How to Calculate Labor Costs for Projects and Why They Matter
Estimating and tracking labor costs allow you to assess how well the services provided by a freelancer align with their pay. Sometimes, the work done is minimal, yet the bill can be substantial. To avoid this, you need to know how much time was spent on the task. You can track this time yourself or delegate it to the freelancer. In this article, we explain how to calculate labor costs on your own.
Why It's Important to Know Labor Costs
Unfortunately, situations where clients overpay freelancers are not uncommon. For example, you hire a designer on a freelance platform to create a banner. This service costs $30. If the freelancer completes the work in 2-3 hours, their rate is $10-15 per hour. This is a reasonable price, as it falls within the market average. In this case, the client receives several renders and prompt revisions.
In another scenario, the designer spends 30-40 minutes on the job, does not perform particularly well, sends only one draft, and is not willing to make revisions for free. The freelancer maximizes their earnings from the project, while the client loses money, time, and patience. The labor cost calculation shows that the client will have to pay an inflated rate ($30 for less than an hour of work) and additional fees for revisions.
A third option involves a freelancer with the same pricing who takes on the banner project but does not fully engage with the client's needs, sending drafts days later and taking even more days to make revisions. In this case, the specialist's hourly rate is low, but the work process is excessively long, which is unsatisfactory for the employer.
When comparing all three freelancers, it is clear that working with the first one is the most beneficial for the client.
In another scenario, the designer spends 30-40 minutes on the job, does not perform particularly well, sends only one draft, and is not willing to make revisions for free. The freelancer maximizes their earnings from the project, while the client loses money, time, and patience. The labor cost calculation shows that the client will have to pay an inflated rate ($30 for less than an hour of work) and additional fees for revisions.
A third option involves a freelancer with the same pricing who takes on the banner project but does not fully engage with the client's needs, sending drafts days later and taking even more days to make revisions. In this case, the specialist's hourly rate is low, but the work process is excessively long, which is unsatisfactory for the employer.
When comparing all three freelancers, it is clear that working with the first one is the most beneficial for the client.
How to Determine Labor Costs
Find out the freelancer's hourly rate. If the service price is not hour-based, clarify what it is based on.
Try to track the working hours of the freelancer. Ask them to log the time spent on the project in a CRM system or a dedicated service like Timely or Hubstaff. Keep in mind that calls, approvals, and messaging regarding work issues should also be compensated.
If you feel that the results do not match the hours indicated in the program, feel free to ask the freelancer to elaborate where exactly their time went.
Look at how long specific tasks take for other specialists. Determine an average value to use as a reference. For example, on the new freelance marketplace EasyBusy, you can not only compare timelines and rates of freelancers from all over the world but also filter suitable candidates, then transfer payment and generate closing documents.
Assess how much time the freelancer spends on tasks and how much you are paying them. Compare these figures and consider how satisfied you are with their work. If the payment amount is disproportionately higher than the market average, and the results are unimpressive, it may be worth lowering the rate or moving on to a different freelancer.
Try to track the working hours of the freelancer. Ask them to log the time spent on the project in a CRM system or a dedicated service like Timely or Hubstaff. Keep in mind that calls, approvals, and messaging regarding work issues should also be compensated.
If you feel that the results do not match the hours indicated in the program, feel free to ask the freelancer to elaborate where exactly their time went.
Look at how long specific tasks take for other specialists. Determine an average value to use as a reference. For example, on the new freelance marketplace EasyBusy, you can not only compare timelines and rates of freelancers from all over the world but also filter suitable candidates, then transfer payment and generate closing documents.
Assess how much time the freelancer spends on tasks and how much you are paying them. Compare these figures and consider how satisfied you are with their work. If the payment amount is disproportionately higher than the market average, and the results are unimpressive, it may be worth lowering the rate or moving on to a different freelancer.
Conclusion
When you know how to calculate labor costs, no freelancer can take advantage of you. To avoid unnecessary expenses, it is important to maintain balance and pay remote employees a fair salary that corresponds to the time spent on the project.
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