If there’s one drawback to being your own boss it’s that you’re responsible for creating, sending, and managing your invoices. If not, you won’t be getting compensated for your hard work. But, before you get ahead of yourself, you first most determine how you’re going to get paid. Typically, your payment is by either from billing by the project, retainer, or hourly. Here are some ways to get paid for all gig types.
Billing by the project.
This is where you charge a fixed amount of money for completing an entire project. This would include variables like deadlines, expenses, and outsourcing. In order to get paid, the project must be completed by a predetermined period of time.
This payment model is often used when working on larger project that have a start and end date. The main advantage for both parties is that the scope of the project and the price are before work even begins. This way there’s no confusion or disagreements throughout the lifespan of the project.
However, as Miranda Marquit explains, “While charging by the project sounds like a good idea, it might not always work out as expected. You need to be able to accurately estimate how long it will take you to complete a work order if you want to avoid undercharging. This can be a problem if you are a freelance web developer or graphic designer.”
How to estimating a projects time requirements.
For example, if you “estimate that a project will cost $500 to complete, thinking you can finish in 8 hours, making your hourly rate $62.50. But what happens if it takes 25 hours instead? Now you’re making $20 an hour. If the project goes even longer, it may not be a cost-efficient use of your time.”
And, yes there is a problem if you have underestimated the lump sum for a project and now you are making pennies. You will do better next time, but for now — your word is the most important — and the important lesson you have just learned in estimating.
If you’re a freelance writer and editor, it’s not uncommon to charge by the word, article, or page. But for freelance web developers, video creators, and graphic designers charging by the hour may be a better option.
“In some cases, a template can help you speed the work along. Creating a template for certain projects can allow you to plug in certain items and quickly turn something out, making it a little more feasible to charge by the project.”
For instance, bumper creators on Fiverr rely on bumper templates that allow them to stick in a graphic (provided by you). “It’s a quick and easy way to make money,” says Miranda.
Well, no money is “easy” exactly to make, but you can make a reasonable return so that you can “catch up” on the projects that you underestimated the time.
Other freelancers put together a menu of commonly-requested packages. The possibilities include building a certain number of pages or designing a logo and accompanying graphics. Maybe you will provide different sizes and formats to match various social media network requirements.
Figuring out what price to charge for the entire package can. This works well if you have a system down and if you are confident in the time it will take you to complete the work.
Billing on a retainer.
Retainer billing is when a client commits to purchasing a fixed amount of your time and then pays upfront. For example, a virtual assistant or accountant could offer a minimum 10-hour monthly package at a reduced hourly rate of $25 compared to the normal hourly rate of $35.
The benefit of billing on a retainer is that the client is assured you’ll be making them a priority. For you, having an upfront payments means that you won’t get stiffed on a gig. It also allows you to predict your cash flow.
Retainers are predictable expenses for your clients and predictable revenue for you.
The drawback of retainer billing is that you’re going to have commit to being available for the hours that have been paid for that month. That means that time management is an important skill to master. Additionally, it can be more complex to manage since you need to keep track of how many hours are left and when they expire for each client.
Inevitable thought process of those who have you on retainer.
Here’s another concern, via Double Your Freelancing.
“So the client goes along with your $800/month retainer.
But then they start thinking, ‘Well, that’s $80 an hour. $800 divided by 10 hours is $80. Can’t I just pay you $80 an hour when I need you?’
This rebuttal happens all the time, and many freelancers often go along with it, especially if the client ends up needing more than 10 hours of work a month.
Again, you’re more-or-less guaranteed to bring in $800 a month without the need to find, sell, and pitch new clients.”
Another concern is if you have all of your time booked with retainer clients, you may be limited to an income ceiling. For example, you work 40 hours a week, you’re limited to $3,200 a week in revenue.
Instead you many want to consider selling a monthly subscription to a productized service. This could be monthly advisory calls, private newsletters, or on-site or virtual training.
Billing by the hour.
There’s a reason why billing by the hour is so popular — especially when just starting out on your own. It’s simple. You work 10 hours, then you’re going to bill for 10 hours.
Furthermore, it’s a great option when working with new clients. This is because it lets both parties “test the water” before committing to an ongoing relationship.
On the downside, hourly billing puts a cap on your earning potential since you only have so many workable hours per day. Another drawback is that there is no commitment from your clients. One month you may get 40 billable hours of work from a particular client, but then zero the next month.
If you do decide to bill by the hour, here’s how you can calculate your true hourly rate:
First, determine how much you want to make annually after your business expenses have been deducted. This way you can determine if you’re making enough to reach that goal.
Next, you need to calculate your expenses. This way you’ll know exactly how much you’ll need to charge in order to live comfortably. So, if you want to make $50,000 and your expenses are around $22,000 then you’ll need to make $72,000 annually.
“Now you must convert that annual salary into an hourly rate. In order to do that, you need to know how many billable hours you could be charging,” writes Kayla Sloan.
“If you work at a traditional job 40 hours per week multiplied by 52 weeks per year, your total comes up to 2,080 hours.” However, you’ll also need to take into account time off. For example, if you plan on 3 weeks for vacation, 7 days for holidays, and 5 personal days, that woud 27 days you’re not working.
“When you multiply 27 by 8 hours per day you arrive at 216 hours you aren’t working out of 2080. Your new figure is now 1,864 hours.”
More Things to Consider to Get Paid For All Gig Types.
You’ll also have to subtract 25 percent of your time for tasks like making phone calls, sending emails, and other administrative functions. You’re new adjusted figure would be around 1,400 billable hours annually.
Now you can finally figure out your hourly rate. Just divide your annual salary of $72,000 by 1,400 hours. The hourly rate you get from this calculation is $51.43 per hour, but you should aim to earn $55 per hour so that you have a little wiggle room.
How to Get Paid for All Gig Types
Regardless if you bill by project, retainer, or hourly, you should always do the following to ensure you get paid for all gig types:
Always get a deposit.
Before jumping into a new project, request a payment upfront. It’s normal for solopreneurs to ask for at least half of the payment in advance. This helps you cover your expenses as you work on a project. Most importantly, it helps you absorb a hit if a client doesn’t pay you.
Make invoicing a priority. The best way to do this is by setting a specific time each week to send out your bills so that you won’t forget. However, thanks to platforms like Due you can set-up recurring payments so that you’re not invoicing as much.
As an added perk, these cloud-based invoicing platforms come with automation features like payment reminders and “pinging” clients when an invoice is past due.
Get it in writing.
You don’t have to have a formal contract. Always use a written agreement so both parties are protected. For you, you won’t get paid and the client is assured that you’ll complete the project on-time.
Have a plan to chase late payments.
What if a client refuses to pay your invoice? To get paid for all gig types where there’s a late payment, recruit a “bad cop” who is more assertive. Also consider attaching late fees, taking the client to small claims court, or handing over the invoice to a collection.
If you need cash now, you could use invoice factoring. This is where you hand over the invoice to a company who advances you 85 percent of the invoice. They’ll collect the bill for you and will give you the remaining balance. However, this option comes with a fee.