I read an article for contractors/freelancers about how to calculate a day rate, vs hourly rate. The advice was focused on how to make sure the freelancer is charging enough and provided a few tips to help freelancers determine their rate. (I typically do staff augmentation work on multiple projects, for a single client.)
One tip involved helping freelancers determine a pricing model, such as a day rate. In this case, you'd add a 40% premium, then multiply by 8 hours to get the day rate. The half-day rate and hourly rates are set at 75% of the day rate and 30% of the half-day rate.
Here's an example: Let's say the former full-time salary is $50,000. The day rate is calculated as ($50,000/2040) + 40% premium * 8 hours or $274.40. The half-day rate is $205.80. The hourly rate is $61.74/hour. $274/8 is $34, so why the $61? The higher hourly rate based on the day rate is to encourage clients to book a whole day -- a volume discount for your time.
The details of this math are not for the client to know. Ultimately what would be presented would be something like this, probably rounding up to whole numbers:
I'm looking for a day rate of $274 for an 8-10 hours per day. Otherwise it's $62/hour. We can discuss other terms, if you'd like.
Something like this. How it's calculated is not really their business.
The benefit of this type of calculation is if the client doesn't have you working a full day, you don't lose out on hours that you could have potentially charged to another client.
In my case, I usually end up working a full 40-hour week, but I'm trying to be a bit more structured in my freelance work. Having said that, I don't have experience with day rates and project rates. A lot of advice for freelancers is to charge by the day or project. I also think charging in this way helps companies to remember that you are a contractor, not full-time, as some companies (but not all) seem to go the freelancer route in order to avoid paying US payroll taxes.
There are 2 areas of focus for this questions:
- I'm curious if anyone has any advice for how to approach negotiations or pitch this to a potential client. Basically, when someone asks for the hourly rate, I want to steer the conversation into asking for a day rate. I suppose this means a contract on my part will be required, to detail this out?
- In terms of a strategy to maximize billable hours with a client, how well do you think this might work? Do you have other strategies?
-- Related: Freelance vs Agency Contract vs Full Time Salary