What is the ADR or Average Daily Rate?
The Average Daily Rate, ADR, is a highly sought-after indicator used by freelancers to define their hourly rate, i.e. the rate they charge per day. It is expressed tax free.
It allows you to define the average amount of fees that a freelancer will have to charge according to the number of days worked. A rather simple method but which can nevertheless prove to be more delicate than it seems.
Indeed, the price must be acceptable so as not to scare away customers, while being representative of the quality of the service. But not only, must it also take into account several elements, such as experience, service time, ancillary costs, etc. Each TJM is then different depending on the freelance.
What parameters should we take into account?
Before calculating your ADR, you must take stock of the various parameters to be taken into account to calculate it.
First start by determining the salary you want to achieve. You can either base it on your old earnings or calculate the necessary income you will need to pay your utilities, rent, and other additional costs.
Keep in mind that by becoming a freelancer, you are giving up the benefits that one can have as an employee, such as bonuses, restaurant vouchers or the thirteenth month. You should also take this into account when calculating your ADR.
A self-employed person is, as his name suggests, completely free from any authority. But being his own boss, he must manage by himself the prospecting, invoicing, etc. … all the management of his business. And this management must be taken into account in its price.
He must also organize and foresee certain important periods. Indeed, a freelancer does not have paid vacation, so he must think about his vacation periods, working days, but also prepare to face off-peak periods.
What are the professional fees of a freelancer?
Social security contributions for a freelancer are paid monthly or quarterly when you declare your turnover. Their calculations vary depending on your status: micro-entrepreneur, EURL, SASU, etc … Moreover, if you want to know more about the different freelance statuses, we advise you to consult this article.
Thanks to these social contributions, How to create a Wikipedia page for an artist you will have access to certain social rights, including family allowances, aid in the event of illness or disability, palliative leave and bridging insurance in the event of bankruptcy or termination.
Your insurance will depend on the status you have chosen as a self-employed person. Note that if you choose the status of micro-enterprise, social coverage is rather poor, and freelancers benefit little from the general scheme. Supplementary health insurance is then necessary.
You must also include in the calculation of your ADR the insurance of your goods, such as premises and equipment, car insurance if you are tempted to have one, but also computer insurance and civil liability insurance.
Miscellaneous business expenses
Being a freelancer gives you many advantages, but also a lot of responsibilities. Professional expenses are a necessity, and among them we find:
- Expenses related to missions: that is to say travel expenses (car or public transport), equipment, furniture, etc.
- And operating costs: including internet subscription, telephone, computer software, prospecting, bank charges, etc.
What are the criteria for setting your ADR?
To calculate your ADR, you must also take the market price into consideration. A young freelancer will not be able to claim the same salary as an experienced freelance. The same is true depending on the sector of activity. For certain professions, as a web developer, the competition is particularly strong.
To learn more about the prices of the competition, you have several options. You can go to social media and select freelancers in your field. You can then get in touch with them and simply ask for market prices and ask for their advice on how to set your ADR.
There are also websites made available to submit offers for freelance missions that will allow you to situate yourself in relation to the market. Thus, you will be able to align your prices with those of the market with full knowledge of the facts. At first, you should not be too above the market, nor too below.
Experience and training
After you have done your market research, you will need to judge your skills. Evaluating your work objectively is a complicated exercise, but this is the whole difficulty in setting your ADT as a freelance. And this is also why the prices vary from one freelancer to another.
You have to think about the years of experience you have, your customer references, the scarcity of your profile, etc … Highlight your expertise and your skills, in order to be able to show off your future customers during the meeting. Negotiation of your ADR.
The level of difficulty of a service can be taken into account when pricing it. The more technical and painful the task, the more time you risk putting into it in the event of unforeseen events and energy. All of this has to be paid for!
Also, if you perform a specific service for a complex and highly responsible task, you may increase your ADR. This also applies to the time you spend on it, whether it is a long assignment or a short assignment, a full-time assignment or a part-time assignment.
Tips and limitations of the men’s day model
To help you determine your Average Daily Rate, there are many simulators. Some are more detailed than others, but they can help you set your rates according to the salary you want to earn.
Shine is an application comparable to a digital bank. She designed a tool allowing self-employed workers to calculate their ADR.
Very easy to use, this application allows you to modify a wide range of parameters in order to best calculate your ADR. You must first select your job and choose the (gross) annual salary you want to achieve. You will then determine:
- working days : if you want to work 6 days a week or 4 days a week, for example.
- On vacation days: you must anticipate your vacation because you will not be paid at these times.
- Off-peak periods: sometimes you will have few or no customers, which will have an impact on your remuneration.
- Professional expenses: computer equipment, travel expenses, subscriptions, bank charges, etc.
- And if you have the right to ACCRE / ACRE: you could then benefit from a reduction in charges of around 20%.
How to increase your ADR?
When you set your TJM, keep in mind that it will change as your missions and your customers. To value its increase, do not hesitate to ask for recommendations and to update your services. Also avoid discounted rates, a customer who consistently negotiates all of your rates is not necessarily a good customer. Wikipedia experts for hire even when you get started, don’t devalue yourself and work for free or “for visibility”!
When you find that you have gained new clients, learned new skills, and are able to sell yourself more easily than when you started as a freelancer, you can increase your ADR! Also, adapt to the market and its fluctuations.
Finally, do not hesitate to revise your prices upwards if the mission is more complex than usual. Thus, you can decline the same service in different forms depending on what is requested (example: if it is an urgent service or a service which requires greater expertise).
The limits of TJM
TJM is a dominant model in business service. So it makes sense to turn to this method when you want to set your rates. But this is not necessarily the best solution. The problems that arise when you bill your services with the ADT are that:
- For the customer, the time spent is a metric that does not concern him, it only pays in relation to the final result.
- For the freelancer, experience is a value that is constantly evolving and that he wishes to highlight in his prices.
Because of this, you are going to want to increase your prices, but your customers may not agree with the increase. This creates a glass ceiling because you cannot go above a certain price without losing customers.
You must therefore detail your service and sell task by task, which encourages the customer to negotiate both the ADR price and the time spent on each task. It will call into question your production capacity, or even give up certain services.
Also, you only have partial control over time. You don’t know exactly how long the project will take, or if you might encounter any difficulties… And if you are still not convinced, here is a video where we explain to you why this method may not be tailored to your needs.
In conclusion, there is a high risk that you will spend more time negotiating than actually producing. But there are other methods like subscription, flat rate and value based pricing. We even have an explanatory video on the subject!