Freelancer’s Survival Guide, Money Part 6
The Freelancer’s Survival Guide: Money, Part Six
Kristine Kathryn Rusch
I’m sitting in my office at the exact moment my alarm normally goes off. I’ve never been in the new office this early in the morning. The main window faces east, and I’m squinting as I write because I’m too lazy to lower the blinds.
I’m here early because I’m so scheduled today that this is the only time I have to write the Freelancer’s Guide. I’m teaching a workshop this week. I thought I would have time in the evenings to write, but I don’t. In fact, I’m busy every single moment I’m awake, and for the past week, I’ve been sleeping two hours less per night than I normally do. So here I am, doing exactly what I used to do when I had a day job, crawling out of bed at what my husband calls O-Dark-100, and trying to make my brain work.
Ah, the flashbacks.
Those of you who still have day jobs do this every single day. You get up early, you snatch a moment to work on your freelance business at lunch or in the evenings when you’re as groggy as I am now.
You’re reading the Freelancers Guide so that you know what you’ll face when you go fulltime freelance. (Okay, the usually energetic kitten has just dozed off on the window sill; this is much too early for her as well…and she’s not helping.) A number of you have written to me, particularly when I was dealing with the expenses section of the Guide, saying you’ll hang onto your day jobs longer or you’ll plan better—and those are good things.
But then there’s this extended schedule, something I usually don’t have to face. I don’t write when I’m tired any more. When I’m sick, yes. When I’m distracted, yes. But tired? I say I write tired, but I don’t. I write until I’m very tired (ready-for-bed tired) but almost never do I write when I’m this exhausted and pressed for time.
I used to. I remember this feeling—and I’m glad I don’t have to do it very often.
That’s one of the perks of freelancing, and one I forgot until this morning.
But…going back to the discipline post, you’ll note that I’m up at O-Dark-100, working on the Guide. I don’t have an outstanding deadline on this Guide. Just the obligation to post a new one on my website every week. I could, as I said in the discipline post, put up a short notice—Teaching This Week; Guide Will Return Next Week—but I didn’t. Because, as I said before, being a successful freelancer is all about discipline. (Dammit.)
Last week, I promised we’d discussing billing and toughness.
Those two things go together. In order to have income, you must charge for your work. Once you set the price, you must demand payment in some form or another. If you don’t get that payment, you must go after it, somehow.
This week, I’ll deal with setting price.
Oddly enough, this is often the toughest thing for the freelancer. You must set a price for your work. This price must do three things: it must reimburse you for your time and effort, as well as whatever costs you already have in the project; it must be within the range of whatever the customer can afford; and it must indicate value.
The last is the most nebulous. But when Dean and I started teaching our own writers workshops, we learned what these means.
We started our workshops as a way to pay forward. Other professional writers had helped us along the way, and we couldn’t help them in their careers. So we pay forward, to the other professionals and up-and-coming writers who need help.
Initially, we did a lot of work for free, or for the expenses (and somehow, what we got paid never did cover expenses). These workshops, while giving us some practice, never really attracted the writers we wanted to help. Sometimes one or two of them would come, but the bulk were people who had thought of writing, but weren’t writing.
We used price to weed out the wannabe writers who weren’t serious. But we had other considerations. The workshops had to pay their own expenses. And we had to keep the price relatively low, because most professional writers and serious writers trying to become professional, often didn’t have much money. We certainly didn’t in their shoes.
So we set the price as low as we could and still cover expenses. We had to donate our time to do this—and once in a while, we still miss. Last fall, for example, after the Master Class for professionals who need to jumpstart their careers, we were $3000 in the wrong direction. So not only did we donate our time, we lost $3000.
Not the best way to run a business.
Fortunately, we don’t make our living teaching. If we did, we would charge a lot more. For example, a writer I know who has published no novels and maybe twenty short stories (who would, in short, be a candidate for our Master Class if he were so inclined) makes his living teaching and charges $5000 to $10,000 per student for his weekly workshops. We charge $2500 for two weeks, and that includes room and breakfast.
The price difference comes from two areas. He needs the money to make his living, and he doesn’t care who comes to his workshops. In fact, most of the people who do come are upper middleclass and retired, and see the workshop as an adventure vacation.
We make our money writing, and we care who comes to our workshops. We screen heavily—and even at our discounted prices, a lot of our students struggle to get the time off and to pay for the workshop itself.
Note the considerations in setting price.
