I’ve been wanting to write this for some time, and on this hot Saturday afternoon, after a few cooling laps in the pool, I finally decided to start work on it. I have met with many computer graphics friends who are freelancing full time and during our discussions, the common problems usually revolves around monetary issues, such as how to charge for a project in order to make a profit. I hope this article will address some of those issues.

Freelancers, Who Are They?

In many ways, freelancers are not unlike entrepreneurs. They don’t report to anyone except to the client, so in essence, freelancers are very much running their own business, being their own bosses, and calling the shots. In Malaysia, freelancers can be on a full-time and part-time basis. Part-time freelancing are also commonly known as moon-lighting, since technically speaking, you are still employed and under someone’s payroll. Freelancing is a common practice in the computer graphics, art & design, photography, copywriting, computer programming and consultation-related industry.

Freelancers, are pretty much like hired mercenaries. And they usually operate alone or they have a network of other freelancers in complementary disciplines. This is usually a good way to ensure that they can bid for larger projects which can be out of their scope of expertise. Most if not all freelancers are usually an expert in their chosen fields, and this is why they can make a living out of it. They are the professionals in their industry and they are usually well-known for their crafts. However, these group of professionals also have a common issue, they are usually not very good when it comes to dealing with the ringgit side of the business. In fact, some even hate to deal with the issue, since they see it as a distraction to their passion. Thus, it’s common that freelancers place less priority in managing their financial statements, which explains why it’s easier to exploit freelancers than trying to exploit a company offering the same service.

How Should You Charge?

So here comes the million ringgit question: how exactly do you charge for a project?

Okie, let’s first look at the 3 possible ways of charging for a project:
(1) You can charge a flat rate, divided into few phases.
(2) You can charge based on the hours you commit.
(3) You can charge on a pre-agreed revenue-sharing scheme.

There are definitely more methods of charging your customers, and they are usually a hybrid of the 3 charging methods above. For the sake of this discussion, we are going to focus on the 3 methods above.

Flat Rate Scheme

First look at the Flat Rate Scheme. This is also known as charging based on per project basis. It’s one of the most common way of freelancing because of it’s straightforwardness. There’s not much calculation that’s needed to be done, you basically just charge the project based on the market rate if any or you and the client decides on a price. As easy as this might sound, it’s also one of the easiest way to get yourself exploited.

If you can, avoid billing your clients using this scheme at all cost, unless you are feeling charitable. However, sometimes, when you have no choice and the bills are piling up, you might need to succumb to this sort of pricing just to get the project (don’t you just hate the pressure?).

Also, fresh freelancers often fall into this charging method because they haven’t got any reputation to bargain with the client. Hence, it’s advisable for you to first build your name while you are still under employment and not go full-time on freelancing before you have a good portfolio to show.

Per Hour Scheme

Now, don’t despair if you have been running on Flat Rate Scheme. Here’s my recommended solution for the issues raised above. You should always charge based on hours that you commit on the project. Always. Never compromise. It’s not only a good thing for your balance sheet, but it’s also a fair deal for your clients in the long run.

Why should you charge based on hours? Here are the benefits:

1) You can be sure that for every hours you are working on the project, you are paid. On a flat rate scheme, you will usually notice that even after the project is complete, clients will continue to request for changes. Changes here means they are asking you to change certain features or designs which they initially agreed. And of course, they don’t want you to charge them for “improving” something, but rather, as a matter of factly, they expect it to be free-of-charge. They will tell you that this not an upgrade or a new feature.

This scenario is totally avoidable if you are charging based on hourly basis, for every changes or improvisations needed, you are going to bill them. So you will happily “embrace” the change request! And this will also make sure your clients are careful with their decision making before they spent too much money on making lousy decisions. You shouldn’t ever need to pay for their lousy decisions! So, it’s only prudent that you charge by the hours!

2) It’s easy for the client to evaluate your skills and credibility and hence building a long term relationship with them. It also shows them how serious and trustworthy you are. Your clients are not dumb, they can see the difference of a 8 hours job and a 2 hours one. Charging by the hours allow you to show the clients your professionalism or the lack of it.

3) Charging by hours also helps you to be more productive and efficient. Right after you have sealed the deal, you immediately understood the time frame and schedule that you must work within. This allow you to easily balanced between perfectionism and practicality when solving the issues faced during the project, instead of spending too much time doing irrelevant researches.

There could be more benefits, but that’s all I can think of at this moment. So, let’s move on to the next question, how much should you charge?

So, this is a subjective question. But to put things into a clearer perspective, let’s use a benchmark. Let’s say you are a PHP Programming Expert working in Microsoft Sdn Bhd, and you are earning RM 4,000 a month. You work 5 days a week, 8 hours a day. So, how much are you “worth” per hour?

Using the calculator, you are worth RM 4000 / 22 days x 8 hours = RM 22.73 per hour

Of course, you shouldn’t charge based on that. Since a freelancer is an expert in the field, you should be earning a profit margin. We can call this the Expertise Multiplier (EM). Moreover, you are a critical component in your client’s development pipeline and your skills are not easily available, again, you can charge a premium for that. We can call this the Scarcity Multiplier (SM). Remember, scarcity is value.

Generally, your Expertise Multiplier, which depends on how good you are in the field, can range from a figure of 1-8. That means, someone really really good in PHP programming can charge RM 181.84 per hour (RM 22.73 x 8 EM), while an averagely good one can charge up to RM 90.02 per hour ( RM 22.73 x 4 EM). Now, on the Scarcity scale, we are probably looking at 2-5 depending on how scarce and how needed you are in the project. Say your skills are very needed in a project, you probably can charge RM 90.92 per hour (RM 22.73 x 4 SM).

For example, let’s say you are a very very good PHP programmer (with 8 EM) and you are very needed in one project (with 4 SM), you can charge the following rate:

RM 22.73 x (8 EM + 4 SM) = RM 272.76

I wish I have the actual Multipliers for various industries. Maybe you can help me on this one.

So that wraps up the Charge by Hour Scheme.

Revenue Sharing Scheme

I will just briefly explain the third one, revenue-sharing scheme because it’s not a common practice. This is where you go into an agreement with your client where both of you will split the cost of the development and also any future profits. This is usually a high risk venture but also not without the high rewards.

However, you must ensure that you are not getting the shorter end of the stick and this is why it’s usually a rather complicated process, and even more so if your client is not a very reliable “character”. Hence, it’s your responsibility to do your homework before embarking in such partnerships.

I hope this article can help to bring up some important issues that is faced by freelancers when it comes to billing their clients. Of course, my solution should be referred to as a guideline and not a definitive approach in your business dealings.

I would love to hear your feedback though on these issues. Please post your comments here!

• Freelancer: Know Your Price Tag!
• Tips for Freelancers
• More Plastic Subscribers for RHB
• Public Bank's Visa Electron and PayPal
• Credit Card Termination Form
• Malaysian Plastic Defaults to Rise
• Credit Card + Phone Bills
• Freelancer Tips on Collecting Money