When you become self-employed and start your first job as a freelance recruiter, the question arises as to what hourly rate you can charge. However, you can't start from what you have earned as an employee so far. The financial situation as a freelancer is different. In this article, we'll explain exactly what this looks like and what hourly rate you should charge. (Please note that examples and links are designed for Germany. In other countries, the information given here may vary.)
Sales do not equal profit
As a self-employed person, the hourly rate forms the basis for your turnover. However, this is not yet your profit or your income from which you live. As an employee, you were provided with a lot by your employer. For example, the workstation with PC and monitor, the license of the LinkedIn recruiter and similar tools, or the proportional payment of social security. As a self-employed person, you bear these costs yourself. On top of that, there are other costs such as marketing, travel expenses and insurance.
Below I'll show you a step-by-step guide that will explain how to calculate your hourly rate. The bottom line is a very simple economic calculation.
Calculation of the hourly rate
First of all, it is important to get an overview of all the costs you will be confronted with in your private and (future) business life.
In order to realistically assess your private expenses, get as precise an overview as possible of your current and past financial situation. You can do this, for example, by taking the longest possible time to get a bank statement from your bank. What do you pay for rent, electricity and food? What do you pay for your car? What insurance do you need to pay for? What impulse purchases do you finance?
This is a good point to become more aware of your own expenses and, if necessary, to tidy up a bit. But also to look into the future and to consider whether larger investments or, for example, family planning is pending. This should all be considered in advance and reflected in your economic plan.
(Future) business expenses
As a freelancer, you will continue to face expenses that you don't have as an employee. For example, recruiting tools or travel expenses. Therefore, make yourself aware of what you need to realize your business success. Think about what it takes to do your job. In the following, I list some topics with suggestions:
- What tools do you use to achieve your recruiting success?
- Do you need a LinkedIn recruiter / XING talent manager or is it enough for you to Google Sourcing?
- Do you need additional software (like Microsoft Office) or access to digital platforms?
- Do you write your invoices using a (paid) tool or Microsoft Word?
- How much does your business account cost?
Marketing & Sales
- How do you reach your customers (see: Sales for introverts)?
- Are you planning to visit trade fairs & events? Does the visit pay off economically for your company?
- Do you need an office with appropriate equipment, if necessary?
- Do you need access to a coworking space, if applicable?
- What expenses do you have for technical infrastructure such as PC / laptop and smartphone? How often do you have to replace them?
- What business travel may come your way?
- Do you need a company car, if applicable?
- What are your estimated costs for hotel accommodations, etc.?
- Do you need a tax advisor to help you with your tax return and other tax issues?
- Which costs are tax deductible?
- What continuing education opportunities might make sense for you in the future?
Get as realistic an overview as possible. You may also find creative ways to solve one or the other problem elegantly. The access to sourcing tools could also influence your first hourly rate negotiation. The company provides the tool, so you go down with the hourly rate. For a first assignment this can be a good solution.
A third major point for the calculation of your hourly rate is the social security. As a freelancer, you are on your own. There is no longer an employer who pays a share of your social security. This means that you have to bear the following additional costs.
Health and nursing care insurance
Health and long-term care insurance are mandatory for self-employed persons. This can be done either privately or by law. It is best to contact your health insurance company directly in order to determine your individual contribution rate. You can also get more information here.
As a self-employed person, paying into the pension insurance is voluntary. You can choose your contribution as long as it is above the minimum contribution of currently 96.72 € per month (as of 2023). You can find more information here.
If you decide against paying into the statutory pension scheme and prefer to make private provision for your old age, make a realistic calculation of the amount you should set aside each month for this purpose.
As a self-employed person, paying into the unemployment insurance is also voluntary. However, you must decide within the first 3 months of becoming self-employed whether you want to continue paying into unemployment insurance. You can find more information here.
Calculate hourly rate
The sum of your private and business expenses as well as the social security contributions result in your total costs, which you have to bear monthly or annually. On the other hand, you have the time to cover these costs and to generate a profit. How many working days do you have available for this?
