I was catching up with an old friend (being the holidays and all) who owns a small business, and he mentioned that he needed some website help. Nothing big, just registering a domain or two and putting up some basic websites. I told him I was looking for some extra work, and he told me he’d send me a list of what he needed. I got it, made sure I knew how to do those things, wrote up a proposal for the project. He accepted. I had a hard time figuring out how much to charge and estimating how much time I’d need to spend on it. (How do you figure out how much to charge?) I probably lowballed myself, but we’ll see. At least now I’ll have a reference and some portfolio stuff for later. Not to mention a few hundred more bucks =) Not looking forward to paying self-employment tax though.
Got My First Client: I’m a Freelancer!
Posted on December 19, 2005 // 11 Comments
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Congrats on your new freelancing business!! I know it will be a smashing success as your website is really terrific. It is the only Blog on the web I visit regularly. Your enthusiasm for finance is contagious. I hope some of your luck in generating money will rub off on me as I visit your site. I recently opened the HSBC savings for the bonus and now it’s interest rate has surpassed Emigrant’s so I will have to trans some $$ funds over to it–a happy task. Perhaps you are prophetic? In that vein, I am wondering what you think of this “BOOMER” checking acct that is paying such good interest. It sounds too good to be true. Can you take a look and tell me if you think it is legit? Here is a link: http://www.bankofinternet.com/open/boomerchecking.asp. I appreciate all you do for people. You are terrific!
if its only a couple of hundreds, just do it under the table. no tax to worry about.
IT consulting ranges from $25-55/hr on average. Estimate how many web pages it takes and how complex the project is (database? server-side scripting? design work? E-commerce enable?)
Honey – The Boomer Checking looks good, I’ve heard good things about BofI. I’m not over 40 though, so I’m out anyways =)
cheap0 – No, this guy is all about the up and up. This way he also gets to deduct it as a business expense. I want to do it all legitly too. I’m researching now legal ways to minimize my tax liability.
A – Yeah, I did that. I’m not too concerned about the specific amount of money for this job (gasp!), I just don’t want to screw it up!
If it’s under $500 then he can just make it out to you with no need to report it as a taxable expense. If you are truly interested in starting your freelance company I would strongly recomend you use some of the money with a good accountant who can help you set up a corportation (S or C or some other type) and definitely go read “Rich Dad, Poor Dad” by Robert Kiyosaki. It is a wealth of information about this sort of stuff
ignore the tax part, just don’t give him your SSN and you’ll be covered (hopefully)
There are books available that list averages of how much freelancers get paid in different industries. Shouldn’t be too hard to find. You can also try to find out what someone would make doing that work as an employee and multiply that number by at least two, preferrably three. This is one of the MANY issues I encountered when starting my venture into part-time consulting/training.
Do you have a seperate bank account for your freelancing?
Congratulations on your first client.
The tax liability on this shouldn’t be anything to worry about. File a schedule D on your taxes. Since you’re now in business you can deduct a whole range of expenses related to it. i.e. buy a new computer? Deduct it. Books, magazine subscriptions, deduct them. Travel to / from the client. Deduct… Etc.
I’ve run a part-time web hosting business for years (I made a good living building/hosting web sites in the 90’s, I stopped promoting the business when one of my client’s hired me full-time but still have some smaller clients.) It doesn’t generate a lot of revenue (few thousand a year) and my related expenses take up much of it but the taxes just get figured into our return. For convenience I lump in the money I earn from Google ads (have ads running on a couple of sites) into the revenue to save myself an extra schedule D.
Couple of suggestions:
– I would set up a separate checking account and DBA for the business, even if you’re doing this under your own name. Probably no need for a separate tax ID, incorporation or LLC for now.
– You’ll get a better feel for how long things take as you get experience. Quoting jobs becomes much easier once you’ve come up with some rules of thumb. i.e. it can take and average of 4 hours to design a template for a web page. Once it’s built you can build additional pages in 30 min or less. Other, more engineering related tasks are a little more difficult to estimate but you’ll get the hang of it.
Just keep REAL good track of expenses, to offset some of the self employment tax. If you make a trip to Office Depot for paper, keep a log of the mileage and the paper expense, etc. If you use your cell phone, highlight business calls on your bill, and calculate the % useage for a dollar amount to deduct. If you’re really going freelance, talk with a tax pro about things to plan for. It will be well worth it in tax savings.
Cool! I do the same thing. I have a partnership with my girlfriend, and we do web site and print marketing stuff.
I agree, the hardest part about doing these things is coming up with a price! Because I do it on my off time (I’m in hotels 3 days a week) it’s not my “main income”. I base my web design charges in this format:
Initial (index) page: $500.00
Each additional page: $55.00
Stock image gallery (80,000 photos) access: $50.00 (costs us $100 every 6 months, so we make out ahead)
Optional services
Database setup/design: $300.00
Online Form setup: $50.00
Anything else: I just think what a reasonable price would be.
I don’t nickel and dime companies, ie have them pay for each photo change, etc. While it takes time to do these things, I hate when you go buy something and for the final price, they tack on a “fuel service fee”, a “conveience fee”, a “your name is matt fee”, etc. Straight forward pricing seems to help with the repeat business a LOT. I’ll lose a little $$ but so far it’s been worth it.
I made a decision NOT to do hosting. The major reason is I like to “wash my hands” of a job once complete, and put it on autopilot. I will glady make changes (and charge for them) but I don’t like having long term contracts holding me down from going another direction at a moments notice.
I once had a hard time figuring out what to charge, but soon I found clients that were willing to pay by the hour, mostly for pretty large, open-ended, making it up as we go along kind of projects with PHP, MySQL, AJAX, etc… This works great for me. I was charging one client $30/hr, and told him I had a few offers that agreed to pay $40/hr so he matched it. Recently I’ve been getting a few leads in the $50/hr range, but I’m not going to leave this guy hanging since he’s been paying my hours every week for many months now, but hopefully next year I’ll be able to start taking the $50/hr gigs. One thing I notice is that there are a lot of people that do basic graphic design, html, and Flash for small web sites. There’s a lot of competition with that kind of stuff that drives the rates down a little. Server side programming, databases, AJAX, and all that kind of stuff seems to be in more demand, maybe not as many potential clients, but much bigger projects, and less competition since the skills required are more esoteric. I’m even thinking of taking some classes, upgrading my BA to a BS in computer science so I can get into the $75 – 100/hr range!
As far as taxes go I’m kind of dreading it this year, though for the first six months I wasn’t doing so well (before I taught myself PHP). I’m just hoping to find a good accountant who can help milk my deductions to the max.