On Business: Freelancer Math

By | Monday, March 16, 2015 3 comments
Al Jaffee by Drew Freidman
I'm going to start today by liberablly cribbing from Seth Godin's blog post from yesterday...
Seth Godin
Successful freelancers need to charge at least double the hourly rate that they'd be happy earning doing full time work. (In many fields, it's more like 4 or 5x).

And they need to spend at least half their time getting better at their craft (and helping the market understand and appreciate what they do).

Your mileage may vary, but one sure route to becoming an unhappy freelancer is charging just enough and hoping that the low price will keep you busy all the time.
The implication Godin is making is that freelancers need to charge more so they aren't busy with work all the time, and can therefore afford to spend time getting better. Which is reasonable logic.

It makes sense as a shorthand that you can drop in a quick blog post, but it sidesteps at least some significant considerations for the freelancer her/himself. Health insurance, for example. And retirement savings. Basically, the costs of living that you often don't need to think about in the short term. You need money now to pay for a roof over your head, food, the tools you need to ply your trade, etc. Those types of thing are immediate and obvious. Unless you have immediate health issues, insurance might not be. Unless you're getting on in years, retirement might not be. But both are significant and worth considering.

The average savings rate in the U.S. is currently around 5½% -- not an all-time low, but it's definitely pretty low when you compare it to the past several decades...
Chart of US personal savings rate since 1975
And how much do you need to retire? A lot of variables go into that, but the general rule of thumb is eight times whatever you make in the last year you're working. Depending on your savings rate/investments/etc., that's a minimum of 6% of your annual take-home pay every year from the time you're 25 until the time you're 67.

Of course, as a freelancer, you don't have to retire at all. If you're really happy doing your thing, and people are still willing to pay you to do it, by all means, carry on! Joe Sinnott is 88 and only formally retired a few years ago, but continues to ink the Sunday installments of the Spider-Man newspaper strip and continues to do some commissions and odd freelance jobs. He recently put together a Kickstarter collecting some of his work from the 1950s. Larry Lieber is 83 and still draws the daily Spider-Man strip. Creators like Milt Caniff and Charles Schulz essentially worked right up until their deaths at 81 and 77 respectively. But that's all dependent on A) your health (particularly your eyesight and hand-eye coordination) remaining largely intact, and B) your work remaining in demand at some level. There's been more than a few creators whose work fell out of favor because they were out of step with contemporary society or they wound up repeating themselves frequently.

Bottom Line #1: You can't count on being able to work forever.

Bottom Line #2: You need to prepare now for your life as best as you can for a post-freelance era.
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Mike said...

His theory assumes two things:

1. That the paying work you do doesn't, in the process, improve your skills. And I'd say that, if it doesn't you might as well spend the time waiting tables.

2. That you can build a viable client list before you become highly skilled. I spent nearly a decade playing at freelancer, then went into the 9-to-5 trenches for 25 years. When I came out, my freelance potential had skyrocketed, both because of improved skills and because of professional contracts.

I don't think you need to spend the whole quarter century in between -- I was raising kids and such -- but you do have to be serious about this stuff. I just did my taxes and my agi last year was 10 times my best agi from before.

Both valid points, Mike!

I read Godin's blog with some regularity, and he frequently (and, I think, deliberately) glosses over variables like that for the purpose of getting a different perspective across quickly. The thinking being that, even if his advice isn't completely applicable to you, it might at least get you to consider some alternatives to "that's how it's always done."

But you are right that he's making some broad assumptions here.

Matt K said...

Not to pile on, here. But FWIW, I'll stand up as the second of two full-time freelancers who found Mr. Godin rather glib.