The premise, simply, is that you should try to charge $100 per hour of manual labor working time in your shop if (a) you want to be self employed and (b) have a simple middle class lifestyle. The closer you get to this figure, the closer you get to matching a simple middle class lifestyle working for someone else.
If you are NOT trying to be self employed as a blacksmith/armorer/leatherworker/other skilled manual labor artistan, then this does not necessarily apply to you.
If you do NOT want to target a simple middle class livestyle, then this does not necessarily apply to you.
Lets start with definitions…
Self Employed for this conversation’s purpose means that you are only working as a solo artistan, not supplementing your income with a job elsewhere. You are receiving no benefits, insurance, lottery payments, allowance, etc. from any external source.
Middle Class lifestyle for this conversation means that you make at least enough to avoid NEEDING any 3rd party charity or government support. I’m using a $35K/yr salary as a reference point simply because that’s what a budget example I found uses.
Lets assume a $35,000/yr target and look at a budget. I googled “example budget personal” and this article popped up: https://quicken.intuit.com/support/help ... 16169.html
Its important to note that I’m not interested in arguing about THIS budget example, its merely a starting point. Does the budget below FEEL like middle class to you? No?You can double it or cut it in half, I don’t care. We need to start somewhere, so $35K it is.
Paycheck As a self employed artistan, that “paycheck” they mention means the total incoming payments for work you’ve sold. You need to sell $35,000 worth of whatever you make. Can you? If you are not confident you can sell $35K of your product, rethink this self employed idea.Your income
Let’s start with your paycheck. While you know that Uncle Sam gets first dibs on your hard-earned money, you may not be prepared for how much the government will take. For example, if you earn a salary of $35,000, you’ll likely only see about $28,356 after federal taxes, Social Security and Medicare are subtracted. That doesn’t include state taxes or any deductions from your paycheck for workplace benefits, such as medical and dental insurance or a retirement savings plan. When all is said and done, you’re likely looking at a take-home pay of—brace yourself—$25,350 or so per year. That’s a net income of about $2,100 per month.
Your expenses
Now that you know how much you can expect to bring home, you can divvy up your paycheck. Here’s a general guide to help you budget your money to make sure your expenses are covered. You may have to make some adjustments for your situation. If you spend less on housing, for example, you can put the extra money from that category toward paying down debt. The dollar figures in parentheses are based on our above example of a $35,000 gross salary with a monthly take-home pay of $2,110 per month after taxes and other deductions.
• 30% ($634) Housing
• 10% ($211) Utilities and other housing expenditures (including renters insurance)
• 15% ($317) Food (at home and away)
• 10% ($211) Transportation (including car loan)
• 10% ($211) Debt repayment (student loans and credit cards)
• 10% ($211) Saving
• 5% ($106) Clothing
• 5% ($106) Entertainment
• 5% ($106) Car insurance and miscellaneous personal expenses
In terms of dollar figures, this actually breaks down pretty close to the lines of what things will actually cost you. Housing, of course, will vary depending on your location and also on whether you live alone or with roommates. Debt repayment is another wild card for which you may have to make adjustments. But for now, let’s take a closer look at the utilities and household expenses categories.
Taxes As a self employed artistan, you will have to handle these yourself, or pay a professional to handle them for you. You can’t ignore taxes without eventually getting caught. I’m told that a swelf employed person will ususally end up paying a higher rate, so bringing in $35K might leave you with less than the $28K that article suggests.
Shop Rate If we start by assuming a 40 hour work week, most existing, successful self employed artistans will tell you that you can’t spend 100% of that time in the shop doing billable work. I’ve heard 50% tossed around as an average. You also need to spend time buying materials, picking up materials, buying tools, setting up tools, fixing tools, cleaning up shop mess, packing finished product, driving to and waiting in line at the shipper/post office, managing your bank account, creating/updating advertisements/webpages, answering emails, negotiating sales, designing products, and dealing with failures and rework. These all eat up maybe 50% of your time.
