How Much Money Can You Make in the Freelance Economy?
Freelancers, contractors, giants – whatever you call us, it ‘s estimated that 40% of employees will be freelancers by 2020. obstacles to self-employment. The picture is not so rosy for everyone. For many, freelancing is not so much an opportunity as a burden. The freelance economy is tricky, so if you’re part of it, let’s get to grips with it.
Freelancer vs. Giant
Before we dive into how much you can earn as a freelancer or worker, we need to differentiate between the two. Both are self-employed, but there is an important difference when it comes to earning potential. After all, you’re much more likely to hear about someone who makes six figures as a consultant, tax professional, or even a writer than someone who makes six figures on Uber.
When people talk about the gig economy, they usually mean the sharing economy: companies like Lyft, Airbnb, and TaskRabbit hire independent contractors to provide various services. Nearly a quarter of all Americans make money on these platforms, according to a recent Pew study .
John Liston, All Set ‘s strategy and operations manager, said it is also important to differentiate between different types of concert services.
“Too often people lump all aspects of the gig economy into one bucket,” Liston said. However, there is a big difference between contracting through a service that sets your prices and determining when jobs are available to you, and contracting through a service that empowers you with technology and marketing to reach a group of customers without setting conditions for you. ” …
Uber and Lyft are examples of services in the first basket. Your earnings depend on the amount of free time. The rates are set by the company itself, and if you want to make more money, you just need to work harder.
“These services are great for increasing income in the short term, but can actually hurt long-term career sustainability,” Liston says.
Freelance is a broader category that can include giants, but can also include writers, web designers, or anyone who owns their own consulting business. While the IRS doesn’t see much of a difference between giants and freelancers, the main difference is that freelancing means being able to charge more as you hone certain skills or knowledge levels.
“The second type of service, in which you set your own terms for dealing with clients, gives you the opportunity to start your work on the side and turn it into a permanent job if you succeed.”
Examples of services in the second segment would be Upwork or Liston’s own company, All Set. Despite his affiliation, Liston understands this perfectly. There are two main differences between freelancers and gig workers: the ability to grow and the ability to set your own rates.
How much do workers earn
It is difficult to estimate how much the average worker earns because the nature of their work is not average. You have different people who work at different times in different positions. For example, according to one analysis by Priceonomics and Earnest, 85% of third-party employees (Airbnb, Lyft, Etsy, TaskRabbit) make less than $ 500 a month. However, there are several important caveats here.
First, it doesn’t affect how many hours they work, which makes searching almost meaningless. If the average number of hours worked per month is 20 hours, then $ 500 isn’t that bad. If 160, the earning potential is even worse than it looks.
Priconomics makes another caveat on their blog . They brought in users of Earnest , an online lender and student loan refinancing service, so this isn’t exactly a random sample:
“This data simply reflects the Earnest user base, who tend to refinance college loans and therefore may be more likely to view these services as an ‘ancillary service’ than the typical service provider, who is more likely to view them as full-time work and different levels of earnings. “
Finally, it does not take into account how different the earning potential is from one platform to another. Uber and Airbnb? It’s not really an apples-to-apples comparison. Airbnb is more passive income than Uber, which is time-consuming.
So let’s take a look at what the average Uber driver can earn. Their drivers make $ 25 an hour, according to Josh Morer, their former CEO from New York. This would mean that Uber drivers are earning over $ 50,000 a year, which is not entirely true. So BuzzFeed News interviewed a few random drivers , looked at their pay stubs, and processed their data. They reported (allotted hours):
Eight drivers received net hourly wages of $ 15.22, $ 21.17, $ 27.54, $ 32.90, $ 36.88, $ 37.12, and $ 38.25 – not including one-time referrals or registrations bonuses or one-time deductions. They worked 5.78 to 42.65 hours a week. Overall, their combined hourly wages during that time were $ 31.61 … it’s important to note that this is before accounting for other weekly driver expenses such as gas, car payments, car maintenance, and wear and tear … if we Assuming a driver weighted average wage of $ 21.90 per hour, which is only a small fraction of the driver’s cost and assumes that drivers work 30 hours per week (again, not necessarily typical, but this is the average range of hours worked by eight drivers, with which we talked about), we can assume that the approximate annual salary for the driver is $ 34,164.
This is, of course, before taxes, and it might not seem so bad for driving your own car and working on your own time. But it also does not include retirement benefits, vacation or sick leave, and most importantly, the cost of health insurance.
How much do freelancers earn
The main criticism of the freelance economy is that companies are saving a lot of money by not paying workers health insurance and other benefits, while at the same time giving the illusion that such a system is good for them because they are flexible. In doing so, they use workers who cannot find work, pay them less, and tell them they can take more work elsewhere. This is a valid criticism.
On the other hand, freelancers often do this job. As a freelancer, I partially retain my freelance status due to the fact that I am allowed to work elsewhere and make even more money.
If you earn twice as much as a freelancer than a traditional employee, you may not care if you have to pay for your own health insurance.
