Ask HN: Do frelancers cost/earn/value more than regular employees?

Here is a simple algorithm, espoused by many of the experts here on HN:

- With each engagement, increase your rates by 20-100%.

- Continue doing this until clients stop hiring you.

Note that if you deliver consistent measurable value, people will never stop hiring you.

Basically, you are over-thinking it. You don't need to do complicated math to determine your skill level relative the average employee, the salary of an average employee, or the TCO of an employee to a company. The only thing that matters is:

    1) Can you deliver value?
    2) Can you DEMONSTRATE to a client that you can deliver value?
    3) Can you demonstrate sufficient value to make a $X000 engagement a good idea?
    4) Realize that X can be whatever number you can think of.

For more detail, here is one of the definitive posts on the topic: https://news.ycombinator.com/item?id=4245960

> Note that if you deliver consistent measurable value, people will never stop hiring you.

Assuming your freelance engagements are fairly regular (e.g. a few weeks each, not a few years), that scheme seems unlikely to be able to work indefinitely, since you're proposing an exponential price-increase scheme! For example, if I start out charging a mere $10 per engagement, and raise my price 50% each engagement, then by the 50th engagement my rate will be about $4 billion, which really limits the potential customer base.

I admit that my point about perpetual engagements does not literally apply if you raise your rates multiplicatively, but I truly think that people will never stop hiring you if you keep delivering value, pretty much independently of your rate.

The better you get at delivering demonstrable value, and the more domain knowledge you can show off, and the more your network grows within an industry, the more clients will come knocking on your door. And they will be less and less price-sensitive.

the question is how you quantify/measure the value you create vs. the fees you charge

1. Are freelancers better skilled than usual employees?

This is an impossibly generalized question to answer. It completely varies on which specific freelancer and employee you are talking about. I don't fathom there is a strong correlation between skill and freelance/full-time status.

3. Do freelancers cost less than an employee for a company, including taxes?

Again, totally depends on the particular situation. How high are the freelancer rates? How expensive is a a full-time employee at that company (salary, benefits, etc.)? You'll be able to find both cases. In my experience, full-time employees are viewed as more cost effective "in the long run", especially when you take into account the difference in knowledge retention & continuity between employees and contractors. It really depends on the needs of the company.

You have to think it from the point of view of the potential employer/customer.

Why do they want to hire a freelancer in the first place?

1. Maybe they have 50-100 hrs of work per month that requires skillset X. If none of their existing employees can do X, they will hire a freelance just to avoid the hassle of having an employee sitting on his hands most of the day.

2. Maybe they have a project demanding 50-100 hrs of work per week, for the next 6-8 months, then they expect to drop maybe to 3-5 hrs per week of maintenance/operations. They will hire a couple of freelances to implement the project, with the explicit purpose of letting them go at the end. They may consider keeping a proven-good freelance on a retainer (small fixed fee, little or no work) for maintenance, employee training, emergency issues, etc.

3. Maybe skill X is something that is not seen as a core strength for the customer's company. It does not matter if they have demand to consume enough of X to keep one or more full time employees busy. If they see an advantage to file as a variable expense (instead of payroll), they will do so (they may be charging a different department in the same corporation for it, or using money from a government grant, or some other technical detail like those).

Those are the reasons that come to mind, but there surely must be others. Please note that none of the reasons listed implied that freelancers are more skilled, experienced, or cheaper than employees.

As a matter of fact, there is a market for freelances across all skill levels (barred crass incompetence). It is just a matter of figuring out what level fits best for you, and then project a professional image that reinforces that level.

My perception is that this is what your customers are trying to tell you. Your image is "cheap" compared to the value you end up bringing to their businesses. If you increased your prices, you probably would end up having more work (because you would no longer be perceived as cheap/rookie/unreliable). You may need to use more clues, like dressing up a notch, or redoing your webpage/contact info to project a more mature image.

They are in London. Typical pattern here is hiring a contractor to implement and then using permanent employees to maintain.

A good rule of thumb was add 40% for paying an employees benfits. Now, you have a starting point for an hourly rate.