ADR: how do you calculate the average daily rate?

The ADR, or average daily rate, is the price (excluding VAT) that an independent service provider, freelancer or consultant will charge a client for a day's work.

What rate should I charge?

For a consultant, freelancer or independent worker (community manager, developer, graphic designer, copywriter, etc.), but also for any agency or ESN, the challenge is to sell the service at the right price, taking into account the skills of the resources, the prices on the market and the customer's demand.

Freelancers, how do you calculate and establish your TJM? Knowing how to calculate and set your rates as fairly as possible depends not just on a simple formula, but also on the market range and other parameters that come into play, such as expenses and charges.

Are you an agency project manager who wants to know the rates charged for a day's work on a project or assignment, and ask your client company for the best price? This article is also for you.

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How do you calculate the average daily rate?

The elements to be included in the calculation

• Non-billable time : freelancers do not concentrate their efforts and time exclusively on value-creating activities. In addition to their work, freelancers are also occupied with tasks that are essential to their business but do not directly generate sales, such as accounting, invoicing, customer relationship management, prospecting, etc.
  
• Rest days : without paid holidays, the number of days worked should be determined on the basis of the number of days of holiday or rest desired in a year (for example, take into account 25 days not worked in a year).
  
• Charges : social security contributions and, where applicable, employers' charges are deducted from gross sales.
  
• Expertise and experience: the level of expertise and experience (junior vs. senior) helps to define the rate, as do any client references and recommendations which, if they are prestigious, can help to enhance the value of your services.
  
• Quality of service: the quality of your work encompasses not only the rendering, but also everything that revolves around your services, such as your responsiveness in responding, the speed of delivery, the personalised support you offer, and so on.
  
• The geographical area where you live and can travel: rates are higher in large conurbations, especially in the Paris region.
  
• Your target salary, as explained below.

The method for calculating the GRR

Based on gross target salary

One of the calculation methods to be applied is based on the gross monthly salary you wish to receive as a service provider, which may also correspond to your former gross monthly salary as an employee.

This is, of course, an estimate based on an ideal situation in which your time is fully occupied. But bear in mind that this can fluctuate depending on the sequence of your assignments and the frequency or duration of your periods of inactivity. The latter can have an influence on your annual income.

Steps for estimating your average daily rate :

1. base your estimate on a gross monthly salary ;
2. add business expenses (around 10% of the amount);
3. add charges (depending on your status: microentrepreneur, SASU, EURL, etc.);
4. define the average number of days worked per month.

And apply the following calculation formula:

(gross monthly salary + expenses + charges) / number of days worked per month

ℹ️ The result is your average daily rate in euros excluding VAT.

Using the target net salary

Another method is to start with the net salary you expect to receive per month. You will need to add around 50% to this initial amount to cover your expenses and cash flow requirements.

For example, to obtain €5,000 net, you will need to earn €7,500. This amount must be divided by the number of days worked (19 per month), which gives a rate of €394.74 per day for our scenario.

What salary for what TJM?

Let's take a look at the figures, based on a reference monthly salary of €4,000 gross.

• Target final gross salary: €4,000
• + 10% (running costs): €4,400
• x 1.54 (employer contributions, if executive status): €6,776
• Based on 19 days worked per month (i.e. approximately 1.5 months of inactivity or rest during the year).

TJM : 6 776/19 = 356.63 € EXCL. TAX

☝️ This is still an order of magnitude and allows you to set the basic price for a full-time assignment, based on the employee scheme. As you no doubt know, it's difficult to be constantly active as a freelancer. Days of inactivity need to be taken into account, as do market fluctuations and negotiating margins with clients.

Additional tips for setting your GRT

• Find out about market prices (forums, communities or professional networks in this sector); or ask a more experienced person in your own network or circle for information.

• Once you have the price list in mind, take into account your own skills and level of experience in the field (and possibly the reputation of some of your customers), as well as the specific features of your offer.

• On the other hand, you can look at the job offers advertised by agencies or job boards, and see what budget a client is prepared to allocate to your services. If it's lower than what you were planning to charge, be sure to justify your prices (skills, certificates obtained, tools mastered, etc.).
  
• Use a simulator that either estimates the amount of your charges in relation to your turnover, or indicates a range of profits or taxes to be paid over a year. Various versions of the TJM to salary converter are available online.

ℹ️ For the more specific case of freelance administration, a more accurate simulation can also be found online.

Examples of GRR by sector of activity

Here are a few examples of average rates excluding VAT on the current market:

• Freelance developer daily rate: €508/day
• Daily rate for marketing, webmarketing and SEO consultants: €563/day
• Project manager and agile coach: €644/day
• Time and materials for strategy consultant and business developer: €719/day
• TJM motion designer and director: €423/day
• TJM graphic designer and photographer: €383/day
• TJM community manager and copywriter: €432/day

baromètre Malt, tarifs pratiqués en moyenne sur l’année 2019.

How can you monitor your indicators using ARR?

What does the ADR represent for an agency or service company?

For agencies, IT services companies (SSII or ESN) and consulting firms, the average daily rate corresponds to the average value of the selling price for one day's work on a project.

The AADR is a basic pricing (and therefore billing) unit per day of service provided by one or more of your resources to a customer. To define it, the following elements are taken into account :

• the resource's loaded salary
• their experience
• structural costs
• the type of assignment
• the duration of the assignment.

Use a tool to track your costs based on the TJM

The TJM is useful for your business management, financial monitoring and margin calculation. It is closely linked to the average daily cost or ADC, which corresponds to the basic cost unit of the resource. Both AADC and ADC are key indicators for monitoring the profitability of your projects.

To help you assess your costs more accurately, there are tools specially designed for agencies, service companies and ESNs that allow you to track these management indicators at the click of a button:

🛠️ In Fitnet Manager, you can obtain TJM analyses at all levels of your projects and business:

• in the dashboards,
• by employee
• by customer
• by company.

The tool allows you to retrieve a summary of the TJM of the various employees in reporting tools, to analyse the breakdown of costs and sales by employee profile, and to compare these data to obtain an analysis of the margin. The data can be exported to an Excel spreadsheet.

🛠️ Furious incorporates profitability indicators, based on TJM, so you can accurately monitor the match between the data entered and the actual situation, and so help you to manage your projects more effectively. Thanks to a graphical display, you can see at a glance :

• progress
• schedule
• workload
• and the level of invoicing to date for each project.

You can check the alignment of these indicators simply and effectively, and quickly identify areas for optimisation to ensure that your projects are in good health. The tool automatically alerts you as soon as a discrepancy is detected. So you'll never lose money on a project before Furious warns you in advance.

Looking for more choice? Discover more project management software

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Striking the right balance

Setting the TJM involves juggling a number of essential parameters to ensure that you are both profitable and accessible to your customers.

It is therefore essential to sound out market prices in order to position yourself as effectively as possible and set consistent rates.

Several options can be considered, depending on the desired results: precise alignment with the market, more advantageous prices, then progressively higher, or even higher than the competition for a top-of-the-range positioning. It all depends on the image you want to project, and in the final analysis, on the strategy you are aiming for to ensure your long-term survival.

What is certain is that an accurate assessment of your basic average daily rate will enable you to sell your services more effectively and approach any commercial negotiations with greater confidence.

It's up to you!