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What hourly rate should I charge when doing contract work?


hourly-rateDary from Florida Atlantic University asked:

An employer wants to know if I can do econometric research for them for a per paper fee and asked how much would I charge.  I have no idea what to tell them.  What rate should I charge when asked to do contract work like this?

Hi Dary

This is a really important question.

Freelance work, contract work and other forms of independent professional engagement are becoming more and more common.  If the freelance, “work for yourself” world is one you wish to join, you need to be prepared so you don’t undervalue what you offer,

Following is my strategy for putting a value on your time and expertise as an independent contractor:

1. Identify the “market rate” annual compensation if the job were a regular, full-time salaried position

In your instance:  What could your reasonably expect to make in annual compensation as an Econometrics Researcher.  I  recommend using the NACE Salary Calculator to come up with an salary estimate.

Let’s say – for the sake of example – that you have determined the market rate for this position is an annual salary of $30,000.

2. Calculate the hourly rate equivalent of that annual compensation

Did you know that there are 2080 work hours in the year? 52 weeks x 40 hours per week = 2080 work hours.

To determine the hourly rate you are earning in a $30,000/year job, just do the math! The result = $14.42 per hour. To make the numbers round, let’s call that $15/hour

3. Factor in the cost of providing services

When you are in a regular, salaried position, that $30,000/year is only your base compensation.  It does not take into account the additional costs an employer incurs by having you on staff.  Employers must provide you a place to work (e.g., a desk/office/cubical), equipment  to do your job (e.g., phone, computer, software, internet), and benefits (e.g., insurance, healthcare, etc.), and they must have staff in place (typically in Human Resources, Accounting and IT) to manage benefits and payroll, pay payroll and social security taxes and provide technology and operations support.  It costs more than your salary to have you on staff.  There are many of these “overhead” expenses that employers need to factor in and pay for if they wish to make a profit.

When you are in business for yourself, you have to factor these costs in for yourself if you wish to make a profit.

You are using your own equipment, software, phone, office space and other resources (e.g., the electricity in your home).  You have to pay your own payroll and social security taxes (when you are a contractor, employers do not deduct them from your compensation).  You have to provide your own operations and technology support. All of the “overhead expenses” are your responsibility, so you need to factor these “costs of doing business” into your hourly wage so you do not undercut your value.

I recommend using a simply multiplying factor of between 1.5 and 2 to determine your hourly rate.

For example, if you wish to earn $15.00 per hour for your work, you should bill yourself out at $22,50-$30.00 per hour in order to earn $15.00 and cover your overhead expenses.

Let’s say each paper you write will take you 10 hours to research, outline, write, edit, re-write and deliver as a finished product.

At $30/hour, you should earn $300 for each paper,  At $22.50/hour, you should earn $225 for each paper. You have a range . . . now you have to negotiate.

4. Be ready to negotiate

This is often the toughest part.  You must be ready to negotiate.  In a free market economy such as ours in the US, the “market rate” for services is whatever the market is willing to pay.  The person spending the money wants to spend as little as possible to get what they want.  The person getting the money want to get as much as possible for the goods/services being provided.  The “right” amount is the result of the negotiation. The market will decide.

If you do your homework, you will be well prepared to negotiate and defend the rate you wish to charge.  If you don’t, you will have very little negotiating leverage.

Hope this helps!



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