Freelancer cost analysis
Freelancing is now quite a popular form of employment. But is it only? Every working person would like to be able to separate their professional and private life, and to a large extent full-time employees succeed. On the other hand, freelancers, unfortunately, not always. Non-standard working hours and the lack of "top-down" supervision often mean that the existence of a freelancer no longer consists of separate parts - professional and private. These elements of life mix with each other, which leads to a simple conclusion - freelancing is a lifestyle.
Therefore, every freelancer should remember that outside of work, it has to function somehow. Therefore, the costs incurred are not only expenses related to this form of employment, but also those related to normal existence. After all, a freelancer like everyone else has to eat, drink and enjoy some entertainment. In addition, he would certainly like to save something during the year. A meticulous cost analysis should help a freelancer to plan his budget carefully. Many people ignore certain costs as irrelevant. Meanwhile, freelancing is a type of employment where literally every penny counts. It is a pity that stereotypes reduce a freelancer to the word free, i.e. free, because we are talking about free business, and not freedom from the bond of full-time employment. Well, freelancing is not only about the money flowing in for the job, but also about costs. In order not to miss anything when calculating costs, it is worth looking at what actually constitutes them.
To begin with, let's introduce the issue itself. Cost analysis primarily gives the freelancer a holistic view of the effectiveness of his work and related activities. The task of cost analysis is to provide information about their development and the factors affecting their level, dynamics and structure. It points to what the freelancer is doing wrong. It reveals unused opportunities and defines the ways of using them in order to achieve the highest possible profit. The main source of cost analysis is the company's accounting or personal activity. In addition, the analysis uses many other sources to assess the causes of specific cost developments. These sources include:
- production documentation in an industrial and service enterprise,
- records of trade in goods,
- records of work performance,
- material consumption and inventory,
- sales reporting.
NOTE: it is worth comparing the actual costs with the costs incurred in the past period or foreseen in the plan. Because it determines the magnitude of the deviation between the actual costs incurred during the period considered and the plan or its execution in previous periods, and examines the reasons which caused these deviations.
Costs incurred by the client, i.e. rate calculation
A thorough cost analysis helps the freelancer to calculate the rate that he will propose to his clients. A common mistake of people choosing this type of employment is to lower the rate, because such a procedure "spoils the market" - the client may think that the freelancer is not good at what he does or simply underestimates himself, which is also perceived pejoratively. In turn, inflating the rate causes the client to resign from the services of a given freelancer and choose someone cheaper. Currently, there are several methods that will make it easier for a freelancer to calculate an adequate bid, here they are:
- Cost-based rate - this method interests us the most because it takes into account the real costs incurred by the freelancer (not only related to work, but also to everyday life), which indicate how much he should earn to survive and takes into account the qualifications costs that a freelancer incurs in developing their skills.
- Market rates - that is, how much is due to a freelancer mainly due to his qualifications. In fact, a freelancer is not able to objectively assess his skills and the conclusion is not entirely good for the interested person himself: "others do what I do and earn as much, so I should earn as much". And yet all freelancers do not have the same qualifications.
- A rate based on benefits for the client - a very difficult method, because it requires an in-depth analysis of the client's business tendencies. By simplifying the freelancer, he "defends" the proposed rate, explaining to the client that it is worth putting so much on him and presenting the profits that the client will achieve by outsourcing the task to this, and not another freelancer.
The actual costs incurred by the freelancer
As we wrote before, a freelancer has a lot of expenses. Therefore, in order for him to be able to break even at least and earn a good profit in the future, he must analyze his actual costs. Thanks to this, he can also calculate the minimum rate that he should receive to cover all expenses and even earn. The analysis should include expenses per year, i.e. those incurred every month and those less frequent.
Taxes - VAT, income tax, including any returns. The types of taxation depend on the form of activity. To make life easier, a freelancer can take advantage of on-line accounting. This solution is proposed by http://wfirma.pl/. By using an on-line application for accounting purposes, the freelancer prevents any errors that may creep into traditional accounting.
Insurance - depends on where the freelancer is insured, e.g. ZUS, NFZ, health insurance, medical subscription, etc., and the type of insurance, e.g. health, accident, sickness, retirement and disability insurance.
- renting an office (although a freelancer usually works from home);
- commuting to clients - business trips;
- hardware and software expenses - computers, accessories, programs;
- training and courses;
- Internet, telephone, fax - not only for business use, but also for personal purposes;
- office accessories;
- advertising and promotion.
- renting an apartment and paying for an apartment - rent, water, gas, electricity - also treated as a workplace;
- car maintenance - inspections, fuel, repairs, insurance, parking lots;
- daily expenses - food, drink;
- unusual expenses - clothes, books, CDs, entrance tickets (cinema, theater, clubs, amusement park, etc.), going out with friends to clubs, restaurants, as well as possible holidays, etc.
Cost analysis is not difficult, but it requires meticulousness, full concentration and careful attention so as not to overlook something. In addition, there are many cost calculators on the Internet at the moment that calculate the annual expenses of a freelancer and even the rates that he should propose to principals.
The analysis gives the freelancer a sense of security - he knows that he is in control of his expenses. A freelance user learns to save money by calculating expenses, but also to value himself. It is worth carrying out a cost analysis to control the seemingly "free lifestyle".