June --

I have been a Web Developer / ASP.NET Programmer / Writer / Educator for 4 years.

I agreed to a rate before researching the real cost of taxes etc... is there a rule of thumb for consulting so I don't make this mistake again?

For example, should I add 35% to my minimum rate to ensure that I take home what I need?

Thanks.
David, M.Ed. from Seattle


Hello David,

I think you are asking two different questions.

I will skip taxes for a moment and look at how much an indie should charge. Let's say you were making $50 per hour as an employee. As an employee all your work expenses were covered and so $50 per hour meant $50 an hour (less withheld taxes)  into your pocket.

Now, as an indie you have many expenses that you must pay and they must be figured into your hourly fee. Not only do you need to look at things like the costs of a computer purchase and publications you read for business and the costs of running a home office, but what about hours on the phone with your computer guru who is helping you after your computer crash? What about your time or someone else's time cleaning your home office? Your time doing your own bookkeeping? Your time on the web getting answers to tax questions?

Most new indies -- that is, those without experience who have no history on which to judge their rates -- severely undercharge. They usually should double or triple their fees.

 

That means that a fee of $500 for a project expected to take 10 hours does not take into consideration the typical ongoing costs of running a business -- and also the not-so-typical things like the two hours at Best Buy exchanging a faulty modem. And, most new indies way underestimate the time a project will take. It is not unusual for a projected 10 hours to double by the time all activity -- such as discussions with the client -- are taken into account. A fee of  $1,000 or $1,500 may better reflect actual costs plus your fee.

 

The market as well as your business standing may limit how much you can charge but it is important to know your actual costs and to strive to charge what your work is worth, 

A must-do chore,especially at the start of your indie business, is to keep a log of all time spent on each client as well as on "general" time -- that's the bookkeeping, cleaning, errand-running, printer-jam-fixing kind of stuff.

Your other question about fees and taxes: Plan on 1/3 to 40% of your net profit going toward taxes. For more info on indie taxes, here's a column from my website: Taxes: Which ones and how much do I pay?

To learn more about the costs of being self-employed and how to simplify your tax and financial life check out my book,
SELF-EMPLOYED TAX SOLUTIONS .

Best, 
June