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.