TJM: how to 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 customer for a day's work.

At what rate should I invoice?

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 your service at the right price, in relation to the skills of your resources, market prices and customer demand.

Freelancers, how do you calculate and establish your TJM? Knowing how to calculate and set your rates as fairly as possible depends not only 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 to calculate the TJM?

Elements to include in the calculation

• Non-billable time : freelancers don't focus their efforts and time exclusively on value-creating activities. In addition to rendering services, they 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.
  
• Days off : without paid vacations, the number of days worked is determined by the number of vacation days or days off desired over the year (for example, take into account 25 days not worked over the year).
  
• Charges : social security contributions and, where applicable, employer 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 references and customer recommendations which, if 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, speed of delivery, the personalized support you offer, etc.
  
• Geographical area where you live and can travel: rates are higher in large conurbations, and even more so in the Paris region.
  
• Your target salary, as explained below.

How to calculate the TJM

Based on gross target salary

One method of calculation 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. Bear in mind, however, 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 to estimate 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 net salary you're aiming for

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

Thus, to obtain €5,000 net, you'll need to earn €7,500. This amount must be divided by the number of days worked (19 per month), giving 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% (operating costs): €4,400
• x 1.54 (employer contributions, if executive status): €6,776
• Based on 19 days worked per month (i.e. around 1.5 months of inactivity or rest in the year)

TJM : 6 776/19 = 356.63 € HT

☝️ This is still an order of magnitude, and can be used to set the base price for a full-time assignment, based on the salaried employee scheme. As you probably 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 MRL

• 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 specifics of your offer.

• On the other hand, you can look at job offers posted by agencies or job boards, and see how much a client is willing to spend on 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 sales, or indicates a range of profits or taxes to be paid over one year. Various versions of the TJM-to-salary converter are available online.

ℹ️ For the more specific case of "portage salarial", a more precise simulation can also be found online.

Examples of GRR by sector of activity

Here are a few examples of average rates on today's market:

• TJM freelance developer: €508/day
• TJM marketing, webmarketing, SEO consultant: 563 €/day
• TJM project manager and agile coach: 644 €/day
• TJM 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 to track indicators based on ARR?

What does ADR represent for an agency or service company?

For agencies, IT service 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,
• experience,
• structure costs,
• type of assignment,
• length of assignment.

Use a tool to track your costs based on 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 better assess your costs, tools specially designed for agencies, service companies and ESNs enable you to track these steering indicators at the click of a button:

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

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

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

🛠️ Furious integrates profitability indicators, based on TJM, to precisely monitor the match between the data entered and the actual situation, and thus help you to better manage your projects. Thanks to a graphical display, you can see at a glance :

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

In a simple, efficient reading, you can check the alignment of these indicators and quickly identify areas for optimization, 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.

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Striking the right balance

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

This is why it's essential to sound out market prices, so as to position yourself in the best possible light and define 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 ultimately on the strategy you're aiming for to ensure your long-term survival.

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

It's up to you!