So to bring in $35,000, 20 hours a week, working 52 weeks a year, you need this bill rate:
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(rounded to nearest dollar)
35,000/52=673
673/20=34
$34/hr
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(rounded to nearest dollar)
35,000/50=700
700/20=35
$35/hr
Now you’re just breaking even on the budget published above… lets look at this things you do NOT have in that budget:
You haven’t bought medical/dental/vision insurance which might otherwise come with a $35K/yr job. Getting sick or injured ends your business.
You are probably working out of your house/apartment, doing things which violate your homeowner’s insurance or rental agreement. Having an accident resulting in damage to your house/apartment can leave you homeless and end your business.
You aren’t really saving much for retirement (10% or $2532 each year means you have to wok 10 years to afford one year of retirement). There WILL come a day when you are too old, tired, or broken to keep doing this work full time, and at the current bill rate you will starve shortly after that day.
You haven’t budgeted for your tools, so you either already have them all, or you need to pay back a loan/credit card. You haven’t budget for REPLACEMENT of your tools, so a broken tool may stop your business.
You have no emergency fund or starting fund. Usually this means that to buy the materials for your first product, you had to require a deposit or advance payment. To buy the materials for your next product, you’ll need to do the same or shuffle money away from some other part of your budget. Can you be late on rent? Can you eat less? Can you just stop saving and sacrifice your retirement? When you get hurt, sick, a tool breaks, or you just make a mistake, you have no money to pay a refund or buy new materials to start over.
Let’s double the Shop Rate to $70/hr with 20 hours of shop work 50 weeks a year:
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(rounded to nearest dollar)
$35/hr
70*20=1400
1400*50=70,000
Now you can retire 1 year for every 1 year you work, or you can afford health insurance, or you can afford materials without risking advance payments, or you can afford to do refunds in case of an emergency. Or you can raise your standard of living and eat better food. Or you can pay someone else to handle your taxes so you don’t risk an expensive mistake. Or you can probably buy better insurance so you won’t necessarily lose your home. You can’t afford ALL of these yet.
Which can you keep living without?
Raising the Shop Rate to $100/hr with 20 hours of shop work 50 weeks a year:
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(rounded to nearest dollar)
$100/hr
100*20=2000
2000*50=100,000
If you CAN, then you are definitely able to afford more of those “extra’s” we listed earlier:
Earn 1 year of retirement for every 1 year of working
Medical/vision/dental insurance
Operating fund for the shop to buy materials and tools
Professional tax & legal help when necessary
Cash cushion for emergencies/refunds
Better home insurance or safer workshop space
Higher standard of living than the $35k/yr budget example.
Remember that many these “extra’s” are usually INCLUDED in the standard $35k/yr job: health insurance, some help with retirement savings, taxes already deducted to make tax paying less complicated, and provide their own works space/tools/emergency coverage as part of the job.
Alternatives
You can work more than 20 shop hours a week, and produce more product. Of course, this means you ALSO have to work more non-billable hours to sell it all. Few self employed people work ONLY 40 hours a week anyway, so you’ll probably be doing this anyway.
You can work SMARTER, so that you waste less time and spend fewer hours on each product. That means you can either lower your prices to maintain the same standard of living, or keep them the same to reach your goals (higher standard of living, affording more “extra’s”, etc.) sooner.
Conclusion
As a self employed artistan, to match the middle class lifestyle a $35K/yr job working for someone else might provide, you need to bring in much more than $35K/yr. Charging material cost plus a shop rate of $35/hr will not match it. Doubling your rate to $70/hr will not match it. $100/hr makes it possible to match that middle class $35k/yr budget and someday retire.
That’s pretty close I think to the original arguments on Anvilefire.com. Does this argument make sense? Am I missing anything? Please feel free to tear it up and discuss!
I’d love to hear from self employed artistans about how closely this matches their experience?