“By working full-time, you get the benefit of a guaranteed income — you won’t earn less than your paycheck — but you don’t have the opportunity to earn significantly more,” said Diane Elizabeth, freelance consultant and blogger. … “As a freelancer, you usually work on project after project – which means that you are not really committed to the set number of hours per week. This allows you to attract more customers and earn significantly more. “
Bloomberg reports that the number of freelance workers earning six figures is on the rise. But there is also an important caveat here. These are mostly independent contractors with specialized skills who, in any case, can earn as much as engineers working full-time. Time boasts that “45% of full-time freelancers say they make more money working on their own than in traditional jobs.”
But here’s the thing. If you work as a freelancer, you should be making significantly more money on your own than in a traditional job, because freelancing requires additional costs. According to Bloomberg, the average freelancer works 36 hours a week at a pre-tax rate of $ 21 an hour, which roughly matches BuzzFeed’s data for the average Uber driver. So while you can potentially make more as a freelancer, it looks like most of them overall earn below average income when you factor in all these other expenses.
So what are these costs? And how can you make more money as a freelancer?
Added costs for self-employed workers
Aside from possibly incidental business expenses (such as car insurance if you ride Uber or Lyft), health insurance is the biggest expense for the self-employed. Zane Benefits estimates the average individual monthly premium (excluding subsidies) for 2017 at $ 393. Average annual deductible? USD 4328. Sure, the Affordable Care Act offers some relief, but for how long ?
In other words, this radically changing workforce makes the threat of abandoning affordable healthcare an additional fear for many workers.
Self-employed workers should also consider retirement . Not all full-time employers offer retirement benefits, but many do, which prompts people to start saving in the first place.
If you, as a self-employed person, do not have this benefit, you probably are not thinking of saving for retirement at all. There is nothing wrong with that, but many experts believe that a retirement crisis is looming .
According to Diane Oakley, executive director of the National Pension Institute, 40% of the workforce is not saving, and that could be detrimental in the next decade. Saving for retirement is not about relaxing on the beach in some exotic place. It’s about making sure you have enough money to survive – to pay for basic living expenses like healthcare – as you age to work.
Finally, self-employed workers also need to think about taxes . Yes, we all have to pay taxes, but the fact is that many workers or freelancers are paid and do not realize that the money was not taken to pay taxes. Come in April, a terrible surprise awaits them. If you are self-employed, you must pay indicative quarterly taxes throughout the year. You can calculate your payments using a calculator like this , but if you want to avoid the penalty, you have to be very accurate . The IRS requires you to pay 90% of the tax for the current year (yes, even if you don’t know what it is yet) or 100% of the tax on last year’s tax return to avoid the alleged tax penalty (if you make more than $ 150,000 a year, which is 110%.
Taxes are just one example of what self-employed administrative workers have to deal with. There are invoices and more sophisticated budgeting too . Plus, you almost always seem to be waiting for a check.
However, in some cases, freelancing can still make sense, you just need to make it work.
How to get a freelancer to work
If you want freelancing to be more profitable than full-time jobs, it boils down to two things: finding the right clients and learning how to negotiate.
“Find companies that are hiring people in your area of expertise and refer to them as a freelance consultant. You can charge more per hour as the company saves on taxes and benefits that they would otherwise pay you as an employee, work fewer hours as you work on a project basis, and gain experience with established companies. This is how I got the majority of my high-paying clients, ”said Elizabeth.
It’s not easy, of course, but one tip that will help: put yourself in the prospect’s shoes . What do they want? How can you help them? At Growth Lab (a project by author Ramit Sethi ) they put it this way:
Take some time to consider WHY you risked going out alone and what value you offer your customers. After all, if you don’t know why someone is buying from you, your customers won’t figure it out for themselves.
This is still easier said than done, but this is what you need to do if you want this to work. In other words, start by piercing their heads. Writer Paul Jarvis offers a few additional tips for finding clients, which we’ve covered here , but some of them include:
- Offer your perspective on an existing product : Offer to improve what the customer already has. If you’re a web designer, you might suggest improving some of their crappy website.
- Leverage your existing contacts: reach out to people you already know so you can chat and meet potential clients.
- Create a variety of content and make yourself known: Create a platform for yourself and don’t be afraid to show yourself off.
Of course, the best way to find new clients is to do your job well , so don’t neglect to learn new skills and hone existing ones.
“As a freelancer, you set the prices yourself. It is here that many people get scared and severely underestimate their fees, ”said Elizabeth.
It’s so true it hurts. As an aspiring freelancer a few years ago, I totally believed that freelance writers were paid nonsense. And what is the result? I was paid in shit. Then I started researching how to negotiate and as an experiment I asked my clients for more money at the time . Surprisingly, they all said yes, and it completely changed my thought process and prompted me to start negotiations.
“Don’t be afraid to ask for what you want — there are many potential customers who will be willing to pay for high-quality services even if you get a few rejections,” Elizabeth said.
Finally, if you want to increase your income as a freelancer, it helps to think of your job as a business, even if you are not an LLC, ”said Elizabeth.
“In many ways, freelance work is equivalent to entrepreneurship. You set prices, hours of work, generate your own leads and are 100% responsible for the result of your work. “