Creative freelancers often face scrutiny for seemingly high rates, but what many fail to realize is that these rates are not as high as they may seem at first glance. There are many costs and factors that justify the pricing structure of freelance work in the creative industry. From taxes and social security costs to equipment expenses and other hidden costs, we’ll paint a comprehensive picture of why freelancer rates are fair and justifiable.
Taxes and Self-Employment Costs
One of the first things that often gets overlooked when discussing freelance rates is the burden of self-employment taxes. Unlike employees who have taxes withheld by their employers, freelancers are responsible for paying both the employer and employee portions of retirement plans, unemployment & health insurance and other taxes. These costs alone are already sky high: most of the countries in this planet are really creative in getting as much as possible of their entrepreneurs’ hard earned dollars, euros, pounds, etc.
Moreover, freelancers in most parts of the world must also manage their own income tax obligations. These taxes can eat into a significant portion of a freelancer’s earnings, making it necessary to charge higher rates to cover these costs.
Lack of Employee Benefits
Freelancers do not receive the employee benefits that those in traditional employment enjoy, such as paid vacation days and sick leave. Freelancers must fund these benefits themselves, often at a higher cost than what an employer would contribute. When calculating their rates, freelancers must consider not only their current expenses but also the need to save for the future.
Equipment and Software Expenses
Freelancers in the creative industry rely heavily on specialized equipment and software to create high-quality work. Unlike employees who have access to company-provided tools, freelancers are responsible for purchasing and maintaining their own equipment. From powerful computers to the latest design software licenses, these costs can be crazy. Of course, equipment has a limited lifespan and therefore requires regular upgrades to stay competitive in the industry. These ongoing expenses must be factored into the rates charged by freelance graphic designers to ensure they can continue to produce top-notch work.
Overhead and Administrative Costs
Running a freelance business comes with a host of overhead and administrative costs. This includes marketing and advertising expenses, website hosting and maintenance, professional development and training, as well as the time spent on administrative tasks such as invoicing, accounting, and client communications. In most cases accounting needs to be taken care of by specialized professionals, a.k.a. accountants – another burden on the freelancer’s budget.
Unpredictable Income and Job Security
Freelancers do not enjoy the job security that comes with traditional employment. They often face periods of feast and famine, with unpredictable income streams. To compensate for these fluctuations and maintain financial stability, freelance graphic designers must charge rates that account for the potential gaps in their project schedules.
Now, let’s take a look from the perspective of the client. For example, many of them fail to realize that hiring a freelancer for a work that needs only a few weeks to be done for prices that seem pretty high at first glance is a way better deal than hiring a full-time or even part-time employee. Of course the employee’s hourly cost is going to be lower but cumulatively it’s going to exceed pretty soon and pretty significantly the freelancer’s rate. Obviously this only applies when the workload isn’t sufficient to keep an employee busy on a part-time or full-time basis over an extended period.
So, all-in-all, freelancers can seem greedy, but the reality is that they have to deal with extremely high costs and even with these seemingly high rates clients save tons of money if they only need workforce for a project with a relatively short duration (or low amount of weekly hours).
And when in an ideal world all of these factors can be priced in, comes the next question: how to charge for my work? But this is for another time, until then take a look at this great article on Creative Boom to learn a few insights and tricks about how other established creative freelancers price their work. We at Moiré still didn’t settle our debate whether hourly or daily or perhaps project-based pricing is the best – maybe a healthy balance between all those?