percent added on at the end as “padding”): (Salary Goal / Weeks Worked / Billable Hours per Week) x 1.10 (10% padding) = Hourly Rate OR (60,000 / 45 / 23) x 1.10 = $63.77 per hour. I would then recommend rounding that total up to either $65 per hour or $70 per hour to simplify billing.
• Once you have an hourly freelance writing fee, you can very easily adapt that to per word or per project billing structures by knowing the average amount of time a project takes you to complete.

Summary: If you work independently offering any kind of service, from freelance writing to financial consulting, you have to set your rates. How do you go about that? Here are a few things you should keep in mind when setting freelance rates or fees to avoid common mistakes.

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Setting freelance fees can be difficult for a lot of new independent professionals and consultants. Common mistakes are made, and those mistakes contribute to burnout and even failure in a freelance career when professionals realize they underestimated their needs and they can’t raise rates quickly enough (raising rates can be hard and can take a while, as it often means targeting a completely different client market).Keep these things in mind when setting your freelance rates, and you won’t have to worry about raising fees in the near future:

Know What You Need

Before setting freelance fees, know exactly what you need to earn throughout the year. Figure out your personal expenses, any money you want available for savings, emergency funds, or large purchases, and all expenses.

Understand Salary vs Cost

A freelance salary does not directly equate to a similar employee salary. Don’t underestimate what you’ll need to earn by thinking a low overhead means you don’t have to account for expenses.  Freelancers will pay for their own insurance, they pay additional taxes (in the US at least), and there are day-to-day expenses of running a business (even from home).

Don’t think “I earned $50,000 at my day job, so I want to earn the same as a freelancer.” You’ll set yourself up for failure. To be in an equal situation to your full-time job, you don’t need to match the salary; you need to match your “cost” as an employee to that employer. Salary is only one part of it. The employer also paid a portion of your Medicare and social security taxes that you’re now responsible for. They put money towards your retirement and or health insurance. They paid for your basic office necessities. They paid your bonuses. Think about how much money it cost that company to hire you to do your job, and that’s what you need to try to match with a freelance income. It may be a large difference. For example, to have all other things equal with that $50k per year job, you may need to earn $70k per year freelancing. Your rates have to account for that.

Know that All Hours Aren’t “Billable Hours”

Sometimes freelancers set their rates based on an expected 40-hour work week. For example, let’s use the $70k per year gross income goal from the above example. Someone might assume they would figure out an hourly fee by dividing that total by 52 weeks per year and then again by 40 hours per week (which comes to approximately $34 per hour).

That would be a huge mistake. In reality, you have “working hours” (40 hours per week) and you have “billable hours” (which can be as little as half of your working hours depending on your marketing and administrative duties that will take the rest of your time). Using the same example, and assuming only half of your hours are billable, you have to charge clients twice as much per hour for that same yearly goal – approximately $68 per hour – that’s a big difference).

You Won’t Always be Working

We still have a problem with our above example. It’s based on 52 weeks per year. Almost no one will work a full week every week of the year. You need to account for time off – holidays, vacation time, sick time, etc. Let’s say in this example then that we’ll account for seven weeks off between holidays, vacation time, personal days, and sick time. We’re now down to 45 working weeks in the year. $70k now gets divided by 45 weeks and then by 20 billable hours per week, to give you an hourly rate estimate of approximately $78 per hour.

You Have to Account for Down-Time

If you’re new to freelancing or independent consulting, you can’t generally assume that all of your available billable hours are going to be filled every week. You’ll very likely have slow times. You should account for this by adding a buffer to your rate – I suggest tacking on 10 percent.  That would now take us to an hourly rate estimate of approximately $86.

Factor in What You Want

All of those things simply help you find out what you need to charge to earn the same as you did in a full-time job. Anything you want to earn over that now needs to be tacked on. For example, perhaps you feel that you were worth more than your company paid you. Or maybe you want better insurance or more for savings and retirement. If your experience and credentials (not to mention marketing abilities) back up an increase to earn what you want instead of what you need, then by all means, increase that hourly rate. But decide what your time is worth to you before you’re fully immersed in a freelance career, as raising those rates significantly later can be a career-killer for many.

Summary:Do you ever get bored, frustrated, or lonely if you work at home alone? If you’re a freelancer or home business owner and you’re anything like me, you occasionally do. Find out how I overcome the solitude of working at home online, and share your own tips for a more social solitary work life.

