Backstory

I am writing this piece as a way to help answer some rampant question in the tech space. Some of us are underpaid and overused. Some of us charge too high, and we end up getting less gigs. Some of us don’t have a model to charge clients with, we just go with the whim. But is that how things should be? Can we really convince clients of a certain price, and justify that price with a thorough break-down?

Let’s explore our options.

Introduction

The gig economy is a way of working that's become increasingly common in recent years. It's characterized by short-term contracts, freelance work, and side hustles, rather than traditional full-time employment.

There's no single starting point for the gig economy, but the rise of digital platforms that connect workers with customers has definitely fueled its growth. Think ride-sharing apps, delivery services, and online marketplaces for freelance work.

Here's a breakdown of the gig economy:

• What it is: A labor market reliant on temporary work done by independent contractors and freelancers.
• When it started: No exact date, but the rise of digital platforms in recent years has been a big factor.
• Where it's at now: The gig economy is a growing trend, with many people choosing or needing to work freelance or in temporary positions. The gig economy has enabled young skilled workers earn amazing compensation from the comfort of their homes.

There are both advantages and disadvantages to the gig economy. It can offer flexibility and freedom for workers, but it can also mean a lack of job security and benefits. Let’s move on to the main meat of the article.

What are you worth per hour?

Generally, everyone is advised to calculate and know how much their hourly worth is. It may weigh in on your conscience, such that when you’re watching a 2-hour movie, you know exactly how much you are not making. But this is more good than bad.

“Set and enforce an aspirational personal hourly rate. If fixing a problem will save less than your hourly rate, ignore it. If outsourcing a task will cost less than your hourly rate, outsource it.” Excerpt From The Almanack of Naval Ravikant: A Guide to Wealth and Happiness Eric Jorgenson This material may be protected by copyright.

Let’s practically learn how to do this.

Calculating your hourly worth

Calculating your hourly worth can be done in multiple ways. The easiest way is to:

1. Calculate how much you need per month: How much you need to live comfortably, to clear personal bills, and to eat healthy.
2. Divide that amount into 4 (weeks).
3. Further divide that into your work week hours: If you work 40 hours per week, then divide by 40, and so on.
4. Whatever amount is left becomes your hourly worth.

Note: If you’re in the tech space, you can use Wakatime.com to track the average of your work week hours.

By way of example, let’s assume Alice needs/survives on $2000 each month. That means she needs to make roughly $500 per week. Say she works 40 hours a week, then Alice’s hourly worth is $12.5 per hour.

$$
\text{Iph} = \frac{\text{TIN}}{\text{THW} \cdot \text{NW}}
$$

Income per hour (Iph) = Total income needed (TIN) / (Total hours worked per week (THW) x Number of weeks (NW))

• Iph = $12.5 per hour (as given in the example)
• TIN = $2000 (monthly income needed)
• THW = 40 hours
• NW = 4 weeks (assuming a month has 4 weeks for simplification)

Charging clients per hour

All that we've calculated is your hourly worth, which is essentially the minimum baseline you shouldn't go below. But realistically, you deserve to be compensated fairly for your skills and experience. So, how much should Alice actually charge clients?

Here's where several factors come into play that influence your final rate:

• Market rates: Research what similar freelancers in your field and location typically charge. Online resources, job boards, and freelance communities can provide valuable insights.
• Your experience and expertise: The more experience and specialized skills you have, the higher your rate can be.
• Project complexity: Complex projects requiring specialized skills or longer time commitments can justify a higher hourly rate.
• Client budget: Be realistic about your client's budget. While you deserve fair compensation, proposing a rate far above their budget might lead to losing the project.

Finding your sweet spot:

Considering these factors, you can arrive at a more competitive and realistic hourly rate for your services. Here's a two-step approach:

1. Increase your baseline: Take your calculated hourly worth (e.g., Alice's $12.5) and add a buffer of 20-50% to account for taxes, benefits, and potential slow periods. This is your starting point for negotiation.
2. Factor in experience and project complexity: Based on your experience level and the complexity of the project, add a premium to your starting point. If Alice has 4 years of experience and the project requires specialized skills, she might add an additional 20% to her base rate.

Remember, your hourly rate is a negotiation

The calculated rate is a strong starting point, but be prepared to negotiate with clients. Be confident in your skills and the value you bring. Explain your rate by highlighting your experience, expertise, and the expected project outcome.

Note: You may charge on a weekly or even monthly basis by

Alternatives to hourly billing

Hourly billing is mostly common when dealing with Western clients; but it's not the only option. Consider the following alternatives depending on the project.

Fixed project rate

Sometimes, clients come to you, and they want to know how much it would take to complete a project. They may or may not have a budget but either ways, you can agree on a total project cost upfront. This can be beneficial for predictable projects with well-defined scope.

This is actually a more common scenario, and freelancers usually

Value-based pricing

Base your rate on the value you deliver to the client. This is related to the factor of including your experience and skill level in the negotiation. Let’s make another analogy using Bob and Charlie.

Charlie is an intermediate engineer with 4 years of experience. He may charge a client $5000 for a project, including fair compensation, his monthly needs for the duration of the project, and other factors.

Now, let’s say Bob is a senior engineer with 8 years of experience, and is about doing the same project. Bob can charge upwards $10,000 if he wishes, for obvious reasons: he is more experienced, will make more correct business decisions while building, and will save more time.

Post Mortem

Please do well to share your insights or ask questions via any medium from my contacts. I plan to update this article, because it is incomplete. I plan to add more to the Alternatives section.