Each freelance group sets price differently. Contractors bid for projects. The bids are estimates, but they become binding when the client takes the project. Anything over the estimate becomes a cost-overrun that the client must approve.
When a contractor bids, he’s setting his price based on several factors: the cost of materials, the cost of labor, the cost of overhead, and the cost of intangibles (discovering, for example, that the floor he was going to use as the base for the new wall is rotted and must be replaced). The contractor must also make a profit, or he will go out of business.
Contractors have another consideration: contractors bid against each other. So the contractor must factor his competitors into the mix. The cost of materials should remain the same for all the contractors. The cost of labor should be similar. And all of the contractors have to factor in the intangibles.
The only areas where the contractor has discretion are the cost of overhead and the profit. However, the contractor can only trim his overhead so far. Sometimes a contractor will forgo the profit to get the job, with the guarantee of being the sole contractor on future jobs. In those jobs, the contractor will add the profit back in.
Over the years, contractors have learned to shave expenses in other areas. They work with their suppliers, getting excellent deals which brings down the cost of materials. They decide when they can use cheaper labor—or just do the job themselves.
All of these things factor into price. And it becomes a real balancing act. Most independent contractors go out of business because they undercharge too much. They get the job, but just like our Master Class last year, the job costs them more money than they expected. They don’t make overhead and they certainly don’t make a profit.
Contractors aren’t the only ones who get paid for the job. Plumbers and a variety of other service providers do the same, with the same considerations.
Consultants have an even more difficult task. They ask to be paid for their intellectual ability in a certain area—again, the ability to do a job. But often there are no materials. There are no other employees. There’s only one person’s knowledge, and the value it imparts to the client.
Lawyers, psychologists, money managers, all must set their fee, whether it’s an hourly rate or a fee per job or—in the case of agents (from book agents to insurance agents to real estate agents), a percentage of the gross money they bring in for their client. In many of these fields, there are reasonable and standard rates. But the more in demand the consultant is, the more she can charge. Starting in these fields, however, can be difficult, because the consultant’s worth is at that point unproven.
When we owned the collectibles shop, we had other considerations on setting price. We sold comic books, marbles, cookie jars, jewelry—all kinds of things that people collect. (Dean collected them and finally decided to use the shop to sell off his collections. It didn’t work because he bought new collectibles while there. That is, it didn’t work, until he sold the store.)
We had owned many of the items that we sold for decades. Some of the items had risen in value; some had lost value. Dean set the prices because this is his area of expertise. The shop was in an antiques mall at the far end of the tourist town where we live. (You can still visit the shop, which has been run by its new owner for longer than we had it. Pop Culture Collectibles, in Streetcar Village, Lincoln City, Oregon.)
Dean knew his customer base, and that set not only the prices, but which items he had in his store. Most of the traffic would come from tourists, looking for souvenirs. So he needed to provide cheap impulse buys.
Some of the traffic would be true collectors, who would find the one item they needed to fill out their collection. For them, he needed to offer that item at its value or higher, so that he could negotiate the price down to something they’d be willing to pay. Collectors will often pay more than something is worth so that they can finish their collections.
Other collectors would want an item, but would be like Dean himself: they wouldn’t buy that collectible unless it was beneath the price listed in the various price guides. So for them, he needed collectibles priced enough under guide to be tempting, but the price had to be high enough so that Dean made a profit on the item.
Finally, he would had repeat customers—also collectors—who checked the store every month or so to see if something new came in, so that they could add to their collections. Often these collectors fell into the last category. But their presence meant that Dean’s inventory had to change on a regular basis.
So he had to price to move product out the door.
So the prices in his store varied for extremely high to extremely low. His main thought with the store—our original reason for owning it—was to move product. So most of items were priced under market value. But he had a few that he knew only the specialty collectors would buy, so he priced those at or above market value.
And then there were the truly special items that he had in the store mostly as decoration. In other words, he didn’t want to sell those items, but he wanted people to see them.
Those items had the price that Dean called ridiculous. The ridiculous price was so high that he would part with the item and feel good about the item leaving his life. Needless to say, he didn’t sell many of those, but when he did, he laughed all the way to the bank.
Most writers reading this are feeling a bit confused at the moment. Writers don’t set price the way that retail store owners do. Writers mail their materials to a market that will pay them an established rate. From many writers’ points of view that means that the magazine or the book publisher sets the price.
But that’s simply not true.
