If you want to be successful as a freelancer in the long term, you have to meet a few requirements. This includes good negotiating skills to be able to enforce their own fees with the client. Unfortunately, many freelancers not only calculate their prices incorrectly, but also have them negotiated down by the client, so that they ultimately can no longer cover their running costs – let alone make a profit. So what are the most common mistakes in fee negotiation and, most importantly, how do you do it better?
Freelancers between high hourly rates and low-cost segment
The fact that underpayment of freelancers is a widespread problem is made clear by the involvement of politics in the issue. A minimum fee for freelancers is currently being discussed. However, experts such as Robert Gadegast, deputy chairman of the OWUS Berlin-Brandenburg, consider such a minimum fee neither sensible nor feasible in practice. Why? Because such a regulation would mean an intervention in the principles of the market economy and thus distort competition. Freelancers must be able to operate freely and thus support their self-employment from their own resources. In many cases, this works excellently.
For example, IT freelancers earn an average of 83 euros per hour with a good to very good order situation. This brings them to around 8,000 euros net per month and just under 100,000 euros per year. An income that many employees can only dream of.
Unfortunately, the income does not look so rosy in all cases. Not every industry is as desperate for skilled workers as IT. Where demand is lower, freelancers can rarely negotiate such high hourly rates.
Why should the client pay such prices when the competitor does it for half the price? If you don’t have powerful counter-arguments and sufficient self-confidence to remain true to your calculations, you will quickly find yourself working for a lower fee than expected. A mistake that can threaten your existence. Because the running costs in self-employment are high.
Insurance, taxes or the rent of an office often amount to several thousand euros a month in fixed costs. Possible order fluctuations, downtime due to illness or a vacation are far from being covered and neither are the cost of living. As a freelancer, it is anything but easy to manage your business, to calculate skilfully and to enforce these fees. So what do you have to pay attention to?
Net, gross, sales tax: The fee must be calculated correctly
In contrast to an employee who receives the pay slip at the end of each month and where most expenses such as insurance or taxes are automatically deducted, the calculation for freelancers as well as tradesmen is somewhat more complex. They charge their clients the net price for the services they provide. However, net does not mean tax-free. Instead, sales tax is added to this net amount. This value is referred to as the gross.
The only exceptions are the small business regulation and the reverse charge procedure. However, the freelancer is not allowed to keep this VAT after the transfer by the client, but must pay it to the tax office. This is a so-called transitory item.
The net amount is equally misleading. This, too, should not be considered net income at all. Instead, it counts as income on the balance sheet. Operating expenses are later deducted from this. The plus, which (hopefully) remains, represents the profit. This is so to speak – colloquially expressed – the income of the freelancer.
But of course it still has to be taxed. Many, especially inexperienced, start-ups make the mistake of not taking taxes into account in their calculations and then get into financial difficulties when the tax office demands an additional payment.
Keeping an eye on finances and ensuring sufficient liquidity is therefore the be-all and end-all for freelancers and entrepreneurs of all kinds. After deducting taxes, the freelancer still has to insure himself. Health, pension or disability insurance is anything but cheap (for the self-employed) and therefore represents another high monthly expense.
In addition, of course, there is the rent for your own apartment or office space and other running costs. All these factors must be included in the calculation of the fee. And even then, downtime due to illness or a vacation are still not taken into account.
You notice: The hourly rates for a freelancer are at first glance significantly higher than those for an employee, but at second glance they cannot be compared. If you know your figures exactly, you will be more confident when negotiating your fees.
Getting your salary expectation accepted: Here’s how the negotiation (doesn’t) work
Now, of course, it is important to enforce this salary in negotiations with the potential new client. Unfortunately, many freelancers make the same mistakes again and again:
- Round Figures: You should not make your calculated hourly rate a round figure. Many freelancers demand 50, 85 or even 100 euros per hour. This tempts clients to act. If, on the other hand, you ask for a round amount such as 83.76 euros per hour, you give the impression of an exact calculation, appear more professional and will have to haggle less with clients – guaranteed!
- Tight calculation: However, this does not mean that you cannot and should not round up your fee. After all, maximizing profit is a goal in any business. Feel free to round up, just to a crooked value. This way you give yourself the freedom to accommodate the client in the negotiation. He is satisfied and you do not fall below your lower limit. And if the customer does pay more in the end, you certainly won’t say “no”.
- Missing lower limit: Every freelancer should enter the negotiation with a clear minimum and never fall below it. A value with which he can still cover all expenses and at least achieve a small profit. If you allow yourself to be negotiated down too far, you not only risk your economic existence, but also appear less convincing to the client. Good work has its price, is the common conviction. Accordingly, many clients conclude that cheap freelancers also work poorly – and prefer to pay a little more for the more expensive competition. Sounds ironic, but it’s true!
Conclusion
Ultimately, the negotiating skills of a freelancer determine to a large extent whether he can successfully establish himself on the market and make a living from his work in the long term – or whether he slides straight into insolvency instead. With a little self-confidence and the right strategy, you can negotiate above-average hourly rates and put your self-employment on a stable footing.