To calculate the number of working days, you can break down the year into weekends, vacations, vacation, training and sick days. This results in the days on which you can effectively be economically active. A possible calculation could look like this:
- 104 days weekend
- 13 holidays (average; depending on state)
- 25 vacation days
- 10 Sick days
- 12 training days
This results in 201 working days per year.
Of course, this depends on how many vacation and continuing education days you schedule, which state you live in, and whether and how often you get sick.
This hourly rate would be what you need at full capacity to cover all your costs. This does not include: "low order" times, sales days, trade fairs & events and other days on which you cannot work economically for operational reasons. Of course, individual experience values also count here, but it is not wrong to include a buffer.
- 36 Sales days
This results in 165 working days per year (about 14 days per month).
For example, if you are targeting a monthly revenue of €6,000 to pay for your personal and business expenses as well as your insurance, the following calculation applies:
6.000 € / 14 days = 429 € daily rate / 8 hrs. = 54 € hourly rate
On top of this we calculate another 30 % for "low order" times when you don't earn any money. You can find a study on this here.
54 € hourly rate * 1.3 = 70 € hourly rate
To achieve a monthly income of €6,000, you should set an hourly rate of €70. However, as you want to build your business further and get better recruiting tools, for example, you also need to make a profit and increase your hourly rate.
Increase hourly rate
The basic calculation is the same for all freelancers, no matter what individual cost requirements are determined. With the increase in the hourly rate, you can subsequently build up your business further, possibly afford a trade fair or hire someone to support you. However, when negotiating higher hourly rates, various factors (market situation, industry, network,...) come into play that influence the hourly rate once again.
Know your value
You and your recruiting skills are now the product in a market of many options for how companies can fill their jobs. Therefore, survey the market situation. For the company it is also an economic calculation which option it chooses. For example, it could work with recruiters instead of freelance recruiters. At the same time, there are also various freelance recruiters with whom you compete in the selection process. This is why it is so important that you know your value and can argue for it. Therefore, pay attention to the tips on building your business in this Article. With the right specialization, a good reputation and appropriate recommendations, you can also charge higher hourly rates. Basically, if someone will pay it, you are probably worth it. There is no right or wrong.
I know from my own experience that negotiations can be unpleasant. Especially in the beginning, when you're still unsure what the right price is, what other freelancers are asking for, etc. You actually want to do everything right, but are swimming in the sea of ignorance.
Nevertheless, an hourly rate negotiation is always something where you as a freelancer first specify something. You "anchor" with a price. That is, you first say a number and then the conversation and the negotiation is based on that. It always depends on your counterpart and his basis for negotiation. But try to anchor as high as possible within a realistic framework. See also this lecture at Greator an.
Hourly rate: This is what you should take with you as a freelance recruiter
The hourly rate is therefore made up of a hard economic calculation and various soft factors. As a product on a market, you can always start by looking at what other market participants are doing. Gather experience and references and always test higher hourly rates with new clients. The soft factors are influenced by so much that everyone has to find and negotiate their own hourly rate. I know that's a lot of "it depends," but you'll find in practice that it's just like that. Still, to give you some direction: If you go in at €70 to €80, you're in a good place.
From here, you can act flexibly. Lower hourly rates can also be attractive for orders with a longer duration. If you avoid "low order" times, this will balance out or even have a positive effect on you. For short jobs, you can also try a higher hourly rate. Always keep in mind that it is difficult to significantly increase the hourly rate, especially with existing customers.
Finally, note the topic of taxes. This again depends on your current situation and tax bracket. It is important for you to keep in mind that profits are taxed and that you have to keep an eye on these taxes.
Definition: What is an hourly rate?
An hourly rate is an amount that you pay your clients for the work you perform. per hour in the invoice.
Is the hourly rate gross or net?
The hourly rate for freelancers is always stated net. The sales tax (VAT) is shown separately and is considered a "transitory item". It is therefore the amount that is passed on to the tax office in the same amount.
How do I increase my hourly rate?
If you want to increase your hourly rate, you need good arguments for your next negotiations. The easiest way is to choose the orders and test higher hourly rates. But even without many orders, you can gradually increase your hourly rate through a professional appearance (website, references, recommendations,...).