How to calculate sustainable translation rates based on target income
Includes free Cost2Target downloadable spreadsheet to carry out the calculations for you
Knowing how to calculate sustainable translation rates is one of the most difficult skills a freelance translator has to master. Cost2Target is here to help.
When starting out in business, translators are usually uncertain about how to charge for jobs. More often than not they are not sure how much to charge per unit of translation and what exactly to charge for. Can they and should they, for example, charge for time needed to follow a specific non-standard layout, late night work for an urgent translation? Inexperienced translators are often unaware of all the indirect costs associated with being a freelance translator. As a consequence, they don’t include them in their charges.
What is more, many new translators simply accept the rates agencies offer them. Only a few translators carry out some market research to find out what “the going rate” is. Many translators will quote what they think is achievable.
We believe that very few translators go to the trouble of working out how much they actually need to earn to make their business viable.
Therefore, to help you work out your costs and the target income you need to earn to cover those costs, we have developed Cost2Target. This free one-page spreadsheet will calculate your target income for you. It also lets you try different business models.
The aim of Cost2Target, the Business Planning and Modelling Tool
Most importantly, Cost2Target provides a free, easy-to-use tool that budding and established freelance translators can use to generate a business model for their translation business.
In section 1 the tool allows the creation of a basic scenario plus an extra three “what if?” scenarios. These, translators can then compare side by side with the original plan. What is more, you can create these scenarios by making changes to the five different variables in section 2. These feed into the model: capacity, productivity of chargeable and non-chargeable time, rates per word or per hour, client mix and business and personal expenses.
To give you one example: maybe you are achieving your target income by working too many hours. This is not sustainable in the long term. The spreadsheet will make you aware of problems by displaying a red flag in the dashboard. To meet your goals, all the flags in your model must be green.
Cost2Target is available to download free in this article.
We believe that, in general, there is a tendency among start-up translators to undercharge rather than overcharge. This often leads to problems in the long term. Please read our separate article about the subject of undercharging for translation services.
Can Cost2Target be used in any country?
Yes. But please be aware that other countries have different levels of tax, social and health insurance. Also, tax allowable expenses and personal allowances vary.
Some countries charge businesses additional fees. In Spain, for example, the government charges the self-employed a fixed monthly fee just for being in business, no matter how much they earn.
Cost2Target is based on the UK tax system. If you live in a different country, visit your local online tax office and find out which costs are allowable expenses for you.
Which details does Cost2Target analyse?
The tool has two sections. Section 1 consists of a dashboard summary that provides the business model and key data. Section 2 is the business analysis section where the translator can input all the data that feed into the dashboard summary.
We are assuming that you work from home and that you are the only source of income for the household.
Use our Cost2Target spreadsheet to work out your target income. Download Cost2Target here:Free Download
Download further instructions on how to use Cost2Target here:Free Download
Please note that the instruction sheet gives additional help with using Cost2Target. To fully understand the spreadsheet and its capabilities, please read the following page first.
Section 1: Dashboard Summary
1 Summary of yearly business profit and personal expenses
The second column (green text) gives you the option to set yourself targets.
Fill in your figures in section 2 for at least one of the business models on the right. Cost2Target will now make the relevant calculations and feed them into the dashboard.
You can now see whether your personal targets are achievable with the figures you have used.
If you change your initial figures in the last three columns in section 2, the dashboard will compare how you will fare with these amended figures.
We suggest you use Model 1 as the most likely scenario and use the other three to see what happens if…
If you are a new translator, a lot of these figures will be educated guesses or wishes. Keep a record of your initial guesses and see how you’ve fared a year later.
Section 2 Business Analysis
A. Income analysis
A.1 Working days per year
To start calculating your target income, we are going to look at the number of total annual working days.
This is the number of total days in the year minus the number of non-working days, such as weekends, holidays, sickness etc.
Non-working days represent lost income. They are a missed opportunity.
Cost2Target will deduct your annual non-working days from the number of total days in the year. The result is the number of productive working days.
A.2 Working hours per day
Additionally to knowing your working days, analysing your working hours is also a useful exercise.
We have divided this section into hours spent on translation projects, hours charged at an hourly rate and non-earning work activities. Furthermore, this section factors in time for work-related tasks which take up office time, because you will only get paid for this time, if you include it into your overall calculations.
Typical tasks you want to allow time for are:
- Dealing with client enquiries
- Admin, such as writing invoices, book-keeping etc.
- Marketing your freelance translation services
- Continuous Professional Development (CPD)
Maybe you can fit some of these tasks into slack times. But you need to allow time in your “working day budget”. You may need one day a week or more. We would suggest you include at least one day a month.
Don’t forget that you can increase productivity for your non-earning time, e.g. by using efficient ways to invoice your clients, subcontracting tax returns etc.
A.3 Productivity: translation output
Translators in the UK usually charge per word or per 1000 words. In Germany and other countries translators prefer to charge per standard amount of characters per line (standard line) or total amount of characters with spaces.
You can input words or lines translated per hour. Cost2Target will then calculate your output per day, week and year.
When working out how many words per hour you can translate on average, include time for research and proof-reading. Also take into account variations due to degree of difficulty. Remember that you need to use the average hourly rate, not the maximum rate of words you can translate per hour.
