A friend and I were talking the other day about how we’re so used to thinking, as employees, of everything as net. The company takes out taxes and healthcare, and what’s left – that’s what you live on. But when you’re self-employed, you pay self-employment tax on top of your income tax, and you have to bank that out of every deal. So If you made $400, you really only made $200. And then you’ve got to buy healthcare out of that. If you made $400 only 10 times a month, and sock away half for taxes, and pay $250 for your half of the insurance (that’d be really cheap), your $400 is now $150 “net”. $150 of employee-equivalent pay.
A lot of employed folks would look at this as a good case for not going out on their own. It’s actually the best case for why freelancers need to charge high rates. You just can’t do it for nothing. And what, freelancers aren’t supposed to have healthcare, or savings, or be able to eat? So, the goal is to figure out how to bring those fees up. Seth Godin offers a great quotation (don’t remember his source): “There are two kinds of companies: those that want to lower prices, and those that want to raise them.” Those who shoot for the bottom, price-cutting, price-selling, appealing to price shoppers, and those who look for ways to add value, be the best, and raise prices. I’m with the latter. And I encourage my family members to hold the line on that, too.
I looked in on a conversation in LinkedIn where a person offered a service for $100, no conditions, to anyone, regardless of criteria. I provide the same service, and I can tell you it’s twice that, minimum, to do it right and do it consistently. I didn’t respond – no need – the entire community of freelancers jumped on him, asking if he realized that this wasn’t sustainable, that by aiming for the bottom he’s just appealing to the guy that wants it at $95, and encouraging the person who’ll do it for that, and not have healthcare, and not eat right. They ate his lunch – I couldn’t believe the amount of traffic pounding this guy down. He didn’t get it either. Bills himself as the president of his company but made a crass, rookie mistake in public, and should have copped to it quickly but wouldn’t. Who hasn’t done that kind of thing in one form or another? So you have to feel sorry for him, but wow – he made the 2nd mistake too: he just kept holding the line. “If someone doesn’t want my services, they don’t have to buy them.” He was missing the point.
A lot of us have had a prospect walk away because the price was obviously too low. And they’re right to. You can’t sustain good, consistent work that way, and companies that are in this for real want good, consistent work. They don’t want to watch a price cutter self-destruct, which is where it leads. A family member is a hairstylist, and a friend of hers comes from the Supercuts environment. The price difference is shocking. And you can’t invest in growing your business if you’re geared for the bottom. And once you do that, it’s really hard to break out of it. You can’t win, without retooling, infusing your business with some funds and a lot of effort, and changing the way you do business, willing to lose some clients. It’s a rough road to hoe if you’re taking care of a family and depend on repeat business; I don’t envy it. But that’s what Supercuts, superstores, super-anything does to an industry – it leaves its people scraping the bottom for the cheapest prospects there are, without decent health care, with an impoverished diet that takes years off their lives, and having to explain to people that work is worth something.
There’s a related principle. Not only is the compensation model for freelancers really fundamentally different than for employees… and we all know this, but when you’re rearranging your life accordingly, it’s something to meditate on and ponder… but so is this model for time. If you spend 8hrs at the office, your ‘work’ is presumably done, because your work is defined by the man. Your work is your job. But it’s really not done. You still have to pick up the kids, wash the car, buy the groceries, go jogging, and all the other things you do. What the freelancer realizes is that these are work too.
Occasional clients think a freelancer should be waiting at his desk at all times, when they get back to their office, ready to respond in an instant. “Where were you yesterday?” You don’t take vacations, don’t take a day off, don’t go to the gym. You work when they work, and you work when they sleep, because 24-hour turnaround is in demand, too. But that’s not sustainable. What, freelancers shouldn’t get 8hrs sleep or go to the gym? You can’t hire an assistant to work out for you, or get proper rest so you stay healthy for another day. The real story is that the model of work has been distorted somewhat by separating it from the home. I’m not suggesting there’s something inherently wrong with office work, just that it doesn’t explain, describe, or account for everything. The truth is that when a freelancer cooks the meals, provides the transportation, goes to the gym to stay healthy, or just engages in personal hygiene (how long does your full regimen, day and night, take from your day?), that’s work.
And there’s nothing wrong with that. Work is what you do when you wake up, and what you do before you go to sleep. Not that there’s not room to go read a book and rest, but that rest is part of the work, too. If you read, it’s fuel. If you rest, it’s preparation to work – it’s restocking the shelves. When you relax, it’s to be ready for the intensity and energy. Same thing if you blog, folks. That’s the truth. In my case, without it, I can’t think at the pace that’s necessary to do what I do for clients. We’re *whole* people, and we need a *whole* life, sustained by work, involved in work, and linked to our work. This is yet another reason work had better be a primary source of meaning your life.
Income, though, is not what’s left over after the things that sustain your life are taken out – like healthcare. Income is what you use to take care of your whole life, including your health. When you short the one, you’re shorting the other. Likewise, time for work is not the time spent on a task someone else makes you do, or a task that you have to drive to get to, or a task that directly impacts your client. Time for work is time spent on the entire person, the *whole* source of work, your whole life. It needs to be balanced, thought out, and reasonable – you can’t just sleep for two days every week and expect, in most freelance scenarios, to be successful. Even if that’s the sum of leftover time, what about riding your bike and, again, personal hygiene, etc.? Time spent on work is, appropriately, time spent on your whole life, precisely on *keeping* it in balance, keeping it functioning at optimum, and in keeping with the very things you need to get paid for. I get paid so I can buy healthcare. I spend time and the gym so I can stay healthy. You can’t throw either one over your shoulder.
Get paid a lot, work 16 hours, not 8 (or acknowledge that it’s work) and, though you’ll then realize that our taxes really are obscenely high, you’ll at least be able to explain what you do without feeling quite as harried. A little harried maybe, but not because there’s no reason for half of it. And no, you’re most likely *not* overpaid.