Tl;dr: I charge a fair amount (effectively well into $three digits/hr) and making what I have previously at a w2 is a real fight.
Presuming you meant $150/hr: indeed, and if you’re freelancing, you almost certainly don’t have that high a proportion of billable time. Prospecting, marketing, deliberate learning, and other overhead are all necessary parts of the deal and can easily take half your available time. I tend to do all that in downtime between contracts, so it’ll look like 25-35 billable hours per week but with maybe 25-30 weeks/year utilization. Others just overlap everything; works well with longer contracts.
I'm wondering if it's also not heavily dependent on the business structure that you set up for yourself, as a freelancer. It's a one-man company (for the most successful), a self-employed job (for the majority, or so I hear). The former eventually makes "products", while the latter may entertain a permanent rat race, wheel spin.
Difference in point: how much of what you do leads to higher value at fixed cost (notably in time, how long does it take you to deliver), or same value for lower cost (same idea).
I'd wager that, for the one-man company mindset, you tend to think not task but process, automating progressively etc. (need-to-basis optimization, ad hoc 'frameworks' that speed up your particular niche projects, heck just taking work from client A and refactoring it for client B and building an informal "product" eventually from there, that's the story of all freelancers who've been at it for 5+ years as I see it)
How much of the past work (self and tooling improvements) is factored in present value? Can we decorrelate X years of history of a company and estimate its cost/value production simply YOY? I think not. I think the greatest (companies, freelancers) incrementally raise the bar— making the threshold for competition much too high for a newcomer, hence commanding much higher value.
[At the highest end of that spectrum, meet Apple. Even tech giants struggle to meet that bar, whatever goes in it (tech genius? marketing? craftsmanship? whatever. $ at the end of the day)]
Doing the [work hours × $rate × utilization] equation only says so much about what actually goes into your rate (years of being more efficient at "it", those things you do).
Say you begin at $75 in the US after a ramp up of 3-6 months to establish yourself on the market. You survive for 2 years like that, reach ~$100. You realize it's only $50 real, and your newfound expertise is priced higher in the salary job market. So you either raise your rates or go get that money elsewhere. That's why IMHO an "expert freelancer" market only makes sense north of $100-150 in the US (adapt numbers for any country, minus perhaps the "tech not sexy" effect e.g. in Europe where it's not better paid that other intellectual activities).
Right now, you are worth much more than whatever you did this year, and presumably (hopefully for market sanity) it shows in how much you earn.
I'm constitutionally incapable of not commenting on threads like this :)
So, yes, your description is accurate, though putting scare-quotes around "products" is necessary here. As folks grow in this profession, as I see it, there's three paths to success without ending up back in a W2:
* make _actual_ products (which is my own eventual goal), or
* find a way to productize their service (re-usable code blocks or processes, customized per client at a very high effective rate), or
* get really good at prospecting new contracts and end up hiring more individual contributors, eventually building an agency.
Of course, you could potentially mix and match, and service productiziation is a good step on the way to building products.
What's most in-common across those three options is that none of them reward you, the freelancer with aspirations towards growth, for billing by the hour. And I think that plays directly into your point of task vs. process: for a _task_ you'll need to consider _how long it will take, while for a _process_ your primary concern is _what it will achieve_.
So all this discussion of hourly rates is actually presupposing an arrangement that runs counter to the best interests of everyone involved--including, frankly, those of your client, because it incentivizes you to take as long as possible to deliver your work product. IMHO once you've crossed the line of "I am making enough money to not think about money when buying a non-special meal", it's time to think about your billing structure, even if you end up losing money short-term. Otherwise you really are signing up to use a very high-value skillset to live paycheck-to-paycheck.
(My prior description of my hourly rate is hand-wavey for two reasons: first, this, that I tend not to charge hourly--and second, that no freelancer in the process of frequently hitting their rates with a multiplier benefits from making a hard rate commitment in public.)
Another comment in this discussion described freelance senior software engineer rates as running $100-300/hr. I believe that, and higher--on an _effective_ basis. But I'd wager the higher end of that scale is day-, week-, or fixed-bid rates.
On a personal note: a lot of the struggle/low utilization on my end owes to having a baby in the home. A W2 keeps paying you the same when you don't sleep for six months, but that has real consequences when you have to find your own customers!
> find a way to productize their service (re-usable code blocks or processes, customized per client at a very high effective rate), or
Anecdote incoming:
One of my short-term roommates was a programmer who did mostly SCADA-type stuff. He'd previously had a gig working for a utility contractor designing water/plumbing control systems, but for unrelated political reasons the project died he was able to retain the code (no idea if that was legal or permitted... but he had it). Flash forward to when I was living with him and he was doing freelancing work for a few counties and their related utilities, essentially implementing the same code for new clients. He eventually admitted he was only doing 30-40% new code, and mostly reviewing the existing systems.
