Setting terms when you become a freelance designer

This was left in comments yesterday:

I’m currently the senior designer for a well know handbag company in Manhattan. I’m relocating to Boston for personal reasons but have discussed with the corporation continuing on with them remotely. As a corporate company they do not encourage this, so they have requested that I stay on as a freelance designer. I’ve been told to come up with an hourly rate that will be sufficient for my new lifestyle as a freelance designer, travel expenses, & health insurance but something that will be acceptable as well considering it will be consistent work (daily communication with my current boss via phone/email/skype). I’m looking for some input from other designers who are in similar situations because this is new for me and I want to be able to make a substantial living, while still being fair to my current employer. Any thoughts will help! thanks!!

I think you need more sophisticated advice than the usual; namely computing your income needs and dividing the sum by a 40 hour work week. Just what that advice should be, I don’t know but hope others will. I can only offer a few ideas.

When you calculate your hourly rate, you’ll have to add a buffer of 25% of its total. That’s not overhead, it’s the cost of what it costs to employ a person -namely you. Your previous employer paid roughly this amount when it was all said and done (HR overhead, taxes, insurance etc). In other words, it’s a zero sum game for them (useful if you have to negotiate). The benefit on their end is not having to make ongoing overhead expenditures like office equipment upgrades, workplace amenities etc, costs they’d normally incur keeping you employed at the work site.

The matter of expenses like travel is easy. I don’t know if the company booked all your travel previously but there’s no reason they can’t continue to do so. At least, that’s been my experience. If you will have to do it, be sure to get their travel policy accorded to consultants because it may be different. Depending on your cash flow, you might bill for that immediately, prior to taking the trip. You’ll also have to consider whether you will charge for travel time. Stars can get their full rate (like you did as an employee). I can only tell you what I do and that depends. On longer jobs I don’t charge for travel time. Shorter ones, I may charge a little, no more than half my hourly or daily rate but again, it depends. Smaller customers or colleges and universities, I don’t charge beyond the rate I spend working on site.

The cost of work materials required for this client’s job is also pretty easy. Will you have a budget? Will you need approval to purchase items? Make it clear that any materials they pay for will not be used for other clients. You wouldn’t want to lend the impression they’re subsidizing other account activity.

Health insurance is dicier. You’re going to pay more as an individual than as a corporate employee. I can’t imagine how to address this equitably. Hopefully someone else will have ideas.

Overhead and profit can be tricky although I suppose salary is profit at this stage. I don’t know the nature of your relationship with your employer but I’d be very conservative about adding any significant sum to your hourly rate to cover this. To be sure you will have new expenses -office furniture, perhaps software, business cards etc but you’re walking into your new freelancing life with a known quantity who is (presumably) a dependable payer and making this possible for you. Perhaps you could set up a two tier rate. One for this client and another for new clients. You could structure it in terms of discount according to the size of the job if the disparity makes you uncomfortable and until you get some traction. I don’t see any conflicts with a two tier system. Some clients cost more to service, I give good discounts to people who’ve done their homework or have appreciable experience. Since this client is a known quantity, it will cost you less to work with them. That’s a comparative judgment you’ll discover as you go along.

What do you all think?

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10 comments

  1. Theresa says:

    Health insurance is dicier. You’re going to pay more as an individual than as a corporate employee. I can’t imagine how to address this equitably. Hopefully someone else will have ideas.

