How should you charge for your work?

This is an age-old question.

Should it be by the pound, by the day, by the project?  What’s the framework?

Then, how much should you charge? Is there a formula? A rationale? Do you even need a rationale?

There are plenty of ways to think about all this. There is no ‘right’ answer.

It depends on who you are, how many kids you have, what makes you comfortable, what makes you uneasy, what you worry about.

And what makes you leap out of bed and get to work.

One place to start — which is about as good as any — is to pick an annual income that you would like, and work backward from there.

Figure how much you would need to make each month, each week, each day, to hit that annual number.

That’s a framework. A mental model. One of many possibilities.

You could pick the salary you earned in your last staff job. Just so you’re not taking an embarrassing step down to go freelance. That seems reasonable and fair. But it’s timid.

Or, you could take the last salary you earned and add 14% to 21% since you are now taking on the ‘risk’ of freelancing, plus you have to pay your own internet and phone and insurance. That’s smarter. But still timid.

Or, you could scan the job boards and find a juicy and well-paying position that you might conceivably qualify for some day (if you actually wanted a real job), and shoot for that number.

Or you could pick a number that would impress people if you ever, you know, accidentally let it slip in casual conversation. I confess I leaned this way at first. It was ego, not economics.

There is, however, a more interesting and more instructive way to think about all this.

It’s a way to gauge the market value of your kind of work. (Well at least how much some people actually pay for it, anyway.)

The 3x rule

This is a rule of thumb used by design firms, law firms, consultancies, ad agencies and others who offer expertise or creativity for a fee. It has held true for decades.

If a firm pays an attorney, or a staff consultant $100,000 per year, the firm expects to generate three times that — $300,000 — from that person’s work.

This isn’t greed or exploitation. It’s a hard fact of economics for fee-for-service firms.

The work done by a 100K staffer needs to sell for about 300K on the open market.

If the firm pays a skillful designer $50 per hour in salary (the wholesale price), they routinely bill clients $150 per hour for her work (the retail price.)

That’s how the firm stays in business. Otherwise they sink.

But here’s the lesson.

It means that the ‘market value’ of that designer’s work is about three times her salary, thereabouts.

That is what the end users — the clients — actually pay for her work out there in the real world.

You and me, we should be thinking that way.