Freelancing and You: How to Start Your Freelancer Career

Freelancing is a viable career choice to have flexibility and added income to your current work situation. Freelancing constitutes a wide variety of industries, from writing and content creation to consulting on anything from engineering to marketing. What exactly is freelancing, and how can you benefit from it?

In short, freelancers are self-employed individuals who often take on contracts with clients, whether they be individuals or organizations. They are not considered employees of the company they are on contract for. Freelancers can work on a by-project basis or for a set number of hours a week.

By-project basis is when you invoice for hours spent on a project and not on a casual, part-time, or full-time basis. For example, instead of working 20 hours a week for a company, the company will assign projects to the freelancer when needed. This frees up the freelancer to take on multiple contracts because they are not dedicating a specific set of hours per week to one company.

By-Project or Hourly Commitment: What Is Better?

Being a freelancer often means you have flexibility. The simplest way to determine if you should work by-project or on an hourly commitment is whether you have a second job or not. Some freelancers have an hourly job, whether it be full-time or part-time hours. In their spare time, they take on projects for added income. For example, you may work 30 hours a week for a company and commit the other 10 hours to complete projects for other clients.

A by-project basis is more beneficial as a means of supplementary income. This is because you are not guaranteed a certain number of hours and therefore do not have a steady wage. It is important that your projects do not interfere with your other job. Some companies have agreements in which you cannot work for other companies in the industry, regardless if this is by-project only, or anything that would be a conflict of interest.

Hourly commitment provides a solid and expected income for the duration of the contract. Some people make their entire careers working on contracts. One of the downsides is that the contracts are often only for a few months. Once the contract ends, you will face a down period of unemployment until the next contract. Working on a by-project basis will help in these down periods.

Freelancing Contracts: The Pros and Cons

Freelancing is difficult. Freelance contract workers do not receive vacation days or any benefits that company employees do unless stated otherwise in the contract. Contracts can also be terminated at any time, however companies usually put in a two-week grace period to terminate a contract. There are often no employment protections for freelance contract workers.

Between jobless periods and lack of vacation days and benefits, why would you want to freelance at all? Freelancers have flexibility in their careers. As well, freelancers are able to charge a much higher salary rate than their employee counterparts. For example, top-tier freelancing consultants can charge over $100 an hour for their services while those who are employed by the company may make only $60-70 an hour for a similar job.

Freelancers are able to charge more in lieu of vacation days and benefits. Most importantly, freelancers have to save money for those jobless periods. Some periods may be shorter than others, while some may stretch on for months.

This is where the flexibility comes into play. Instead of being confined to only two or three weeks of vacation a year, a freelancer who has the savings is able to travel during those down periods. Moreover, if you do not like the company, you are not bound to stay there. You are able to walk away once the contract is over. Depending on the industry, freelancers may get to travel for their jobs. You will gain a lot of experience and make many contracts working for multiple companies.

Freelancing on a By-Project Basis: Rates of Pay

While working on a freelancing contract, it is easier to negotiate salary because you have hourly commitments. Finding a rate of pay for a by-project basis is more difficult. Some freelancers charge an hourly rate even if they work by-project. Others charge a rate based on the entire project. How do you determine your rate of pay?

The first step is to decide if you will charge by the hour or by the project. A by the hour rate ensures that you will be paid for each hour of work you do. When charging by the project, you have to present an estimated rate at the start of the project. This is based on how many hours you anticipate the project will take and how much you charge per hour. If the project takes longer than your estimate, you will be working for less money per hour.

There are pros and cons to both systems. Some companies want to know the final cost up front. Thus, they will be skeptical of an hourly rate. They will want to know how many hours it takes you to complete specific projects to adjust the budget accordingly. For a by-project rate, you can charge more money and work less hours.

For example, say it takes you 10 hours to produce a logo. You charge out at $30 an hour. You would make $300 in an hourly rate. In a project rate, however, you may increase the rate to $40 an hour to compensate if the project takes longer than expected. You would tell the client the entire logo will cost $400. Most by-project rates also include a 10% increase to the cost for time compensation. In this case, you tell the client it will take $440 for the logo.

The client in the above scenario does not know that your hourly rate is $40 an hour. They only know the final cost. Charging by-project means that you do not have to produce an itemized invoice detailing what you have worked on each hour. The logo may take you only 8 hours, however you will still get paid $440. In an hourly rate, you would only make $240.

The Cons of By-Project Rates

One of the biggest cons of a by-project rate is that a lump sum often scares off clients. They see a final estimated price of $440 for a logo and think it is too much. This is because they do not understand how much you are charging per hour. On the flip side, clients may want to know an hourly estimate for hourly rates and may hem you to a certain number of chargeable hours.

For example, they may put it in your contract that you can charge up to only 20 hours a week.
On a by-project rate, as mentioned before, you may work more hours than you anticipated and not be compensated as you would in an hourly rate. If the logo takes you 15 hours instead of 10, you are working on a $29 an hour rate instead of $40 an hour rate + 10%. You cannot charge for more money because the agreed upon price was $440.

Determining Your Rate

NOTE: You must declare your income from freelancing, whether it is for a contract or by-project basis, in your taxes.

One of the hardest tasks for a freelancer is to determine your rate. It primarily depends on your industry and what the industry standards are. For contract work, know what the average rate of pay is for others in the industry who are company employees. Then determine your monthly expenses, including, but not limited to, hydro, phone, internet, groceries, health costs, and retirement savings. Keep in mind the potential for down periods as well. Find a rate of pay that will allow you to cover your monthly expenses for the entire year whether you are working or not.

For example, say your monthly expenses are $2,500 a month. That is $30,000 a year. The average person in your industry makes $25 an hour, or $48,750 a year before taxes. To be within the acceptable range while still compensating for no vacation or benefits, you should charge at least $35 an hour. In six months, you will make $34,125 before taxes. You will be able to cover your monthly expenses for at least four months afterwards without a job.

If you are working on a by-project basis, you need to track how many hours it takes you to complete a project. Then, you need to determine if you will charge hourly or by-project. If you are working on a by-project basis as supplementary income, you do not have to be concerned with how much you need per month to pay your expenses. Find a rate that is within the industry range while also compensating you fairly for your time.

There is a lot to consider when beginning your freelancing career. In the next article, learn more about freelancing, such as how to file invoices and find clients.