Being your own boss is a wonderful feeling. You have the freedom to take your career in whatever direction most interests you and you get to decide your work schedule, dress code and daily routine. According to a 2014 report from CareerBuilder, there are approximately 10 million Americans working for themselves, which is 6.6% of the workforce.
These industrious people are in a wide range of professions – everything from construction to childcare to professional services to arts and entertainment. One thing they all share in common is the need to determine how much to charge for their services, and what salary will comfortably support their lifestyle. Struggling to determine your own worth as a self-employed American? Follow these steps.
1. Examine Your Peers and Competition
So how do you know how much you should charge? To begin with, check local sources, such as help wanted ads, advertisements for services, and local business groups or your city’s chamber of commerce to get a feel for what other professionals in your field are charging. Trade magazines and national professional organizations are another way to get a feel for your profession’s going rate.
According to Simply Hired, another great resource for determining average salaries, self-employed accountants make an average of $47,000 per year, while self-employed auto mechanics can expect to make an average of $42,000. Overall, the average annual income for self-employed Americans is $26,921, which is considerably lower than the average annual income of $56,053 earned by traditionally employed workers, but your own situation will depend greatly on your particular profession.
2. Define Your Local Market
Once you know the average salary for your field, it’s time for step two: investigate the market for your services in your particular location. Questions you need to answer include:
- Do you live in a large city, where going rates are generally higher, or in a rural location?
- How much competition do you have in your area?
- Do you offer anything unique or especially desirable that goes beyond your competition?
- Is your field in high demand?
- Are there local networking or business groups you can join to gain contacts and clients?
Once you've answered these questions, you'll have a better idea of who you're in competition with, what they're doing and how you can be different and better. You'll also begin to grow your resource of contacts. The bigger your network, the more opportunities for your name and business to come up.
3. Tally Your Expenses: Taxes, Healthcare & Business Expenses
Another common mistake of those new to self-employment is forgetting that freedom is not free. When you’re your own boss, you need to provide your own healthcare, pay your own taxes, provide for your own vacation time and keep the lights on, the car full of gas and the office supply closet stocked. It’s also easy to let saving for retirement fall by the wayside, but with no one else to plan for your future, it’s crucial that you set aside regular retirement savings.
All of this overhead must be considered when deciding your salary. After all, you don't just deserve to be compensated for your time, you also need to simply cover your bills. An app like InDinero, which tracks cash flow and day-to-day business finances, makes it easy to see how your money comes and goes.
4. Calculate Your Worth
One common mistake of people new to self-employment is undervaluing their time and expertise. Don’t fall into that trap – set your price for what you are worth. If you are new to the field, you’ll need to price yourself at the low end of the average salary for your field, but if you already have an impressive portfolio or resume, price your work accordingly. Pricing yourself too low can actually backfire – potential clients might assume that your low rates mean you lack skill or knowledge. Since you've already determined the average pay of others in your field, you should have a reliable salary range to base your prices on.
Once you have clients, keep track of hours spent on each project. Efficient use of time and impeccable record keeping are a must for the self-employed. Simplify the record-keeping process with an app that acts as your own personal project manager. Hours Tracker for Apple or My Work Clock for Android are good choices.
The Bottom Line
When you make the jump to self-employment, you’ll need to consider several factors before deciding on how much to charge potential customers. After taking into account your profession, your market and your own personal skills and experience, don’t forget to look at your costs of doing business. Once you have these numbers established, you’ll have a better picture of how much to charge and what you’ll need for a comfortable lifestyle.
EntrepreneurshipRunning your own business has both personal and financial perks.
ProfessionalsGoing solo in financial services can present a host of unexpected challenges.
RetirementWhen you're self-employed, your retirement is entirely in your hands. Learn about the three retirement-savings options best suited to the entrepreneur.
EntrepreneurshipEven if you own your own business, it is still very important to save for retirement, and to understand your options for doing so.
EntrepreneurshipQualifying for a mortgage is a little more complicated for borrowers who are self-employed.
Options & FuturesConvince lenders that you're a good bet despite your lack of a steady income.
Options & FuturesIf you follow these methods for calculating estimated tax payments, you could minimize your chances of incurring penalties.
Personal FinanceLearn 10 good reasons for switching jobs, such as major life changes, ethical concerns, job description creep and upwards mobility.
ProfessionalsIdentify some of the most common job interview questions asked of business analyst candidates, and learn the responses that will make you stand out.
EntrepreneurshipObtain helpful information about the top 10 techniques that professional bloggers utilize to generate their incomes from blogging.
You can use your required minimum distributions (RMDs) to fund your Roth IRA as a Roth IRA contribution. This is because ... Read Full Answer >>
In 2014, the office of the Texas Comptroller of Public Accounts reported $234 million in unclaimed property claimant liabilities, ... Read Full Answer >>
According to the 2013-2014 Annual Report of the State Treasurer, the state of Michigan earned only $82,875 in abandoned and ... Read Full Answer >>
The short answer to whether mutual fund expense ratios are tax deductible is "No," but the long answer, however, is more ... Read Full Answer >>
A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
Most financial advisors are required to meet quotas, particularly if they work for firms that pay base salaries or draws ... Read Full Answer >>