You will be able to calculate a floor rate that pays for your base pay, tax, CPF, cover and business costs.
When Mei left her agency job, she set her first freelance rate by taking her old monthly salary, dividing it by the hours in a working month, and adding a bit on top to feel safe, which seemed sensible at the time. Two years later she had a full diary and a holding account that kept sliding. Her rate was paying for her time at the desk, but not for the employer CPF, the leave, the insurance, the software, the hours spent on admin, or the weeks between projects. Most freelancers who undercharge do it this way, with a number that looks reasonable and leaves half the costs out.
This lesson builds the rate your life actually needs, from the bottom up.
Start with what your work must pay for in a year. Each item comes from earlier in this course.
Base pay for twelve months, from module 1. Tax and MediSave, from your estimate in lesson 2.4. Your voluntary CPF amount from lesson 3.4, if you chose one. Insurance premiums for the cover you plan to hold after module 6. Business costs: software, equipment, a phone share, transport, professional fees. And a contribution to the buffer in your holding account, so it grows or refills over the year.
Here is Mei's list, with every figure made up for the example:
Base pay: S$2,300 a month for twelve months, S$27,600 Tax and MediSave: S$6,600 Voluntary CPF: S$4,800 Insurance premiums: S$2,400 Business costs: S$3,600 Buffer contribution: S$2,000
The total is S$47,000. That is what her work has to bring in, after nothing else, for her system to hold together.
Notice what is on the list that an employee never sees. The employer CPF share, group insurance and paid leave were all part of an employee's pay without showing up on the payslip. As a freelancer, they appear on this list or nowhere.
Now divide the total by the hours you can actually charge for in a year. These are your billable hours: time spent on client work that a client pays for.
Billable hours are much smaller than working hours. A freelancer spends time on finding work, writing proposals, invoicing, chasing payments, keeping records and learning new tools, and also waits between projects, and no client pays for any of those hours. Then take out the weeks you do not work at all: public holidays, leave you choose to take, and days off sick.
Mei estimated she bills about 30 hours a week. Then she checked her diary for the last three months and counted only the hours that went on a client invoice. The real figure was 18 hours a week. She works 46 weeks a year once she takes out holidays, leave and the odd sick day, so her billable hours come to 18 multiplied by 46, which is 828 a year.
Most people overestimate their billable hours. A busy week sticks in the memory, and the admin and the quiet days do not. Mei's guess of 30 hours would have given 1,380 billable hours a year. Divide S$47,000 by 1,380 and the rate looks like S$34 an hour. Divide by her real 828 and it is about S$56.76.
The difference between those two figures is the difference between a business that works and one that slowly drains the holding account. So go back through your calendar, invoices or time records for the last few months and count what you actually billed. If you are new and have no history, assume fewer hours than feels right. You can raise the estimate once you have real data.
Divide the year's total by your billable hours and you get your floor rate: the lowest hourly rate that pays for your base pay, tax, MediSave, CPF, cover, costs and buffer.
Mei's floor is S$47,000 divided by 828 hours, which is S$56.76, and she rounds up to S$57 an hour. For a day of eight billable hours, that is S$57 multiplied by eight, or S$456.
Below the floor, you are paying to work. Every job priced under it either eats into the buffer, delays the bills or quietly cuts your own pay, whatever the market rate for the job looks like. A rate above the market that you cannot get is a problem, but so is a market rate below your floor. That second problem calls for the fixes in lesson 1.2: more billable hours, lower costs, or a different kind of work or client.
The floor is not your price. It is the line your prices should not cross. Lesson 7.2 covers how to charge in ways that are not tied to hours at all, and lesson 7.4 sets actual prices above the floor using what the market will pay.
Your inputs are already in your notes from earlier modules: your base pay, your set-aside estimate, your CPF decision, your premiums and your business costs. The two new ones are the buffer contribution you want and your billable hours from your diary. Gather all of them before you open the calculator, so that every line is a figure you can point to.
Fill in the floor rate calculator with your own figures and write your floor hourly and daily rate.
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