Writers place a value upon their work in a different way. The value for their work comes in the markets they pursue.
For example, pay rates for short stories vary from payment in copies of the magazine (in other words no money at all and very little value) to thousands of dollars per story.
The competition for the thousands-of-dollar markets is high; the competition for the pays-in-copies markets is extremely low. Even as a beginning writer, I refused to submit stories to the pays-in-copies markets. My theory was—and is—this: I’m a professional. I get paid for my work in actual money.
I started then and continue to mail my work to the high competition, high paying markets. Those markets often invite high-end contributors, so the room for an unsolicited story is quite small—maybe one or two slots per year. Some years I hit that slot, some years I don’t, but I always try.
Then I work my way down, figuring out two things: Price and audience.
Why audience? Simple. As I grow the number of people who like my work, I can increase the price I demand for that work. I become one of the invitees instead of someone knocking on the door trying to get into the highest paying markets.
The attitude remains the same for my work with book publishers. I factor in the time it takes me to write a novel, what I need to pay my bills, and how much profit I want at minimum. (Of course, I will take money above the minimum, so setting the minimum price is the best.)
I’m fast and prolific, which gives me the luxury of taking some lower-paying project because I want to write it. If I only wrote one book every five years, I would have to demand a higher price for it—if I were a fulltime freelancer. (Most people who write one book every five years have day jobs.)
How do I demand price? In the book publishing industry, price is negotiable. The publisher makes an offer for my work. The offer includes a price (among other things). I then accept the price or negotiate it upwards. The publisher has a limit of what he will pay me on the upper end, and I have a limit of what I will accept on the lower end.
Sometimes we come to an agreement, and sometimes we don’t.
Occasionally, I screw up. A project takes more work than I expected, for example. In one case, I had deliberately priced myself out of the market (I thought), and the publisher exceeded my price. I was stuck with a project I really didn’t want to do. I learned, in that instance, to set the bar higher for a project I don’t want.
Note: rarely do I say no to a project I don’t want. I want the publisher to return to me with other projects and/or to consider future projects I send him. So instead of saying no, I set my price so high that the publisher will decide to hire a different writer. This is the writer equivalent of Dean’s decorative collectibles. My problem early on was that I didn’t set my price high enough to laugh all the way to the bank.
Sometimes, the publisher screws up. He pays me more than the project could ever earn. This usually happens on projects that originate with the publisher and he asks me to do the writing. It does happen with my original work, but rarely. Usually the publisher and I know what the market will bear for that work, and we both set our prices accordingly. I set mine by demanding an up-front payment of a certain amount, with a royalty in case the book does better than expected. He sets his with that upfront payment and with the price point he puts on the later book.
Which brings me to the Freelancer’s Guide. I could have written 50 pages, added a proposal, and marketed this book to the top nonfiction publishers. If I had done that, I would have had a dollar figure in mind for my advance payment. If no publisher offered that, I wouldn’t write the project.
For years, I had thought of doing that but never did. Part of that was because, as fulltime fiction writer, I never made the time for the speculative nonfiction work. All of my nonfiction these days is commissioned.
I have received a lot of nonfiction book offers in the past twenty-five years, and I’ve accepted none of them. Mostly I’ve priced myself out of the market on purpose. In the one case where the publisher accepted my price, I would have completed the book—except that it was a rush job, and a legitimate family emergency arose. (I had to go to Hollywood to work with a production company for two weeks, and two days before I was to leave, my mother died.) No money had changed hands. I begged out of the project, and the publisher found someone else to write the book.
When I realized in March that the Freelancer’s Guide needed to be on the market right now, I still could have gone to a mainstream publisher. Right now would have become a year from now, but the book would still have had its uses. And a book publisher in today’s market would have understood the need for such a project.
Instead, I decided to answer the siren song of now and use the opportunities available to me as a freelancer in the modern market to publish the book immediately.
I was thinking of my audience, mostly. Just like Dean and I do with teaching, I wanted this Guide to benefit people who are struggling right now and trying to succeed in a new profession—one some of whom might have been forced into due to the wretched economy. (Many longtime professional freelancers started in recessions or [if you read history] the Great Depression. If you can’t find work, you create your own.)
Even with this self-publishing option, I had a variety of routes. I could have posted the Guide as proprietary e-files. People who had e-readers could download the book for a price that I would set. But many people don’t have e-readers, although most people have computers. So I could have posted the Guide privately on my website. It would have taken a password to access the Guide. I could have set a price for that password.