Didn't seem to lack for work though, and had a few stacked clients / contracts going at once. Don't know his hourly rate but I'd assume he was going for at least $50/hr.
Thanks so much for this detailed perspective. Taking notes. ;)
I totally see the counter-productivity in hourly billing. It's never sat well with me. In the end, clients want a final number more than some estimation of time × some price per period. It's just not cognitively the same to drop a final, single number (with conditions, a tight contract is also a benefit to both parties because nobody likes surprises).
There's also this argument about "price for the value it has for your client, not for the cost of your work". Which makes sense in a bubble but like most pop philosophy I feel it ignores that you're not alone selling the service, and agreeing to keep prices artificially high is generally called racket by most ethics, if not laws. (half-jokingly saying this, light-hearted but there is abuse in some domains)
The matter of the fact is nobody likes, again, paying twice the real cost of something for no good reason (today it's you billing, tomorrow it's you paying for accounting or legal or your freaking dental and car bills). There's a slippery slope there that I'm not willing to contribute to. I think it's just not sustainable, in this model businesses are soulless and die like crabs in a basket, and the customer + taxpayer (all of us, all of them) looses the most.
If I'm gonna bill high, it has to be because the work is genuinely harder or better, and I'm very much factoring "past years" in the how/why. It's hard to put in words, even between us technicals, let alone client profiles. It comes down to a scarcity fact: not many people can do it as well, and that's the price in dollar of the time of this small subset.
And indeed I don't think it's "$300 per hour" (that value is computed after the fact, it's a statistic!) It's one deliverable, reduced to a single number (from which you derive the others e.g. time frames, support cost, price of additional features, etc.)
It should basically be whatever a bigger business could earn selling the same product/service, minus overhead¹ and shareholder profits²— all for you, times some scarcity factor. If an employee makes an average $100K making it, we can see a freelancer making about twice as much for the same work (a factor of say 1.25 to 3-ish, this from my a#%, armchair intuition / business angle).
In actual geographical market forces, I see a lot more money going to whoever's established as one of the go-to's than an economist's account of what should be. Reality checks and all that. You need to know X, Y and Z (people, competition, client aggregator...) and go from there. Online is a bit more "opened", but far less than people would think. In a given niche, many people know many people. No niche = low multiplier factor (because low margin for all businesses, includng you), and low bonus (because low barrier of entry usually means less valuation as a market relatively to others).
Best advice I've ever heard: go to business consulting meetups and talks. These people totally understand that you come in with a skillset to offer services, that's the spirit. These people give the single most trusted recommendations, that's their actual job!
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1: you also lose the larger skillset covered by a business team, I think overhead is actually worse for a freelancer if you don't outsource as much as possible (everything that's not your domain, may be better served, more efficiently too, by a professional of that domain).
Tangential but, this is my problem with all the pop-culture around entrepreneurship telling you to learn it all as if improvising ever was a good long-term strategy...
Recruiting solid, reliable, trustable suppliers; creating a synergy of behind-the-curtain business deals; these are much more valuable skills for sustainable success if you ask me. Learn to play with others, combine strengths and values.
2: this is where domain value plays in, e.g. bonus value for a freelancer in fancy biotech versus common web / mobile views.
They also have benefits that W2 employees do not, like deducting expenses, $50k+ in allowable retirement contributions per year, and the 20% QBI deduction.
You are certainly correct, and those are nice to have.
It pays to keep in mind that in order to deduct an expense, you have to pay the expense. So as a freelancer, when I pay for my computer, that's $1500 out of pocket. Then I don't pay quite so much in taxes. But I've still got $1500 less at the end of the year than if I worked at a business and they were paying for my computer.
$50K+ into your retirement is also great, but it's most useful for those who are making so much money that they can afford to put that money away and not touch it until they're 62. Some people can certainly do that, but I doubt that it's very common. Even FTE often don't max out their 401K. Here's a fool article that claims the average is rate is 7%:
https://www.fool.com/retirement/2017/01/15/average-americans...
> You would also then have a $1500 asset that you could sell at a later date. When you're an employee you don't have that option.
Maybe if you turned around and resold the system immediately. But I'm not gonna pay 1500 bucks for your 4 year old 133t machine that you spilled coffee and sneezed on.
Of course. That’s why depreciation and MACRS exists. The point is it’s not a $1500 sunk cost. You get a multi year deduction and an asset in return. How you handle that asset is up to you.