We have included time for other non-earning work in the productive working day calculations (A.2).
A.4 Calculation of average freelance translation rates
Translators usually work with different rates for different clients. Rates also reflect the degree of difficulty and other factors affecting the time and expertise needed for a translation.
This section allows you to input various rates and the percentage of your income charged at each of those rates. Based on this information Cost2Target will work out your average translation rate for freelance work.
If new to translating, you will have to make educated guesses, at best based on some market research of translation rates. This section will help you focus your mind on what you want to achieve. It can also show you what you need to do if you want to improve your business. For instance, if you want to increase your direct client base, you would need to do some extra work like direct marketing etc.
A.5 Calculation of average hourly rate
UK translators mainly invoice hourly rates for the revision of translations, language consultancy, interpreting and copy-editing.
As the minimum fee is usually based on the assumption that even small jobs take an hour, if you include admin time, we would suggest you include the number of minimum fee jobs in this section.
A.5 allows for two different hourly rates. Cost2Target will work out your average hourly rate based on the information you supply.
B Analysis of expenditure
B.1 Business capital expenditure: equipment and start-up costs
When starting up a business you’ll need to equip your office. IT hardware and software, telephones and reference material/dictionaries are basic necessities. Most households these days have computers, printers and telephones. But if you start a business, some of these items (or parts thereof) become business expenses.
CAT tools are essential these days. Because they would not usually be part of a private household’s software toolkit, they are a business expense.
Website development. A business needs their own website. If you can’t afford to commission a website immediately, set money aside and action as soon as your budget allows. Shop around for web designers.
We suggest you look at your start-up costs and estimate how long items are going to last you. Fill in the initial cost and the years of expected service life. Cost2Target will calculate an annual figure, so that you are budgeting for replacement of these items.
Start-up costs for translators are pretty low in the UK. But it is worth considering them.
B.2 Business running costs
Tax authorities allow you to put down a number of expenses against your tax liability. Because ‘Iolante’s head office is in the UK, we have used UK allowable expenses in our spreadsheet. These can easily be replaced with expenses applicable to your country of residence.
Expenses may include: use of your home as office (including heating and lighting portion for office space taken out of the general household expense), telephone and Internet costs (apportioned from general household bills), website costs (hosting, maintenance), membership of professional bodies (e.g. Chartered Institute of Linguists or Institute of Translation and Interpreting), stationery and postage, professional indemnity insurance, occupational disability insurance, software licence costs and IT support, CPD costs, miscellaneous (the safety margin to allow for unforeseen costs).
The total sum covers your total annual business costs. If you are just starting up, this will be an estimated figure.
If allowable, the tax authorities will deduct these costs from your income and reduce your tax bill accordingly. For the purposes of this calculation we are adding these costs to your target income, as you need to cover these expenses with your turnover.
It is your responsibility to check with your relevant tax authority (HMRC in the UK) which expenses are allowable.
Taxation rules are complicated and change annually, therefore we cannot give you details of taxes here. However, if you live in the UK, we recommend using HMRC’s tax calculator for the self-employed to work out your annual tax and national insurance accurately. Then add the figure to our spreadsheet.
If you live outside the UK, please consult your local tax authorities.
B.4 General living and personal expenditure
To work out your target income, you need to know your annual household expenditure. (Please note that these costs are not identical with tax-deductible costs in your income and expenditure account. Those are business costs covered above.)
Your annual household expenditure includes costs like rent or mortgage, council tax, utility bills, telephone and Internet charges, car (including tax, petrol, MOT, service, depreciation) or public transport costs. It is also made up of insurances (car, house etc), food, clothing, subscriptions (newspapers, magazines, TV etc), holidays, birthday/Christmas presents, health and beauty. Furthermore, you should add a post for miscellaneous. There’ll always be some unforeseen expense.
The total figure will be the bulk of your target annual income.
Basing your freelance rates on your annual costs (actual or estimated)
To calculate your target daily income, Cost2Target will first add your total annual living costs to your total business expenses (including taxes). It will then divide this figure by the number of working days.
You’ll now find all the relevant key data in the dashboard at the top of the Cost2Target spreadsheet.
Why the process is worth the trouble
You may have a number of reservations about the above way of working out freelance translation rates. The most obvious worry would be that pitching your freelance rates according to your target income may never get you a single job as you’d be well above the “going rate”.
Most importantly Cost2Target lets you see how much your turnover must be for you to have a profitable business. If you cannot cover your costs by charging rates clients will pay, you will have to cut costs or find ways of improving your productivity.
Once you have worked out the target figure, you must decide whether your proposed business will earn this amount of money. If not, what can you do to achieve the target amount? You may need to increase marketing efforts and networking. Alternatively, you may wish to diversify or target a different market. Another option is to change the service you provide or improve your qualifications.
Copyright © Iolante Ltd 2016. Cost2Target was developed by Ana Ricca del Rio, English-Spanish translator and qualified accountant, and Iolante’s directors.
Conditions of use
Cost2Target is available free for private use from www.iolante.com. It must not be uploaded or made available for download on other websites or distributed by other means for commercial gain without the prior written permission by Iolante Ltd.
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