Sunday, November 14, 2021

The freelance dilemma – rising and raising prices



It is probable that many countries will experience meaningful inflation in the short-term future.  For example, the US Labor Department announced an increase in prices of 0.9% in October of 2021, this previous month. For freelancers lacking both a CFO to analyze the risk as well as significant market strength, this inflation poses a serious challenge, even danger, as it affects our ability to make a living. As I see it, the self-employed have four options to cope with the return of inflation if it occurs, each with its benefits and risks.

To clarify why inflation is likely to become a significant factor in the short term, in simplistic terms, inflation is too much money seeking too few goods. In the last three years, governments around the world have pumped in unprecedented cash to their economies while their economies were not growing or even shrinking at the same time. Therefore, neither production nor productivity compensated for the inflow of money. Furthermore, given the current high cost of living in many countries and high level of government aid, many workers do not wish or cannot afford to return to their previous jobs, minimum wage and higher, creating a labor shortage in many industries and, consequently, pressure to increase wages. Adding the masses of people that have chosen to leave salaried positions to start their one business, employers will have to pay more to attract employees, a cost that will eventually be passed on to consumers. Thus, prices are likely to increase until a balance is reestablished.

Inaction is always an option. It is emotionally easier both for the self-employed and their customers to ignore inflation. Whether out of ignorance, the lack of belief that anything can be done, as with exchange rates, or the conviction that the market will not bear higher rates, passive freelancers hope that inflation will not be significant enough to affect their standard of living. In the worst case, the relative attractiveness of their rates will lead an increase in volume, compensating for the loss in purchase power. The advantage is that it is possible to continue with “business as usual” and ignore actual conditions. The risk is regular loss of potential income and lower actual revenue

One active response to wait for official inflation figures in order to justify rate increases to customers. In theory, freelancers can inform their customers that their rates are increasing X% to reflect the official figures for the previous six to twelve months. For the freelancer, such an approach helps reinforce the courage required to raise prices and should increase the chance that this request or notice is accepted without protest. On the other hand, this strategy recognizes a write off of indexing differences, the gap between the nominal and adjusted income. Furthermore, as freelance rates are not automatically linked to any income, there is a limit on the frequency that this unilateral increase can be made, generally around once a year. While this reaction-based approach may be simple, it also simply creates lost income due to its delayed effect even in the best circumstances.

Of course, the self-employed can take a proactive approach and inform their customers that as of a certain date, their rates are increasing. For example, a translator can announce that as of January 1,2022, their rates will be .105 EUR per word instead of .10 EUR per word to reflect increased prices and taxes. The advantage of the approach is that it reduces the impact of inflation. The danger is that not all customers will continue to provide work at the same level or at all. As a result, entrepreneurs must invest time and effort in finding customers that will pay their desired rates, a positive result in itself. Admittedly, there is no certainty that the proposed increase will fully compensate for the actual inflation but there is no certainty in business in any matter. While being proactive may create some tension with existing customers and involve increasing marketing efforts, it does provide some protection from inflation.

Another approach, at least for translators and editors, is to switch to project-based pricing. As there are no “units” in this form of proposal, the rate can be adjusted flexibly, taking into account specific circumstances such as the individual customer, the state of the relevant economy and translation markets and the actual supply and demand of the freelancer at the time. As there is no need to justify increases to the customer, they are much easier to attain in real time. Of course, it requires educating customers that you do not have any per-word or per-hour rates but, in my experience, they not only get used to it but find project proposals much simpler. While many customers, including large agencies, may not prefer this approach, end clients find it much easier to understand and budget for. Furthermore, it does allow for immediate adjustment of prices. Project-based pricing requires changing the nature of the customer-freelancer relationship but provides the most effective protection from inflation in my opinion.

If inflation does begin to significantly affect buying power, freelancers should actively consider their strategy to cope with it. Each approach suggested above has its advantages and risks. However, clearly the problem of rising prices and raising rates poses a dilemma to self-employed but the power to act is our hands.

* Captions help the blind access the Internet.

Picture: Image by <a href=";utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1580168">Steve Buissinne</a> from <a href=";utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1580168">Pixabay</a>

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