The freelance dilemma – rising and raising prices

 

[Crossroads*]

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="https://pixabay.com/users/stevepb-282134/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1580168">Steve Buissinne</a> from <a href="https://pixabay.com/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1580168">Pixabay</a>

News blackout

I come from a political family. My parents came from politically active families. At the dinner table, we discussed the Vietnam War and Watergate, not the price of bread. My father at the age of almost 91 still religiously reads two newspapers every day and discusses the articles with my mother.  I myself followed events in the recent US election with close attention and voted in every Israeli election since I have been here.

So, it is with great sadness that I have gradually but almost totally entered a self-imposed news blackout. To explain, I am very upset about policies developments around the world, to put it mildly.  I despise what Putin and Erdogan mean for their countries and the entire world. The elections of Natanyahu and Trump have driven me into despair. Their elections depress me not only because of their policies, which are based on negative visions in my opinion, but also because of the large number of people that share and bought that vision. In short, I am politically depressed.

My reaction, alas, has been to withdraw. I do not want to hear about Trump's appointees or Netanyahu's decisions. I know that they will disturb me very much. Like the old Jew in the Warsaw ghetto that kept on complaining that the new landlords did not want to heat the flat and consciously ignored that the Germans were trying to starve the Jews until they could find a more efficient way to kill them, I choose to ignore (not deny) the current situation. I deep in my heart want to wake up in few years to a better world, where tolerance and peace are the norm, not hatred and violence. Of course, I will do my civic duty and support anybody with those ideals but recognize that this is a waiting time until the tide turns, as it always does eventually.

Of course, my news blackout is not total. I still check the scores of my various teams, who also are not doing very well (Lakers, Bengals, Pirates), but there is hope for next year. I do check the weather report as well as look for any changes in the VAT rate since these items has a direct effect on my life. Yet, I refuse to peer into the bigger picture although I know I will bear its consequences no less. I cannot say that my response is very mature or brave but for now it is all I can do. To destroy Descartes, I don't think so it does not exist.

War culture

Part of the Israeli experience, unfortunately, is the going through these overly frequent periods of mass military operations as a civilian.  The British of World War II and the North Vietnamese of the 1970’s are quite familiar with the sensations of random violence from the air.  It creates, no pun intended, a heavy atmosphere for even the most banal activity, regardless if your town is subject to or spared from the missiles.  For purposes of context, I live in Karmiel in the northern part of Israel. In my 25 years here, I have experienced on a first hand basis missiles during the two Iraq wars and the Second Lebanese War, including helping young daughter get through this.  I admit that my somewhat limited exposures does not compare with those living in Sderot  in southern Israel or Kiriat Shmone in northern Israel, but does provide some intimate knowledge of the joy of rockets in air.  Also, as in all crises, reactions are individual, varying from person to person.

The randomness and helplessness of being a civilian creates several common phenomena.  First, using official and unofficial information, people creates their “rules of safe behavior”.  On one extreme, this can mean never leaving the safe room.  On the other extreme, some individuals assume that life and death are just a matter of luck and go everywhere since it makes no difference.  My attitude under fire was that, based on my analysis of the cases of actual death by missile, my home is my castle, i.e. stay inside as much as possible to be safe. I believe that I am correct, at least statistically.

For those that leave the apparent safety of their house, the next issue is what to do if you are “caught” by an alert while driving or doing shopping.  Yes, people do need to eat even during a war.  In the former, there are several attitudes.  I admit that I used to keep on driving, counting on the laws of probability to keep me safe.  In other words, I have much less chance of dying from a missile than I have from a car accident.   The home front department advises otherwise: pull over, get out of your car, and hit the dirt or, if possible, get near a wall, covering your head with your arms.  I don’t feel scared enough to do that, but it does make sense.  If out in the city running errands, some people first check where the nearest safe room or stair case is, similar to parents with small children checking where the bathroom is. The opposite reaction is quite “human”: turn on the Smartphone video and film the whole event.  Logically, it is probably the most dangerous way to react, but instinctively it takes over if a person believes in immortality and is not actually frightened by the rocket.

The last issue I will address is dealing with the tensions.  People release their tension through one or more of the following physical manners: mashing teeth (dentists are quite busy after the war), eating more or less than usual, talking about their fears or insisting that the endless tension has no effect on them, constantly or never watching the news, or playing video games, to name a few.  I know that this stress does leave a scar on a person’s psyche, but so do one’s parents and childhood years in general for that matter.

So, war is hell, but a personal hell for civilians.  It is also part of an Israeli’s identity, distinguishing him or her from most other people.  From time to time, people will list the “wars” they gone through.  Sadly, my list is getting longer and will probably expand in the future.  As that optimistic Israeli goes, we also get through that.