Second of three posts from Sam Howard on the commercials of freelancing: Following on from my last post, which looked at how to calculate your bottom line day rate as a freelancer, this one looks at the ceiling day rate.
My child’s first bake sale, he was about seven and asked to make scones.
“How much are you selling them for?” I asked dispensing with the niceties.He hadn’t given it much thought, but guessed 10p each.
“Why?” I asked. He didn’t know.I told him to think harder. “OK cost of ingredients,” he said.
So how does that help the charity you are making them for? “OK cost plus 10p,” he said and so we discovered the concept of profit.
“So what about packaging and wastage?” So we got up to 30p. And he hoped that might be the end of it.
“But then,” I said triumphantly, “have you thought of what the market will bear?” He looked pretty annoyed at this point. “No”, he said, he had not.
Part 2 What the market will bear
So I explained what people paid for a scone in a nice tea shop at one end of the scale and how much you paid for a pack of scones in a low-end supermarket. We decided that if ours were fresh baked and prettily presented with a winning toothy smile, we might be able push that up to 50p a scone. It was a pretty successful bake sale by all accounts…
So what will the market bear for your services, given that you are not baking muffins, all proceeds are not going to charity, and that you’re probably not as cute as the average seven year old salesperson?
First stop, so what are local freelancers charging? Do they compare to you and your skills? Make sure these are valid, long term freelancers/independents. It’s a competitive market out there, but if people are offering to work for ‘silly money’ like you see on the bid sites, are you really going to compete with them, what are you competing for? To see who can go bust first?
You need to understand what local agencies are charging. if you’re former agency this is a no brainer. If you’re not, then you need to do some research to try and understand where you map on to the agency hierarchy, don’t go on your old salary (probably higher) but more on your experience and responsibilities, here’s a very very rough guide:
- 1 -3 years PR experience – account exec: Support role – admin, research, supervised outreach, supervised content creation, no direct reports ( not sure this is a good time to go freelance myself unless you have very low out goings), reports to account manager.
- 3 – 6 years PR experience – account manager: Implementation role, heads up tactics, main outreach person, day to day client go to person, directly manages juniors, reports to account director. Possibly knows the account better than anyone else.
- 6 – 8 years PR experience – account director, lead role, heads up strategy, leads client relationships, oversees budgeting, heavily involved in pitching, manages account managers, reports to group account director/director. Tasked with making money.
- 8+ years PR experience – group account director, senior account director etc – same as above but entrusted with more clients, more accounts, bigger budgets, bigger teams, and some development initiatives, reports to director.
- 10+ years of experience – director, running division, sits on key strategic accounts, leads new business drives, develops new services/territories, leads team, responsible for financial health of division, runs P&L, reports to CEO. Tasked with making profit.
Once you can map your role to an agency hierarchy, find out the local day rates for this role. Then to my mind you don’t just round your rate down, but you slash it. You don’t have the group expertise or the combined reach of an agency, also you don’t have the overheads. I tend to charge under half as this makes me viable for agency work too.
The bitter pill
Now you compare your market research to your notional day rate If your notional day rate tops the market rates, you have a problem. Really why is any one going to hire you in this climate if they can tap into the same services and expertise elsewhere for less? And if you take on a loss leader project, there is only one of you, while you’re not making enough money, there is no one else to make any money at all. Every day you work at the ‘wrong rate’ only puts even more pressure on the other days to over price. You need to think long and hard about how you are going to make this work. Possibly this is not the right time in your career to go freelance, mayber you need more skills/experience, so you can charge a stronger day rate or you need to wait until there is a time in your life when you don’t need to earn quite so much (eg the mortgage isn’t making your eyes water, the kids day care bills aren’t making you wish you’d got a dog instead.).
The sweet spot
The sweet spot for a freelancer is having a low cost base and a high/in demand skills base. If your notional day rate is at the low end of the market rate scale, you’re looking at win/win, you can round up your notional rate, still be extremely competitive and know you are going to be earning enough to be able to sustain the freelance life over the longer term. Who knows perhaps you can develop a side line in home-baked goods too…