It’s not uncommon for individuals interested in freelancing to think about potential rate and fee structures in terms of their familiar forty-hour work week. But a freelancer’s hours are actually broken down in two different ways: total working hours (similar to an employee’s work schedule) and billable hours.
Let’s take a quick look at how these differ and why it’s important for freelancers to take both under consideration when setting rates or preparing quotes.
Working Hours vs. Billable Hours
This is the total number of hours you spend on any kind of work in your freelance business. This includes not only client work but also things like:
- Accounting / Bookkeeping
- Correspondence (email, phone calls, letters, etc.)
- Other Administrative Duties (filing, basic maintenance, etc.)
- Marketing / Advertising / PR (from updating their website and professional blog to offering sales, pitching services, etc.)
These include any working hours that you can bill to a client (consulting, work on their projects, research, client visits, client correspondence, etc.).
Why the Difference Matters
It’s not uncommon for freelancers to spend up to half of their working hours on non-billable activities, especially when they’re starting out and turning more attention toward marketing to land their first clients. And forgetting to account for non-billable working hours when setting rates is a recipe for disaster.
Remember, an employee’s salary covers all of their working hours, whether that time brings in direct revenue for their employer or not. As a freelancer, yours has to do the same thing (plus cover taxes, retirement savings, vacation and sick time, medical benefits, and anything else normally covered by an employer).
That’s why freelancers’ hourly rates often look high to clients unaccustomed to working with them, even though it’s still cheaper to hire those freelancers than regular employees. They simply forget that a freelancer’s earnings are more directly comparable to an employee’s cost to the company rather than just their salary. When thinking about rates, it’s easy to overlook these things.
If you’re considering a future freelance career, be realistic about how many hours in a day (or week) you’ll really be able to bill out to clients, and set your rates accordingly. Otherwise you’ll soon find yourself working far too much for far too little, and you’ll suffer the all-to-common burnout many freelancers face at one time or another.
This article was originally featured on September 13, 2007. It was revised and updated on its currently-listed publication date.