Real World Numbers About Freelancing

We all hear the complaint, the wailing, the gnashing of teeth, the disbelief. Why the high prices? Why do I have to pay so much for your work? Well, sir/madam, I am an independent business owner, not an employee. With the work I perform, the services I provide, I must make a living. Simply put, I must be able to provide for my home and all that comes with it, my business and all that comes with it, and protections for me and you in the form of insurance and other measures.

Myself.

I’m not a small part of a larger organization. The documents I filed with the Secretary of State and the IRS list me as the owner/manager/CEO. No one else.

But that’s not the primary reason you may think my fees are too high. Sure, I account for the value I bring to your project in the creative fee I include in my project estimate. Wouldn’t you? My creativity, my problem-solving skills, my efficiency, my professionalism, my ability to provide you with the thing you need has value; this is what you’re hiring me for, isn’t it? Otherwise, you could ask anyone to fulfill your request. You probably have a staff person who’s handy with a camera and who might be able to figure out how to accomplish the task. Do you have time for that? Do they have the equipment or facilities ready at hand? Can you spare them from their normal duties? What will it cost you in actual time and salary to shift them from their regular job to this project? What will it cost if you have to do it all over again with a professional? But, that’s another discussion.

Here’s the primary reason you think my fees are too high. This refers back to that single word following the first paragraph and the fact that my business is mostly a Business of One. Kind of like the Army, except without all the support. Here’s a breakdown of real world numbers showing both the actual cost of being self-employed and the assistance provided by an employer. When you look at these numbers, imagine if your employer suddenly decided to stop its sponsored benefits and you had to provide them on your own. That’s me.

If you’re just starting out as as a self-employed person, or considering the jump, look at these numbers and halt your leap for a moment. Have you considered all your costs and expenses and factored them into your fee structure? If you haven’t calculated your cost of doing business, have a look at this online calculator. It doesn’t have all the fields you may need and it may have more than you need, but it will get you started. You can create your own calculator in a spreadsheet using these fields and make it as extensive and inclusive as you need for the independent needs of your own business. Have a look: NPPA Cost of Doing Business (CODB) Calculator

Here are the numbers I was talking about (these are amounts from 2015 employer rewards statement data, your specific numbers will vary). I’ve rounded the figures for visual clarity and ease of calculation:

Let’s begin with a base employee annual salary of $46,000
This is the amount you earn before taxes, whether it’s through an hourly wage or salary. It includes other compensation like paid holidays and sick leave. This is the amount you enter into the CODB calculator as your desired annual salary (or whatever amount you’d like).

If you are an employee, your employer pays for some things and you pay for some things. These are “voluntary” benefits. Your company could take these away:

Employer Sponsored Benefits
Medical Insurance
Employer pays: $9800
Employee pays: $2450
Dental Insurance
Employer pays: $500
Employee pays: $275
Vision Insurance
Employer pays: $0
Employee pays: $160
Life Insurance
Employer pays: $110
Employee pays: $0
Long Term Disability Insurance
Employer pays: $224
Employee pays: $0
Business Travel Insurance
Employer pays: $2
Employee pays: $0
Employee Assistance Program
Employer pays: $20
Employee pays: $0
401K (matching and deferral)
Employer pays: $1400
Employee pays: $3200
401K Contribution
Employer pays: $2300
Employee pays: $0

Total Employer Contribution: $14,356
Total Employee Contribution: $6,085
Total Contribution: $20,441

The government also mandates that employers provide some benefits (these your company can’t take away):

Government Mandated Benefits
Social Security
Employer pays: $2900
Employee pays: $2900
Medicare
Employer pays: $670
Employee pays: $670
Worker’s Compensation
Employer pays: $350
Employee pays: $0
Unemployment Insurance
Employer pays: $260
Employee pays: $0

Total Employer Contribution: $4,180
Total Employee Contribution: $3,570
Total Contribution: $7,750

So, to tally the numbers, for an employee with an annual salary of $46,000, an employer will pay $46,000 for the salary, $14,356 in employee sponsored benefits, and $4,180 in government mandated benefits. The employer actually pays for their employee a total of $64,536.

The employee will pay $6,085 for their share of employer sponsored benefits and $3,570 for their share of the government mandated benefits, for a total of $9,655.

However, the employee’s share ($9,655) comes out of their earnings, reducing their annual salary from $46,000 to $36,345, before taxes, which will take out another chunk for the federal government, state government and, in some cases, local or city government.

But, the self-employed person would actually need a gross income closer to $74,000 (the employer contribution of $64,536 plus employee contribution of $9,655) to cover all the listed benefits and deductions, just to cover the $46,000 ($36,345) annual salary. And that doesn’t account for the higher costs for individual business owners for things like insurance and taxes, and additional overhead expenses like studio rental, equipment, continuing education/training, marketing and promotion/advertising, etc. And this is where the pain resides.

A large company can distribute costs across its operation, especially if it provides multiple services or products. The self-employed creative individual has limited options because they have limited resources of time and individuals. It would be great if I could split myself into three or four pieces, each handling a separate aspect of my business while I concentrated on the most important task. But, because I am a Business of One, I have to set aside time for making calls, preparing marketing materials, preparing estimates, quotes, and invoices, bookkeeping, meeting with attorneys or accountant (which is a cost), chasing down late invoices, researching and chasing down copyright infringement, registering images with the copyright office, researching and developing new products or services, web designing, social media engaging, networking, learning, researching and purchasing/replacing equipment, eating and sleeping (hopefully at least twice a week), all of which take time and are not usually billable to a client. I don’t get paid for the day to day administrative upkeep of my business. If I did, if I wanted to be paid every day of the week, like an employee, I would need to charge you, the client, even more than you don’t want to pay now.

So, when you see the fees listed for the photographer, don’t freak out. It’s ok to ask questions and for the photographer to explain all this, if necessary. Just remember, we don’t have an employer, we’re not a small part of a large company. We have to provide all our own benefits, our own incentive bonuses, our own Christmas party, our own marketing, our own company vehicle and office space, our own existence.

If you like what we do, if you appreciate the value our work brings to your project, all we request is your understanding and that you look beyond price. Because, we provide more than a necessary cost of operations (an aspect of your own cost of doing business), and while we are able to negotiate and hopefully reach a win-win situation, and while we would do the work for free if we could survive doing it (I think I speak for many creative business owners with that thought), we can’t lose money every time we take on a project. We can’t stay in business if we’re essentially paying you to do the work you request.