Why is it cheaper to hire a freelancer?

Why is it cheaper to hire a freelancer?

Razvan Statescu's photo
Razvan Statescu

Published on Jan 10, 2021

5 min read

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Last week I did a post about this on LinkedIn and people reacted well; so I said, I'll write a short article about this.

I've been freelancing for around 4 years now and in all this time, I've come to realize quite a few things about rates, money, etc. I'll share those things with you today.

Let's start by making a quick comparison between an employee and a freelancer in terms of money & benefits. A freelancer doesn't have:

  • 🚫 paid holidays
  • 🚫 medical/life/... insurance
  • 🚫 gym subscription
  • 🚫 free courses/training
  • 🚫 free coffee/water/food
  • 🚫 any kind of benefit

So, usually, a freelancer has to pay for all the above and:

  • πŸ’³ taxes
  • πŸ’³ bills (internet, electricity, ...)
  • πŸ’³ subscriptions (services that help him run his business)
  • πŸ’³ equipment (laptop, monitor, headset, mouse, ...)

In addition to all of this, a freelancer has to take care of:

  • πŸ‘¨β€πŸ’» client communication
  • πŸ‘¨β€πŸ’» proposals
  • πŸ‘¨β€πŸ’» estimates
  • πŸ‘¨β€πŸ’» marketing
  • πŸ‘¨β€πŸ’» sales
  • πŸ‘¨β€πŸ’» finances (invoices, payments, ...)
  • πŸ‘¨β€πŸ’» and much more

When you set your hourly rate, you need to take all of that into account.

From a Client perspective, hiring a freelancer will simplify your cost per employee a lot. You no longer have to think about the things mentioned above (taxes, paid holiday, insurance, coffee, ...) and you can just think about the invoice you get from the freelancer.

Hiring a freelancer will not only simplify the process but will also make you pay less. Let's look at this article Cost of Hiring Full-Time vs. Freelance Software Developers. You can go ahead and read the full article, it's very interesting. But let's look at the numbers: the cost to hire a full-time developer with 5 years of experience is $198,974 and the cost to hire a freelance developer with 5 years of experience is $107,400 - $179,000 (based on his hourly rate). For a more detailed breakdown of those prices, go ahead and read the article above.

To sum everything up, as a business, you could save up to almost 50% by hiring freelancers instead of full-time employees!

Now that we clarified some things, let's try and destroy a mith

If a freelancer gets $100, he will keep $100 That's totally wrong. Depending on the country you're in you'll have to pay taxes, after that you'll have to cover different expenses covered above (bills, subscriptions, equipment, ...).

Extra: set your hourly rate

If you're a freelancer / want to become a freelancer and have no idea how to set your rate, a simple thing you can do is think of your salary. Let's assume $2880 for this example (this is your net salary). We want to get your gross salary now. Let's say the employer has to pay 40% in taxes, so if you have a $2880 net salary this means your gross salary is $4800. Divide that by 160 (the number of workable hours in a month). This will get you a $30 hourly rate. You can use this technique as a starting point.

If you want to reach me, check out my website.

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