Work is increasingly something we DO and less someplace we GO. Combine employment trends with the ability to deliver expertise from anywhere with a phone and internet connection and we have a trend in independent contracting. Organizations like FIELD NATION are leading the way when it comes to combining a jobs marketplace with a business management platform. I suspect strongly that we’ll continue to see growth in this area. So you’ve got expertise and experience and are thinking about going independent. Congratulations! It is rewarding and challenging all at the same time. One of the biggest struggles is figuring out how much you’re worth. This post will give you a starting point for your efforts. It is drawn from personal experience and the experiences of others with whom I’m close. As with everything, your mileage may vary so do your own research for your industry.
Here we go!
When you’re an independent consultant or contractor it is often difficult to place a dollar value on your service and expertise. Prospective clients want the best deal they can get and will often change the scope of a project or lowball an initial offer to try and get that deal. It can all be confusing and a little bit daunting if you’re just starting out, even if you’re already an expert in your field.
First, realize that there is almost always some guidance on rates and fees and expectations from your chosen industry. This guidance might not be explicit, as in published rate cards or standard union fees. But peers in your industry are often willing to give you a ball park of what they do and what they charge. Still, at best you’re left with a range that is often too wide to really help you nail down *your* value. After all, you’re special and your unique combination of experience and approach is why you decided to go independent in the first place.
Step one is brutal honesty and self-reflection. Nail down what are you actually doing. Are you creating strategy or executing someone else’s strategy? Are you creating custom solutions that deal with the non-standard environments of your customers where innovation and agility are required? Or are you implementing cookie-cutter solutions where efficiency and quantity are critical? When you leave the client, what do you leave behind? What is that actual deliverable? Identify it. Quantify it.
Step two is to figure out an estimated cost of the client’s self-service. If the clients were to do what you do by themselves, what would it take? Tally the cost of materials, hardware, software, tools, prerequisites (e.g. security clearance), training and certification (if required). Don’t forget to add in the personnel time the client would have spent. Figure out what the cost of their time would be. To do that, get an idea of their hourly wage and multiply it by the number of hours it would take them to do what you do. Realize that those numbers are likely larger than the amount of time it takes you since you have more expertise and skill in your specific area. If your clients are salary employees, get that salary (if you cannot get it directly, get a general idea from a site like Salary.com, Glassdoor.com, Indeed.com’s salary search or any number of other sites that publish salary info). Take that salary and add 20% (average cost of benefits), divide by 52 weeks in a year and then divide that number by 40 hours in a week to get a rough hourly wage.
The formula looks a bit like this:
(Salary + (Salary*20%))/52/40
So a person making $60,000 a year costs the organization approximately $34.62 per hour while a person making $100,000 a year cost the organization approximately $57.69 per hour.
Now you have a baseline understanding of the cost per hour for the client to take care of the problem themselves. Now multiply the client’s estimated per hour cost by the number of hours it would take them to become skilled enough to do the job you want to do and then to actually do it. Add in any capital expenses they would have to incur by *not* hiring you – this means purchase of tools or software that you bring to the table that they don’t have available.
Step three is to demonstrate the difference in value by bringing you on to help with or do the job. This is where you can demonstrate ROI or convenience or efficiency. This is where you demonstrate your value. Now you have an idea of what their cost would be. How are you going to deliver value to them? Is it by speeding up the timeline thereby saving them cost in doing the job themselves? Is it by providing a higher quality result that will break less and require less attention thereby saving them administrative costs? Is it by providing a unique and one-of-a-kind capability that they cannot get anywhere else? Is it by simply making their lives easier thereby removing worry and distraction from this area and allowing them to focus on their core passions?
The answers to each of these questions are all important because they all contain the core of why someone should want to pay for your time and expertise rather than someone else’s time and expertise. That is value. That carries a dollar amount. Too high, and your value is not “worth” it. Too low and you’re leaving money on the table and prospects will question if your claimed value is really true. After all, if you don’t know the value that the market places on your skills and expertise, why should the client believe you’re really capable in the areas you claim?