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Despite the rewards, sometimes freelancing or running a home-based business can be a lonely job. I do both – I run an online PR firm from home and do freelance business writing on the side. I can spend anywhere from 8 – 16 or so hours per day behind a computer working, without another soul in sight.I like working alone. I get more done (and there’s a neverending supply of work to be done). Yet there are times where I really need some human interaction and miss having colleagues around to shoot the breeze with.Working on your own doesn’t mean you have to be lonely. I’m a big advocate of networking if you want to succeed in business, and you can create a solid social and business network even if, like me, your work is entirely solo and Web-based. Here are some of the things I do personally:

• I regularly email a few select colleagues that I’ve become friendly with. We can talk about work or industry issues, or even our personal lives.
• There are a handful I call or Skype from time to time as well. Sometimes there’s just no substitute for actually speaking to another human being.
• I’m very friendly with a few clients (mostly of the musician variety) who I keep in touch with on a social network for the most part. Again, we’ll talk about work, art, life, or whatever gets us going that day.
• I blog. Given, blogging is a part of my business model, but if I didn’t blog, I’d go crazy. The interaction I have with new people as well as colleagues I’m familiar with is just priceless. I still find blog conversations to be some of the best and most productive.
• I do interviews – on both sides. Not too long ago I was turning down every interview request I got (I get them often enough through another blog of mine). I’ve recently opened up and started accepting them, because frankly it’s another chance to network, introduce myself and my thoughts to new people, and learn something from the ideas of others. On the other side, I also try to conduct interviews periodically (mostly for my PR blog or my freelance writing blog).
• I join forums. I’m a moderator for a large webmaster forum, and I literally can be in there for hours each day in between projects, when my main work is done, etc. I learn a lot, share advice, do business, and simply socialize with like-minded folks.

Are these things really a substitute for more personal interaction? No. But they do help me get through the monotony of some days, occasionally put a smile on my face, and are usually productive in some way. Here are a few other things you may do that I’m not necessarily actively involved with or a fan of:

• You can force the face-to-face interactions by attending (or giving) seminars, going to conferences, etc.
• If it makes sense for your business, and you can build a local client base, you can take meetings in person instead of virtually.
• You can use a wide variety of social networks or microblogging tools like Twitter.

In what other ways do you overcome loneliness or boredom associated with working by yourself?

It’s not uncommon for individuals interested in freelancing to think about potential rate and fee structures in terms of their familiar forty-hour work week. Many miss the fact that there are two very distinct ways of viewing their time as a freelancer: working hours and billable hours. (more…)

There aren’t a lot of blogs that do a really good job of teaching the business side of freelancing (in my opinion). I try to offer a good amount of information about freelancing here in BizAmmo’s Freelance Jobs section, but here are a few of my favorite blogs for freelancers, where you can find additional information. (more…)

Not everyone has what it takes to be a successful freelancer. Several qualities that differentiate a freelance success from a freelance failure are simply character traits that are difficult to alter. Still other factors can be learned. Here are three keys to freelance success; all things that you can actively work to improve upon in your own freelance career:

Planning – Just as business owners should create a business plan for their new business, a freelance professional should create a variation of a business plan for their freelance career. Without understanding their target market, competition, and goals thoroughly, it’s nearly impossible for a freelancer to reach their maximum potential. Proper planning is also essential for a freelancer to be able to set appropriate rates and fees, which is a common problem for new freelancers.

Networking – You don’t have to be a natural social bug to be a success when it comes to business networking. When working as an independent professional, getting a gig will sometimes simply come down to who you know. Meet other freelancers in your industry or related industries (for example, a freelance content writer could benefit from knowing freelance copywriters, because leads can be passed back and forth). Also make an effort to meet industry professionals and leaders who might become clients, or who may think of you and refer to for work in your area that they later hear about. You can network in more traditional environments, such as by joining professional organizations, or you can network a great deal online through forums, social networking sites, blogs, etc.

Marketing Ability – It doesn’t matter how good you are at what you do if you can’t effectively market your services to potential clients. You have to make them aware of you, and be able to “sell” them on your services as compared to your competitors. It’s a good idea to learn about the principles of marketing, and then learn about more specific tactics and strategies once you better understand how they work.

Work to improve those three areas, and you’ll improve your freelance career as well. Put time into planning, network with those who can help you, and learn to position yourself through your marketing efforts, and you’ll be well on your way to freelance success.