But I had two considerations against that option: first, most of my new audience wouldn’t have discretionary income. I want to reach the folks who were living on unemployment benefits, suddenly and frighteningly unemployed, and looking at all of their options. Those folks couldn’t pay for the Guide.
The other consideration was pure marketing: People now know me as a fiction writer. No one knows I wrote nonfiction for years unless I told them. So the value of the Guide would be hard for the customer to determine without actually reading it. I could have given the first installment away for free and made people pay for the rest, but that automatically limited my market.
So I decided to publish on my site. But I had the internal problem of the deadline. I don’t write for free. I never have. I need some kind of payment for my expenses (which are my time, my webspace, my research [which can be extensive], and my overhead). So I put up the donation button.
Even then, I could have set price. Paypal gives me the option of accepting a set fee for the donation. I decided to let the consumer chose what price she paid for the Guide. And I’m up front about this.
Here’s how I see it: Those of you who are donating (thank you) are paying for more than my expenses. You’re buying free copies of the Guide and giving them to the people who actually need it. In other words, you’re making the “free” part of this Guide possible.
Setting price is probably the most important part of your freelance business. It’s also the most difficult. You will miss on occasion, especially early on. Chalk that up to a learning experience—and don’t make the same mistake again.
Here are the factors to consider as you set price:
1) your expenses
2) the amount of time the project will take (or that you’ve already invested)
3) the cost of materials (if any)
4) the cost of labor besides you (if any)
5) the minimum you need to make on the item/project to make a slight profit—or to gain an intangible, like getting the client to return (in retail, that’s called a loss leader; you give something away for free, so that the client will purchase another similar item at a much higher cost).
6) the maximum you can charge a client without chasing the client to something or someone cheaper
7) the profit (and there needs to be a profit most of the time)
There are many other factors, some mentioned in this section. Next time, we’ll move from setting the price to actually making the client pay for the item. And that’s the really tough part of billing.
“Freelancer Writer’s Survival Guide: Money, Part Six” copyright 2009 by Kristine Kathryn Rusch.
You can now order either an e-book copy of the Guide or a trade paper copy of the Guide. It’s in slightly different format and has been organized, so that related topics are in an easily accessible place.
You can get the print version here.
For those of you who’d like to buy an ebook, here’s the Amazon link as well as the Barnes & Noble link. The e-book will also be available on all the other e-book sites. If you want it in your favorite format, and the book hasn’t yet been uploaded to your favorite site, try Smashwords. You’ll be able to download in a variety of e-book formats.
I’m late to this conversation because I’ve been waiting for time to read a bunch at once. Still, I’d like to add a bit. One of the hardest parts of setting price in freelancing is knowing what others are charging. I’ve talked to writers many times and they all want to know what I charge for my hourly work, but no one asks until I say, “You really can ask me anything, even about what I make.” Then a bunch of hands pop up. It goes back to what you said, Kris, about we don’t talk about money in this country. And, I think, in writing, we don’t talk about the business. For newbies, it feels like a very secretive industry. You and Dean are breaking that mold and I couldn’t be happier. Thanks.
Mark wrote: To make $100G as a writer, your books are doing well or you’re either writing technical materials for pharmaceutical companies, Fortune 500 companies doing copywriting or business reports, computer manuals, or, you’re working your ass off.
Or you’re re-selling a lot of things to new markets and/or getting good royalties on sell-through. Re-licensing something you already have is a lot easier than writing something new. 🙂
Contractors bid for projects. The bids are estimates, but they become binding when the client takes the project. Anything over the estimate becomes a cost-overrun that the client must approve.
In some industries, the estimate remains binding unless work outside the original scope is formally requested. This means that if you underestimated what it would take to do something, then you get to lose money on the deal. Not fun.
Thank you very much for this excellent information. Until I was laid off from a lucrative job last October and left with nothing, I never understood what it took to become a freelance writer, and what it took to become successful at it. The amount of time spent from prior to sun-up to long past sundown, and the constant requirement for productivity that you describe, is the dream I am currently living. With a week of unemployment left and two young children to support–solo–I began to panic, which meant writing more. Producing more. And then I landed my first book contract.
I mention all this because your guide hits the nail on its proverbial head. And I can’t be the only one for whom this hits home. Your guide is necessary and timely; thank you for sharing your experience… just this section alone answers so many of my questions.