So now match up your value with what you want. This is the fun part. Figure out the hourly rate you *want* and then project how many hours a month you think you’ll actually deliver. For example, if you want to make $50,000 a year and have a 2 week vacation, you will have 50 weeks in which to bill. Assume each week has 4 working days and 1 administration day where you pay bills, do invoicing and sell your services to land your next project. That means you’ll need to charge at least $37.50 per hour to reach your goal (this accounts for 20% additional cost to pay for your own benefits). Want to bring in $100,000 a year and pay for your benefits? You’ll need to charge $75.00 per hour. Now that number might be high for your industry or incredibly low. The key is to find your baseline. Remember also that independent work is often feast or famine. The numbers above assume you’re actually billing 32 hours a week (or about 128 hours a month) for 50 weeks a year. If you hit a famine, you’ll need to up your rates to hit your target. They’re not making more hours in the day.
Let’s look at an example, if you are monitoring a social media account for a business you might have a calculation like this:
30 minutes a day x 7 days a week = 3.5 hours a week = 14 hours a month per client
You would need 9-10 clients to hit your mark.
Now figure out your industry average hourly consulting cost. This will vary industry to industry and may be a wide range. Realize that this is your hourly rate and does not include items like software, subscriptions, tools or materials you may use for the client. Those need to be added separately or rolled into a single flat hourly price.
Many clients like to pay a single fee or “flat rate”. This is convenient for them as it lumps in all costs into one bill. It’s easier for them to budget for that. They key is to break that flat fee down into an hourly cost so you have an apples-to-apples comparison. If you were going to charge $500.00 a month, realize that, working 30 minutes a day (as in our example above) that comes out to about $35 an hour.
Now we’re ready for Step Four. Once you have figured out your value and situated yourself within industry guidelines and figured out how many clients, jobs or contracts per month you’ll need to hit your revenue targets, it is time to do some subtraction.
Hopefully, the client’s do-it-themselves cost is higher than the cost to hire you. If so, subtract your number from theirs. This is the money you are saving your client simply by them contracting with you. If that number is low, multiply it out for a year and see what the annualized savings would be. For example, if you’re saving your client only $3.12 a week from their actual internal cost, realize that this translates to about $100 a week and about $5200 a year. That is a number worth considering.
If your cost is higher than the client’s do-it-themselves cost don’t fret. Before you go lowering your rates, make sure you have properly accounted for what they would have to do themselves but for your being there. Most often we, as experts, overlook items that have become second nature to us that are more difficult for others. Are you authoring content for them (e.g. blog posts, press releases etc?) did you account for that on their side? Did you know that ghost writers for websites can make anywhere from $25 – $80 a page, and that technical writers make more? Are you taking photos to document your work that could be used as training materials or marketing collateral? Did you know that professional photographers are expensive? Did you account for the time that it would take someone else to photo that same work product (even with their cell phone), transfer it to their computer, tag it, lightly edit it and upload it into a DAM (digital asset management) system? The point is that even “easy” tasks take time to do well. Make sure that everything you do is accounted for in the calculation of their do-it-themselves cost.
Remember, the client has already decided that the problem needs to be solved so you’re painting a picture of the future with you vs the future without you. Many prospective clients will erroneously paint a picture of the present without you vs the future with you. In that case, you’ll always be more expensive and they’ll be left scratching their heads as to why fixing the problem without you took so long and cost so much. Don’t let them get down that path and think, regretfully, “we should have hired that independent contractor!” You’ll be vindicated but still poor.
Step five is to help the client see you not just as a warm body able to fill a seat. Help the client see that you’re worth your fee since you’re doing daily engagement, content creation, listening and collection. You’re akin to a museum curator building the brand and awareness of the client through your skills as a communicator, marketer and your availability. Don’t be afraid to put some metrics around your performance like increased engagement, satisfaction, speed and awareness. This is not the job of an intern, you’re a strategist.
Realize that business has its currents. Seek to sign a 6 month contract initially rather than month to month. It is easier to prove velocity and impact over the longer term as it normalizes the ebbs and flows of events and seasons.
Have fun and keep your passion. Remember you’re an independent contractor because you love doing what you do and you’re good at it. Others are interested in you because you’re good at it. Go ahead and value yourself for what you’re worth.
And take this for what it’s worth.