by Mitchell D. Weiss
It’s been a rocky economic recovery and college students are among those who’ve been hit the hardest.
According to a June 2013 Federal Reserve Bank of New York’s press briefing, of the 94 percent of all recent grads who are fortunate enough to have jobs, nearly half are overqualified and/or underpaid for the work they do. No wonder many of them are taking on second jobs and pursuing other forms of part-time work, including freelancing. This is especially true for grads with highly desirable and mobile creative skills such as in the fields of graphic design, software development, video production, journalism and so forth.
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Even though scoring freelance work is often hit-or-miss, the work has it benefits.
From a financial capital standpoint, freelancing helps to pay the rent. From a human capital perspective, the work adds to knowledge and experience, which boosts personal marketability. And from a social capital outlook, freelancing can augment the scope and quality of personal networks and networking skills, which in turn may lead to long-term employment opportunities, if that’s a goal.
The tricky part, however, is plugging a cash-flow hole without underpricing your talent, not overlooking the importance of setting and managing reasonable expectations for the projects you accept, and diligently collecting the money you’re owed in the process.
To help figure out the right price to charge, start by determining your break-even point.
For example, suppose you needed an extra $10,000 per year to make ends meet. Also suppose you have enough flexibility to commit an additional 10 hours per week for 50 weeks of the year. (We all need some time off). Those 500 supplemental hours divided into that $10,000 of required income equals $20 per hour, plus another 25 percent (or $5 per hour) to cover the estimated federal, state and local taxes. (FreelanceSwitch.com has a neat tool that can help you with the calculations.)
The next step would be to know your worth—the value the market places on your skills—which a stroll through the want ads can help you to ascertain.
Let’s say the average annual compensation for someone with your skills is $44K (which also happens to be what the National Association of Colleges and Employers reports is the average first year earnings for new college grads). If so, 52 forty-hour weeks (2,080 hours annually) would translate into $21.15 per hour. And since employers are required to match their employees’ Social Security and Medicare contributions—and the majority of companies with 50 or more employees also offer health care and other benefits packages—it would be fair to attempt to mark-up that rate to take those considerations into account. Here too, a 25% premium makes sense, which in this example would bring the market rate to $26.44 versus your $25 per hour breakeven.
When it comes to setting reasonable expectations, once you have a clear understanding of your prospective client’s needs and deadlines, take the time to transcribe that in the form of a proposal, which should encompass the following four elements.
- A detailed description of the assignment.
- An estimate of the time needed to complete it—subject to change if the assignment is altered, requested revisions are excessive and/or because of unforeseen events. (The proposal should establish the maximum number of those that you’ve included in your calculations—when the assignment is being priced as a project—after which an agreed-to hourly rate should then be assessed.)
- How out-of-pocket expenses are to be handled. (Hint: Ordinarily, these are the client’s responsibility.)
- A projected timeline, including specific milestones, which, when linked with a payment plan, will help you to avoid a situation in which you’ve done all the work and are waiting for all the payment.
Here’s what I mean:
A few years ago I hired three grads: one to build my website, another to draw the illustrations for my books and a third to produce the videos for my online courses. In each case, we slogged through a proposal that detailed the particulars for the project and settled on prices that were based on hours or the total project, depending on the assignment. We also agreed on progress payments—a series of partial remittances that I would make at specified intervals. In that case, it was the start of the work (including for the purchase of assignment-specific software and equipment), when certain milestones were achieved and when everything was completed.
It would be great if all your assignments could be structured as fairly and all your clients were to honor their obligations as they agreed to do. Unfortunately, that doesn’t always happen, which is why it’s important to state your late-payment policy in your proposal and print it at the bottom on your invoices. A commonly assessed late fee for commercial transactions is 1.5% multiplied by the past-due amount.
One last bit of advice.
As important as these project are for the added experience you attain, the new connections you make and the extra income you want, be discerning about the clients you accept. Some assignments just aren’t worth the heartache.
Mitchell D. Weiss is an experienced financial services industry executive and entrepreneur, adjunct professor of finance at the University of Hartford, a member of the board of the university’s Barney School of Business and co-founder of its Center for Personal Financial Responsibility. Mitch is also the author of College Happens: A Practical Handbook for Parents and Students, Life Happens: A Practical Guide to Personal Finance from College to Career-2nd Edition, Life Happens: A Practical Course on Personal Finance from College to Career and Business Happens: A Practical Guide to Entrepreneurial Finance for Small Businesses and Professional Practices.