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For freelancers, choosing the rate that works is critical

Freelancers need to know — and communicate — the value they add to a business beyond the nuts and bolts, said one consultant.

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Freelancers need to know — and communicate — the value they add to a business beyond the nuts and bolts, said one consultant.

Taylor Johnson works as a graphic designer, Mary-Kay Demetriou as a marketing consultant, and Debra Kling as a color consultant. And they all work as negotiators.

The three are among the one-third of the US workforce — about 42 million people, according to the Freelancers Union — who work independently. And as freelancing has increasingly evolved from a hobby or part-time work to a full-time job, those who learn how to price — and sell — themselves are the ones who succeed.

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“Many people didn’t wind up freelancing by choice, and how to bill and what to charge are not skills most people started with,” said Laura Vanderkam, who writes and speaks about time management.

A first step is to determine the right rate for your profession and level of expertise. Talk to others, do market research, and join professional organizations — where pricing is often a hot topic of conversation.

Lindsay Van Thoen, in a blog for the Freelancers Union, a labor organization, suggested one method for setting an hourly rate and developing longer-term economic goals — though she warned it’s “a guide, not a rule.”

Figure out what you want to make yearly and put that aside as a salary you pay to yourself.

Then add expenses, such as purchases and overhead, plus the profit you hope to make above expenses. Van Thoen suggested 10 to 20 percent of your salary.

Divide all that by the number of billable hours you plan to work for a basic hourly rate.

If possible, get a budget from the client before crunching the numbers, she said.

“There’s nothing worse than doing all of your calculations, giving a client your price, and then getting complete silence on the other end because your price is very different from what they expected,” she said.

One of the perennial freelancer questions is whether an hourly rate or a flat fee is more advantageous. Both have pros and cons, but as people gain experience and confidence, they tend to change to a per-project system.

“I’ve moved away from hourly billing for many clients,” Johnson, of Palo Alto, Calif., wrote by e-mail. “My creative process often involves time strategizing over coffee, walking, driving and thinking. At times, I’ll take a break from working on a project only to have a sudden flash of inspiration. It’s these times away from my Mac that are often worth every billable penny. Billing in hourly (or even 30-minute) increments tends to discourage the creative process and limits my time to actual production time.”

In addition, some part of each day — maybe an hour — should be spent on business development, Vanderkam said, such as networking and researching new projects, and that needs to be covered by your income.

“It’s just like grocery shopping isn’t just the time in the store, but making the list, driving there, and putting away the groceries,” she said.

Whether by the hour or by the project, you need to keep track of your time, and many apps are available to help.

Kling, who lives in Larchmont, N.Y., swears by Toggl, which allows her to easily see the exact minutes spent on each project — she’s juggling 30 now — on her computer and mobile devices by using color coding for each job.

While “I’m not a stickler about hours,” she said, “Toggl lets me see if the 10 minutes here and there I’m doing for a client add up.” Sometimes she even gives a client the time sheet so they can understand that her pricing “is not voodoo.” she said. “I don’t just come up with a number.”

She said Toggl, which is free but can be upgraded for $5 a month, also permitted her to see if she accurately estimated the amount of time she spent on a project and readjust in the future, if need be.

Vanderkam, who has written about such apps, said Toggl was one of the most popular, but there were also tools that keep track of the unproductive hours as well as the productive ones.

RescueTime, for example, runs in the background, timing the minutes spent on various sites or applications. Those “five minutes” spent on Twitter or Facebook might, in reality, be an hour. It’s free, but a $9-a-month upgrade also includes services like blocking distracting websites and more detailed reports and filters.

Other freelancers mentioned using Budgetic.com and Itrackmytime.com. Johnson said he used Roninapp.com, which starts at $15 a month, for invoices. Fanuriotimetracking.com, which also does invoices, costs $59 for purchase and a year of technical support.

Most of the apps have free trial periods, so try a few to see which works best for you.

While an app keeps tracks of the minutes, work is more than that. Freelancers need to know — and communicate — the value they add to a business beyond the nuts and bolts, said Mike McDerment, cofounder of FreshBooks, which sells accounting software for small businesses.

“People start by undervaluing their own work,” said McDerment, who also wrote the free Portable Document Format book “Breaking the Time Barrier,” which addresses pricing strategies for freelancers.

Or as Johnson said, “I’m getting my clients to understand they are paying for a design solution and not just actual production time. By understanding the creative process more, it allows them to better value the service I provide.”

Of course, even with the best effort in the world, things go wrong. Demetriou, a Santa Monica, Calif., marketing consultant, thought she had everything covered when she started a project for a market research company. She provided a timetable, set her hourly rate, had an agreed-upon scope of work and a signed agreement, and kept in touch with her clients with status reports, as well as updating her work online.

But when she sent her first bill, she received a big surprise. She was told the deal was for only 10 hours of work and no money was available to pay the invoice in full.

“I had probably done 50, and they could have seen all along that I was doing way more than 10,” she said.

Demetriou said she believed the budget of the department that hired her was cut between the time she was assigned the work and the time she billed.

She learned a few valuable lessons from the experience: Even with a detailed scope of work, you need to ensure that your contract or agreement specifies the maximum amount a client will pay, something her contract did not include.

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