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I have been working as an IT Freelancer (Self-Employed) for some years now. The hourly rate for my first larger Job was a suggestion from my client, and over the years it evolved by aligning with the rate of other freelancers.

What I miss from time to time, especially in salary negotiations, is kind of a formula / system to exactly explain to my customer why I charge what I charge. So I started to develop something.

My current calculation is based on an Entrepreneurs Salary (based on what I could earn as an employee) plus Healthcare/Social Insurance, Taxes and Operating cost (Hardware, Tax Counsel, ...).

This, I compare to the work hours per year based on how many hours I would work as an regular employee minus the time I need to invest for administrative Stuff, Planning and aquiring new jobs in order to get a hourly rate equal to regular employment.

What I miss in my calculation is Risk. There are certain risks that i just won´t have as an employee. (Especially in Austria where I live you are secured against almost everything as an employee - be it a longer leave due to illness or accident, or if your employer declares bankruptcy)

Right now, the difference between my hourly rate and the calculation to be even with an emoloyee (in the terms mentioned before) is 15%, what i see as my calculated risk.

I´ve already done some reasearch on the web, but I still can´t find any values I could compare my 15% against. So what I am looking for is a percent value (EDIT: or a range), backed by some credible source or professional experience for usual values for calculated risk. Preferably from some smaller company in IT, but for starters, any credible value will do as I don´t have anything to compare mine to. Perfect, of course, would be a credible value from another freelancer, but I´m not sure if that´s realistic to ask for.

  • You might not get the answer you're looking for because your risks will be different from another person's. I'm not sure you're going to get anything more credible than what you've already calculated. – Edd Purcell May 24 '14 at 17:42
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    @EddPurcell: That might be true, but even if the value and the circumstances differ, I have at least something to compare my value to, right now I have nothing. And if I know about the circumstance(s) of other value(s) I could derive from them for comparison. Actually, a range would be fine, too. – Martin Zotter May 25 '14 at 11:31
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Martin, I know this doesn't answer your question exactly, but have you ever considered the fact that you don't have to justify your price, and that's that?

This really comes down to whether or not the services you offer fit a client's needs, and whether the client is ready to pay your price or not. You don't have to validate it, or back it up with facts and figures, or explain it. As long as whatever you're charging meets your needs, don't worry about explaining your price. You'll just drive yourself nuts.

Customers who are shopping only on price will drive you nuts. There's always gonna be somebody cheaper than you, and always gonna be somebody more expensive than you. You can charge astronomical prices (compared to "market") and run the risk that the client will find out and seek greener pastures -- but on the other hand, you have to make your money while you can sometimes. (and this is the reason you never want to rely on only one client if possible)

So pick your price, and stand by it. To be slick about it, bump up the number you need to earn by a few bucks an hour or so. If a client whines about the price, then you have some leeway to lower the final price without cutting yourself short, and the client is no more the wiser but will feel as if he/she has received a "deal". (smile)

  • Practically, thats a good point and also the way I do it now more or less. But it´s not just about justifying my price, as I have a business informatics background, I´m used to calculate and quantify things all the time - so I definitely want to have it that way with my price as good as possible. – Martin Zotter May 26 '14 at 19:37
  • There will always be those intangible things that you do for a client. Some won't involve any "work" at all, but merely suggestions. I'm sure you've had an exchange where a client asks you about, oh, virus scanning software when that's not related to what you do. You might make a good recommendation. Do you charge? Maybe. We (developers) don't want to be seen like the attorneys so you have to find a balance that doesn't always leave you in the position of disadvantage. – Xavier J May 26 '14 at 22:04

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