You should try working a short-term gig

Why the market for labor is in 40 hour a week increments, how that's changing, and how you can take advantage of it.

Photo by Jinyun on Unsplash

A friend of mine was a designer and user researcher at a tech company, let’s call her Jane.

A few years ago, Jane came to me with a problem - she seemed to be unable to negotiate her compensation as high as she liked. She had worked at the same company for 3 or so years, and while she certainly was doing okay, she was unhappy.

At the time, I was by no means a compensation expert, but I knew they were underpaying her relative to what she could get in the job market. I suggested she talk to her leadership team about adjusting her pay.

Jane repeatedly went to her organization’s leaders to ask for a raise, but she mostly got declined. For two years, Jane felt a growing sense of frustration - she was outperforming colleagues who joined after she did, but they were making more money than she was while doing less valuable work. 

I encouraged her to consider either jumping to another company or setting up shop on her own. Because she’s reasonably good at marketing herself, she decided to leave her job and try out “consulting” as a designer for lots of companies at once.

In her first consulting engagement, Jane charged a rate comparable to what she was earning at her job. Her base salary was about $140K per year, and assuming 40 hours a week and 50 weeks a year, that translates to about $70 / hour.

So she charged $70 / hour, tracked her time using a spreadsheet, and at the end of the month, submitted an invoice to her first client.

(By the way - I strongly advise against charging so little in an engagement. As we’ll discuss in future posts, you not only have to do the work, you have to spend time getting the work, so you need to charge at least double your “calculated hourly rate”, if not more. Jane ignored my suggestions in this arena because she was afraid of her first potential client saying no.)

She made way less that month than she ever had as a full-time employee. The reason is that she couldn’t bill for every single hour she worked (unlike in a full time job, where you get paid during your long lunch break). Moreover, she didn’t work with that client every day, because she only signed on for 10-day long engagements, and didn’t have other work to fill in the gaps.

She also realized that her client, and other clients, were willing to pay a lot more per hour than $70. In fact, the rate she seemed to settle at with her clients was more like $150 / hour.

It seems like Jane is getting a better price for her labor when she sells it in smaller increments (a month, a week, a day), vs selling it in larger ones (a few years). Why? Why would a company hire someone at $150 / hour for a few days when they could hire someone at $70 / hour for a year at a time?

The answer is: for the same reason buying anything in bulk gets you a better price. 30 can packs of soda are cheaper (per soda) than single cans. A yearly gym membership is cheaper (per day) than a single-use pass. SaaS subscriptions are cheaper bought in yearly increments than in monthly ones.

The provider of the service or product has a certain margin that they’re hoping to earn. And they’re willing to compromise on margin a bit, if you’re willing to buy a large amount of it at once. The profit on a single Coke can might be 30 cents, while the profit margin on the 30 pack might be 15 cents per can, or .15 x 30 = $4.50., but that’s still a lot more profit, in aggregate, for the company. 

An individual employee is selling their labor in increments. Full time jobs pay for lots of hours at once and therefore can get a lower “price” than a shorter-term job. But most employees don’t see themselves as “selling a service” when they say they have a job. 

That’s a mistake. If you’re a full time employee, you are selling your time for the lowest possible hourly rate you could be selling it for. You can almost certainly get more money per hour on a contract gig than you can at your full-time current role. The rule of thumb is that you should start at about 2x your “hourly rate” back calculated from your salary. 

I encourage you to try it! It’s often a fun way to make some money and explore the selling side of the business. And you’ll be surprised at how much higher your compensation can go.