    There is one bit of information I can give regarding this since she specifically mentioned moving to Boston. Massachusetts has universal health care which makes it much more affordable for an individual to get health insurance on their own. They can find out more information through the Health Connector website. I only had to pay $350/month when I was self employed. That was based on a full premium for a PPO plan with no subsidy. I actually pay more per month for 1/2 of my insurance through my employer in New Hampshire.

    https://www.mahealthconnector.org/portal/site/connector/

  2. Brina says:

    Here’s some websites that go over, in more detail, what Kathleen mentions above, particularly how to figure overhead, cost of doing business, cost of benefits like insurance that if you were employed you employer would pay that don’t show up in your take home pay, downtime or non-billable hours, and such.

    http://www.fiveoclockclub.com/articles/1995/09-95-ConsultingKate.html

    this one’s very numbers based–just do the math
    http://www.deionassociates.com/setfee.htm

    I really like this one, because it’s very readable and has a pdf spread sheet example.
    http://procnew.com/freelance-consulting-rates.html

    It’s similar to costing out the price of an individual item you are selling in that you need to add all your material and labor costs, and then overhead/cost of doing business, and profit, to put it simply.

    As far as more affordable insurance, a number of professional organizations offer insurance as a member perk. The Surface Design Association for instance. I know a few writer orgs do also–sorry I don’t know anything specifically for clothing/fashion designers. Is there a national org besides the Council of Fashion Designers of America?

  3. Dorothy Klein says:

    I think that as soon as possible you should contact the nearest major university and inquire regarding any “Business Incubator” programs available in your area. Becoming self-employed requires a skill set in itself in addition to those skills you posess within your craft. You will need to learn how to establish your tax status approprtiately and comply with local, state and federal regulations regarding everything from residential zoning statutes to occupational license issues. Luckily, that wheel has already been invented. Most metropolitan areas sponsor business development workshops and programs to help you with everything from setting up payroll records to marketing and development. Most also offer individualized business consultants for specialized needs (often in conjuction with SBA or SCORE [Service Corps of Retired Executives]). Self-employment can be extremely satisfying and empowering. Ensure yourself of success by availing yourself of this resource. My experience has been that most services are free to low-cost.

  4. Barb Taylorr says:

    Be very careful to spell out how you will handel intellectual property in advance. When I left a company I had good relations with to free-lance, they made the assumption I would only be working for them. That was not something I would have anticipated. Why free-lance if you are not free to take on projects that appeal to you? Well, they had not thought aboput that. There were some hard feelings when I took jobs for people they considered to be their competitors. There were no leagl repercussions, there was nothing to bind me to any one company. I never shared info or designs between customers. Still, it took a couple years to reestablish a good relationship with them. I reccomend a good honest conversation about this before it can develope into a problem for anyone.

  5. Tula says:

    Another route you can take for health insurance is to get a small group plan. Some insurers, like Blue Cross of MA, offer small group policies where you can have just one person. I have a plan like this through Blue Cross and the rates are cheaper than individual plans. Check out :

    http://www.bluecrossma.com/bluelinks-for-employers/index.html

    Also, be sure to get a contract agreement between yourself and your employer. There’s no substitute for having it all in writing. I found this out the hard way some years ago when I got stiffed on a freelance job that I worked without having a contract.

  6. Brina says:

    RE: CONTRACTS
    Ditto what Tula said. Also don’t be afraid to write up your own contracts once you discuss the terms with your client. What I’ve done is put together a draft to be reviewed by the client and then make changes if any, print out and sign. Contracts should spell out how your fee will be based-hourly, project, etc., time period, what kind of work you’ll be doing for the client, how you will bill, how you will be paid, etc. You can also add that you are working as an independent contractor and will be responsible for all taxes and such.

  7. Dorothy Klein says:

    Lots of good advice here that’s not necessarily specific to the apparel industry. Great commnets re contracts, intellectual property, insurance, taxes, payroll, etc. These are all area where a non-profit small business incubators, SCORE and the SBA can be a wealth of information. To ensure success when diving into the wonderful world of self-employment, we need answers to questions we’re not always informed enough to know to ask. In adition to advice/training, there are lots of funds available for small and/or minority-owned businesses (unfortunately not as plentiful as in the past, but available, nonetheless). Believe it or not, a small business is categorized as one with under 100,000 employees, so most of us are not too big to be considered for these funds and services. Based on this, I still can’t underscore the helpfulness of this approach.

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