And ditto, Thea.
Congrats, Cynthia. Great job. You’re not alone in this recession. Lots of folks are making the switch to self-employment. Glad you believed in yourself and it’s working for you.
Oh, FYI, in case no one’s heard of this formula.
Decide how much money you want to make a year. For simplicity, let’s say $100,000 a year.
Divide by 2080, which is the number of hours in a 40-hour work week X 52 weeks in a year.
So, $100,000/2080 = ~$48
So, in theory, in order to earn $100,000 a year, you need to charge $48 an hour, give or take.
Except, because you’re a writer or some other kind of contractor, you have to pay overhead–rent, utilities, etc. The rule of thumb is, you then triple your hourly rate. For simplicity, let’s say $150 an hour.
Now, here’s the thing. Some fields won’t support $150/hour, and some REGIONS won’t support $150/hour. But let’s call that a GOAL.
Now, let’s say you’re a fast writer and you’ve got a corporate client that wants you to write a newsletter, how much do you charge? You think about this, decide that you can do the newsletter in 20 hours. How much do you charge?
Hmmm. 20 X $150 = $3,000.
Is that high? Well, yes, probably, unless the newsletter is particularly technical, in which case, well, you can probably charge that.
But $1,500? Most likely, which is still $75/hour.
To make $100G as a writer, your books are doing well or you’re either writing technical materials for pharmaceutical companies, Fortune 500 companies doing copywriting or business reports, computer manuals, or, you’re working your ass off.
Mark, good point about the PITA tax. I do that as well. And for some projects, I’ve decided that life is just too short. Never again. Not at any price. Disagree with you about 100K as a writer, however. That’s very common. Sorry to bust that myth. If you still don’t believe me, come to our workshop in Sept and we’ll show you how the numbers work. JenK is right about how writers make money. She’s also right about contractors–and that’s an ugly position to be in.
You forgot one more factor in setting your price: how much is it worth to the buyer.
This is by far the most important factor in setting prices, for most things. It gets blurred in writing, because often the writer isn’t selling directly to the consumer, but instead to a middleman, who then peddles it to the consumer. But in most areas, “how much is it worth to the buyer” is by several orders of magnitude the most important factor.
How much is a bottle of water worth? Well, they’re 24 for $5 in big supermarket. Or they’re 1 for $1 from a street vendor, or they’re 1 for $2 on a hot summer day, or they’re 1 for $5 inside a dance club, or they’re 1 for $500 if you’re dying of thirst in a desert. Nothing about that bottle of water has changed – the cost to the seller is identical in each case. The only factor that has changed is how much the buyer is willing to pay for it.
The first thing that marketers are taught is that price has nothing to do with the cost of materials or labor or anything else. Price only has to do with the value of the product in the eye of the purchaser.
Good point, Michael.
I really enjoyed reading your Guide Part 6. Now I need to go back and read 1-5! I hope you collect these and make a book out of them. It reads great and I think it would sell for sure. Now for Part 7? Thanks.
I think the hardest part of setting the price is understanding how much your time is worth. In the beginning, many people, especially women, tend to undervalue themselves. But you set out very succinctly the formula for setting price and it doesn’t have much (in the beginning, anyway) to do with YOU. It has to do with your SKILLS.
Thanks for all of this. I am working to put my life together to go freelance and all of this serves as a mentor and a great exercise in preparation.
You’re welcome, Thea & Elizabeth. Glad this is helping. 🙂
A month or so ago I visited a new music store that had just opened in town. He had 7 or 8 used guitars and I went up the line trying them out. Most of them were, well, not good, or at least, if priced at $85, were probably worth about $85 (or so). There was a pretty decent guitar priced at about $385, which for that particular guitar was way, way too high. But it was a pretty nice guitar. I could have paid that much for a relatively inexpensive new guitar that would have been better, but it was a decent guitar, and I told the owner so.
He grinned and said, “That’s my guitar. I don’t want to sell it so I jacked the price up.”
I don’t know that as a writer I’ve necessarily priced jobs high that I didn’t want to do, but I do add what I call the PITA tax, which means pain-in-the-ass, and there are definitely some projects and some clients that deserve every penny of the PITA tax. That is to say, it’s a pain, you’re a pain, but I’ll do it if you make it worth my while. Sometimes that probably prices me out of the gig (which is probably okay), but most of the time it just means I get paid more money for a job.