Freelancers and Consultants: what is the Average Daily Rate (ADR)? How do you set it?

It’s not easy to transition from traditional employment to self-employment as an independent freelancer or consultant. Despite constraints such as administrative procedures, a heavy workload, and the search for new customers, achieving a high level of profitability is often the key and most pressing concern for the self-employed. The salary of an independent worker does not resemble typical income (e.g. a fixed annual salary). Additionally, freelancers must set something known as an Average Daily Rate (ADR). What is an ADR? How is it established? In this article, we will give you advice on how to efficiently set your ADR.

What is the ADR or Average Daily Rate?

The ADR or Average Daily Rate is the rate invoiced by a freelancer per day. The ADR amount to be billed is always established before tax. Once defined, the cost of the assignment is calculated and invoiced as follows: [number of days worked] x [ADR]. This figure differs from a fixed price (which reflects a specific service or set of services that are usually delivered on a monthly basis).

How to set an ADR? What are the criteria?

Here are some criteria to consider when you’re starting as a freelancer and want to calculate your daily rate.

FACTORING IN TIME:

• Being their own boss, freelancers oversee their own prospecting for clients, customer service, assignments, accounting, etc. It is important to reflect these time-consuming tasks within a daily rate.

• Freelancers and consultants do not have paid leave. Also, they must factor in days not worked (i.e. those between assignments).

• The speed of completing the assignment. A contract quickly completed during an emergency situation, for example, can significantly raise an ADR.

REGULATORY CRITERIA FOR SETTING AN AVERAGE DAILY RATE:

The income of a consultant or freelancer must factor in social charges and current taxes. Therefore, their gross turnover differs from their net income, depending on the employment status the worker chooses.

SKILL CRITERIA:

• Researching market prices in order to calculate your Average Daily Rate is a method worth considering before suggesting a rate.

• A freelancer’s experience fundamentally impacts their daily rate. The salary of a junior IT consultant will be lower than that of a senior one.

• The skills exercised by the freelancer also impact the daily rate. Activities, such as infrastructure management, mechanical engineering, or IT systems integration, for example, require unique and specialised skills-sets. Therefore, these consultants can set a higher ADR.

ACCOUNT FOR ADDITIONAL COSTS BEFORE SETTING YOUR ADR

All professional costs, except negotiations with clients, are the responsibility of those self-employed. For example: travel costs, equipment, subscriptions, software, bank charges, etc.

Likewise, depending on employment-status (e.g. sole proprietorship vs. employed by a management company), taxation will be different and risks may vary. For example, a consultant who opts for sole proprietorship will be liable, on their personal assets, in the event of debts. Their profits will also be subject to the personal income tax regime, which is potentially higher than the corporation tax rate.

Another important consideration is that independent consultants must pay all of their social contributions (e.g. subscription to a health insurance fund, mutual, pensions, etc.) themselves, which often represents a significant amount at the end of every month (and therefore must factor into the calculation of the ADR).

How to calculate your ADR? Methods and advice

There are different ways to establish your daily rate. As a self-employed person, it is important not to lose sight of maximising your profits. As a freelancer you can base your rate on your current yearly gross salary; factoring in charges to compensate for lost benefits (e.g. pension contributions, holidays, sick leave, etc.)

Let’s take, for example, a yearly gross salary of £50,000.

• Add 20% for employer fees, such as taxes, pension contributions, and administration management. (£10,000).

• Add an average of 25% for general costs that will fall on you as a freelancer (e.g. workspace, desk, computer, licenses, etc). (£12,500).

• Next, estimate the total number of days that you are likely to work in a year. There are 261 work days annually, before factoring in 25 days of vacation, 8 bank holidays, and 5 days of sick leave. Therefore, you will realistically work 223 days in a full year.

Finally, add up everything and divide it by the number of working days: £72,500 / 223 = 325.11

Your daily rate is £325.

Of course, this varies considerably, depending on the investment you’re willing to make regarding your pension and work equipment.

For a more accurate calculation of your daily rate and your net salary after taxes, do not hesitate to contact us and ask for a personalised estimate.

Can the ADR be flexible?

The answer is yes! Is there an urgent customer request? If so, then you can raise your ADR upwards. Are you improving your skills? This is another good reason to increase your Average Daily Rate.

Does the client interest you and offer a long-term assignment? In this case, you can consider lowering your ADR significantly because there will be less time devoted to canvassing and fewer “empty” unworked days.

How do you calculate the ADR of a consultant?

An independent consultant’s ADR differs according to their skills. Once again, referring to market prices is an effective way to start. After this, it is important to take into consideration all the points previously mentioned: ancillary costs, a short vs. long term assignment, your level of experience, applicable taxes, etc.

How much does an IT consultant earn?

Have you started working as an IT consultant but don’t know how to develop your daily rate? The price of IT consulting varies from one provider and one service to another. Here is an overview of ADR ranges for IT consultants in 2020, depending on the position, the company, the complexity of the assignment, and the level of consultant experience.

Do you want to fix your ADR while profiting from employee benefits?

Since the 2010s, a new trend has become popular among the self-employed: to host consulting activity with a Management Company. You remain independent and free to set your own ADR while simultaneously enjoying the advantages of a traditional employee (e.g. not having to manage your ancillary costs, accounting, or administrative tasks). The company takes care of all declarations, tax procedures, and customer invoicing.

You no longer have to worry about billing, late payments, and professional or liability insurance. Additionally, you are personally supported when researching and setting your optimal ADR.

Custom-tailored support for IT consultants

Joining a management company allows access to employee-status and advantages that are not available when working alone as a sole proprietor or independent consultant:

• A support system and personnel that coach and give advice on Average Daily Rates.

• Better ADR negotiations with your clients.

• Membership to an international network of experts, allowing for a comparison of different consultant salaries according to activity type and experience level. This network also gives you access to career opportunities that are otherwise inaccessible.

• Employee-status, allowing you to optimise your income and ADR.

• Benefits equivalent to those of large companies: paid vacation, company vehicle, covered travel expenses, nursery/child care, travel agency, investment opportunities, etc.

Getting started as an independent consultant is within everyone’s reach. However, you still need to know how to set your Average Daily Rate and be well-supported. Comparing job offers, getting information from your network, benchmarking your experience and skills, etc., evaluating all these factors allows you to reach fair market rates for your work. However, to maximise your ADR while getting rid of administrative tasks and ancillary costs, it is recommended to integrate yourself into a network of experts through a management company. Besides being supported throughout your career, you will benefit from being employed by a management company and the essential advantages employee-status offers any IT consultant.

To learn more about setting your ADR and becoming an employee, click here.