◼️ Tom⇒maths: Calculating Day Rates for Freelancers

This day rate calculator was created by me and is based on Paddy McNulty's advice given during GEM NE's training session ""How Much!" Know Your Value - Pay and Conditions of Freelancing", 12/01/2022. It was initially produced as a spreadsheet but this might be quicker and easier for people who don't want to download their own version to play with. It also gave me an opportunity to play around with some coding¹.

A hand offers a money bag to a confused person.

To use it, just change the numbers in each of the editable fields. Totals and rates will be updated automatically as you do so. If you're not sure what to put in any of the fields, just experiment with some different numbers. and see what happens:

Annual Income

Salary (before tax, pension, etc)	£
You could think of this as an equivalent salary that you'd be happy to work for if you were to go back to working for someone else.
Projected costs & expenses	£
If you were working for someone else you'd expect things like insurance and work expenses to be covered by them, so estimate how much extra you'd need to cover these as a solo act.
Desired reserves/profit	£
Building a business costs money; fallow and rainy days can pop up at any time, or you might just want to be able to put something in your savings. How much do you think is right?
Target Income	{{ salary + costs + reserves \| currency : "£" }}
This is simply the previous three numbers added together, and gives some idea of what someone else may spend on you if you were working for them full-time.

The target income above will give you an idea of what you'll need to have landing in your bank account over the course of a year to continue living in the manner to which you have (or would like to) become accustomed.

To work out what to charge people to make that happen, carry on into the next section:

Daily Rate

Working days per year:	days
According to Paddy, freelancers get about 150 days of paid work per year: this needs to cover all of the income that you've stated in the cells above. Feel free to change this if you win more or fewer proposals (on average) in a year.
Holiday / sick days per year	days
Everyone gets ill from time to time, and we're all entitled to days off. These need to be covered financially, though, so we've got to include them in our calculation. Paddy suggested 28 days per year is reasonable, but you may want to give yourself more holiday, or provide a larger buffer for sick days (or reduce these if you're only freelancing for part of the time).
Final Day Rate	*{{ ( ( holidays (salary + costs + reserves) / workingdays) + (salary + costs + reserves) ) / workingdays \| currency : "£" }}**
This is your target daily rate to charge if you want to reach your target income over the working, holiday and sick days entered above.

The daily rate calculation works out how much you'd need to charge per working day to meet your target income from the previous section, and assumes that you want the same level of income for your paid sick and holiday leave. It then spreads this extra income requirement across your projected working days.

Sometimes we don't work full days in one go, though, so...

Hourly Rate

Working hours per day:	hours
A standard working day is around 8 hours* long. If you're happy to work longer hours, or if you want to work shorter days feel free to change this!*
Final Hourly Rate	*{{ ((( ( holidays (salary + costs + reserves) / workingdays) + (salary + costs + reserves) ) / workingdays)) / workinghours \| currency : "£" }}**
If you're not working a full day, e.g. you're delivering a session at a conference, or doing bits of work here and there, this is how much you should be charging per hour. Be aware that you should probably include time to prepare, travel, set up, etc when you're calculating what to charge in order to hit your targets set above.

All this section does is divide your calculated daily rate by the number of hours in your working day.

Why are Freelance Budgets Often So Low?

They're not (for the most part) trying to cheat you or just being tight-fisted.

Employers who are considering employing a freelancer to do some work for them might look at their workforce, choose the employee who they think would be most suitable for the job (if only they had the time) and then work out how much the job is worth by dividing that employee's salary by 365 then multiplying it by the number of days that they estimate the job to take.

At a glance, this feels perfectly reasonable, but think about it for a moment: the basic salary that an employee receives (even before deductions for tax (etc)) is not the same amount as the employer needs to pay out in order to employ that employee. Other outgoings that an employer might have over and above basic annual salary for each employee might include:

Employer's national insurance, tax and pension contributions
A calculable portion of various office costs, such as

Building rent or mortgage and maintenance plus water, heating, lighting, etc
Telephone and internet access and software licences and subscriptions
Consumables such as stationery, computer equipment, and even cleaning equipment (and staff) and toilet paper

Different types of leave or absence including

Sickness, bereavement and parental leave, jury service
Holidays

This list is far from exhaustive but includes a number of necessary expenses incurred in order to have an employee, and this includes where the employee is yourself: everything here is something that a freelance worker will have to cover. I've deliberately not included benefits such as bonuses and commission, overtime, healthcare, gym memberships, mileage or company cars, and the extra cost of lateness, here, and I'm sure you could come up with even more examples of money that a business might spend on their employees that doesn't go anywhere near their bank account.

If you'd like a tool similar to the one above, but aimed at considering the true cost of an employee (which would give a more realistic idea of how to compensate a freelance worker for their time), Sorcha N. suggested ASFB's True Cost of an Employee Calculator in response to this post on LinkedIn.

Out of interest, I tried the calculator using estimated costs based on my last full-time position and discovered that my true, total cost to that employer was around 1.7 times my basic annual salary. This might help to illustrate how a freelance brief's budget which seemed generous to the writers might come across as a little insulting to the target audience: they have (accidentally, probably) undercut what it would cost them to get an existing employee to do the work by around 40%.

If you find this useful: