Step 2 in Smart Freelance Pricing?

This post is part of Free Money, the book about freelance pricing and money mindset I’m writing in public. Here are the first installments:

1. Why is freelance pricing hard?
2. Are you stuck in a freelance pricing dead-end?
3. Step 1 in Smart Freelance Pricing?

To see future installments as I publish them, get updates in my weekly newsletter and check out the Twitter thread I’ll be updating along the way.

Figure out your true availability for client work.

On a Thursday in November 2021, Timothy Rhyne met up with several friends outside of Denver, Colorado. They worked for Rapha, his favorite cycling apparel company, and he was excited to finally be going on a ride with them.

The group set out, and about an hour later, they came out of tree coverage and into a canyon. The wind was strong and wild, and before Tim could compensate, it had pushed him from the inside of the lane to the outside.

As Tim tried to regain control, the bike fishtailed and slid into oncoming traffic. Tim hit the pavement so hard that he shattered his collarbone, broke three ribs, and partially collapsed one of his lungs. Sliding across the asphalt caused severe abrasions on his shoulders and back.

Tim was lucky to be alive. A hospital stay, surgery, and weeks of physical therapy followed.

I had helped Tim raise prices at his design studio, Typo, and in the months before the accident, Tim and his team had landed one recorded contract after another. Thanks to those cash reserves, Tim was able to focus on recovery instead of rushing to get back to work as quickly as possible.

2a. Figure out your available work weeks.

Tim avoided two mistakes freelancers make when deciding what to charge:

1. Overestimating how many hours they can work in any given month.
2. Failing to differentiate between billable and non-billable hours.

Those two mistakes lead to oversimplified math:

• 4 weeks x 40-hour work week =160 hours per month
• $5,000 (or whatever the monthly income target is) / 160 = $31.25

The only thing we can really count on in freelancing is things not going according to plan. A plan that relies on billing 160 hours each month is too fragile, too likely to fail.

The better approach is using “available” work weeks in a year, not hours in a month. That way, your pricing account for natural (and inevitable) fluctuations in productivity, billing, and earning. Fatter months can cover the leaner ones. Busy months can fund your absences. For example, if you plan to take off the last half of December off, then you’ll make doubly sure to “overearn” in October and November.

Here are the 3 steps for figuring out your available work weeks:

Add up the days in the next 12 months you won’t work.

Count vacations (e.g., Spring Break with the kids), national holidays, potential sick days, and other time off.

A typical year for me includes three or four weeks of vacation, quarterly offsite planning days, a business retreat, one or two conferences, and celebrating various holidays, including Thanksgiving and Christmas.

My three kids are school age, and I enjoy going on their field trips to the zoo, pumpkin patch, museums, you get the idea. I call this “Field Trip Freedom,” and it’s one of the weird metrics I use to measure my success as a freelancer.

Knowing that I put in only one or two hours of meaningful work on Field Trip days, I will add an extra three days to the number I won’t work.

2. Divide the number of days by 7 and round up.

For me, that number ends up being around six weeks, give or take.

3. Subtract that number from 52 to get available work weeks.

Once you have your number, take a mental step back and give it an appraising look. Are you being generous to yourself? Are you being realistic?

You may need to grey out one or two more weeks to be on the safe side.

52 weeks minus 6 weeks off leaves me with 46 available work weeks. For the sake of simplicity, we’ll say that’s your number too and use that number for the rest of the exercises.

“I wish I had charged less in the past.”

– No Freelancer Ever

2b. Add up your available work hours.

Now that you’ve got your available weeks, let’s figure out the number of hours you will work in an average week. For our purposes here, I define work as money-making activities and the many other tasks and projects required to sustain the business.

All told, my average work week comes out to 38 hours. My work day starts around 9:00am and runs to 5:30pm. Lunch takes thirty minutes, or an hour and a half if I’m driving to meet someone. My work week ends Friday at lunch, though I usually spend Friday afternoons on my weekly windup (Inbox Zero, Desktop Zero, Downloads Folder Zero). My weekend rule isn’t strictly “No Work,” rather “No Client Work.” If I want to put in the occasional 90-minute block on Saturday mornings because I want to write, research, or play with a new idea, that’s up to me.

Answer these questions to determine your available work hours in an average week:

1. When do you start and stop working?

2. How long do you take for lunch?

3. Do you work on weekends? How much?

4. How many hours do you work during a typical week?

5. Is that pace healthy and sustainable?

That last question deserves deep reflection. In the U.S. we’ve created a wacky cult of thought and practice around optimization, efficiency, and a misshapen gray balloon with the word “success” written on it. (We’ll deflate that balloon later in this book.)

Each of us must dance along boundary line between possible and beneficial. As the sworn enemy of busyness and burnout, I don’t advocate for more hours, longer days. Hustle culture delivers on all the wrong promises. I encourage you to opt out.

When our work feels more like play, it is one of the best satisfying pursuits human beings have. When our work feels more like toil, it is one of the heaviest and most punishing burdens we carry.

As you think through your average work week, don’t set your mind on the maximum number of hours. What’s the point of extra money if you’re too busy to enjoy it? And don’t haggle with yourself over a minimum hours. Why deny yourself the pleasure of more work you enjoy? Instead, pick a number that holds this beautiful yet razor-edged thing called work in healthy tension with other pursuits and commitments you value as much or more.

Did I get a little preachy there? I thought so. I enjoyed it too.

The average number of hours I work per week is 38. What’s your number? Once you have it, move on to the next step.

2c. Calculate available time inventory.

Now that you know your work weeks in a year and a healthy number of work hours in a week, you can calculate your approximate time inventory for the entire year.

1. Multiply work weeks by hours per week.
2. Give yourself a lingering hug.

When I multiply my available work weeks (46) and average work hours (38), I get my time inventory for the year — 1,748.

What’s your available time inventory?

2d. Account for effectiveness.

Some of your time inventory goes to billable work but not all of it. Email and client communication will eat up time. You’ll quote projects and put together proposals. You’ll need meetings and calls to win the project and keep it moving forward.

Non-billable tasks are termites that eat money-making time. Unlike termites, these tasks provide necessary (if sometimes tedious) support to the business.

You have to take this time out of your pricing calculations by estimating your “effectiveness.” Effectiveness is the realistic percentage of hours you can effectively bill clients for during a typical work week. Some weeks you’ll spend more time on billable projects, and other weeks, less.

Tons of factors make our effectiveness go up or down, including the number of projects we juggle, children and other family obligations, the time of year, travel, health, emergencies, and a million other surprises you’ll find in the “Life Happens” bucket.

Building effectiveness into your rates will leave you with less anxiety about non-billable hours. As long as you hit a certain income target each month, you can literally afford to work less. Your prices support your lifestyle, not the other way around.

Here are the steps for finding your effectiveness:

• Estimate the percentage of hours you can effectively bill each week.
• Turn your percentage (e.g., 60%) into a decimal (e.g., 0.60).
• Multiply your available time inventory by the decimal.

Here are my numbers:

• 60% of my available hours spent on billable work is realistic for me.
• 1,748 work hours per year x 0.60 effectiveness equals 1,048 billable hours.
• 1,048 hours is how much time I’ll have each year for billable work.

How many hours can you realistically bill in a year?

Let it be known that all this estimating we’ve done in Step 2 is what U.S. President Dwight Eisenhower would call peace-time planning: “Peace-time plans are of no particular value, but peace-time planning is indispensable.”

Your available work weeks, work hours, time inventory, and effectiveness will always be in flux. An accident like Tim’s could change your numbers in an instant. A last-minute opportunity with a dream client might motivate you to work (happily) through the weekend.

With that in mind, lean toward conservative numbers and move to Step 3.