As a freelancer, calculating MAR (minimum acceptable rate) is the most important thing that you have to do in order to make sure that you get paid properly. Just as the name implies, this is the lowest hourly rate that you would do work for. Those that are full time freelancers have an MAR formula that looks like this:
((Personal Overheads + Business Overheads) / hours worked ) + TAX
This is the formula that you see everywhere but what does it actually mean?
- Personal Overheads – the expenses that you need during a month
- Business Overheads – expenses associated with your business
- Hours Worked – how much you can work, for instance, 4 hours per day for 6 days per week means 24 hours per week
Let’s say that you have personal overheads of $20,000, business overheads you expect to be $7,500, all per year. You want to do freelance work and only freelance work for 5 hours a day, 5 days per week, in a total of 48 weeks that year. That sums up to 1200 hours in total per one year. Without taking tax into account, the hourly rate would be: $22.91. Adding tax of 20% (common in most countries) brings up the hourly rate of $27.50. If you were to work 8 hours per day, the hourly minimum acceptable hourly rate would end up being $17.18. As you can see, there is a huge difference that appears.
Another Way To Calculate MAR
The formula above is quite great but it is hard as a freelancer to get work that is enough to cover everything due to the natural irregularities that appear in this way of life. You can also use another method of calculating. In this, you think about the current or previous salary and you then divide it to the number of hours that you want to work. Overheads are normally covered by the taxes that you manage to get rid of.
The problem with this formula is that you usually end up underselling yourself. Contrary to popular belief, as a freelancer, you should earn more than with a regular job. This is because of so many reasons but, from my point of view, the most important ones are that:
- The company saves a lot of money when working with freelancers as opposed to full-time employees due to the elimination of taxes.
- You have to earn more than just a living since you need to save money in order to prepare for periods when you do not have contracts.
The Influence Of The Mindset
The truth is that calculating minimum acceptable rate is a problem just for the beginner freelancer. As time passes, you will end up quickly figuring out how much you should charge the clients. However, when you start out, many things come into account like:
- The need to establish a portfolio for future clients
- The uncertainty associated with the freelance lifestyle
- The lack of support from the family
The list can continue. What is really important is the mindset.
You have to charge an amount that would influence your mindset in a proper way!
What does this mean?
It means that you charge the amount that allows you to have the proper mindset to offer a service that is simply exemplary. Anything else means that the work you deliver is subpar.
MAR WILL GROW
As you continue working as a freelancer, your MAR will obviously grow because of how much you want to earn as opposed to how much you need to earn in order to maintain your current lifestyle. With this in mind:
Use the formula above with caution in mind!