Pricing for wimps: Your minimum hourly rate
As a soloist, how do you determine what your hourly rate should be? Use this simple three-step formula to help you work out the minimum hourly rate you should be charging.
Why focus on your minimum hourly rate?
Focusing on your minimum hourly rate – your floor – sounds woefully pessimistic, but it really isn’t. Most soloists who calculate their hourly rate quickly realise they’re currently charging less than the minimum they should be and raise their prices quick smart.
In fact, one of the top reasons soloists don’t make a decent profit is because they are, unknowingly, charging less than their floor. Here’s how to calculate yours.
1. How many billable hours can you expect to work in a year?
This sounds pretty simple and the quick answer is 1920 hours, based on 48 working weeks, each 40-hours long.
But that misses the point. The average soloist spends about 50 percent of their time marketing, selling, administering, learning, re-doing client work, doing client work that can’t be billed, and the list goes on. All of those are hours that don’t earn dollars.
"Most soloists who calculate their hourly rate quickly realise they’re currently charging less than the minimum they should be and raise their prices quick smart."
On average, if you’re a soloist working 1920 hours a year, it’s likely you’re working around 1000 billable hours. If you’d like to get scientific about tracking your billable time, set up a time sheet and record the number of hours you work and where the time is going..
2. How much do you want to earn this year?
This is just about being honest with yourself. How much would you really like to earn?
I encourage you to be bold with this because once you pop a figure into your head, it’s unlikely you’re going to exceed it. To that end you might like to up your target by a sneaky 10 percent.
3. Do the maths
All that’s left to be done is to divide your desired earnings (from point 2 above) by your billable hours (from point 1). The number you arrive at is your floor, your minimum hourly rate.
So if you want to earn $150,000 a year, and you have 1000 hours in which to do it, you know that you simply can’t charge less than $150 per hour.
Of course you probably don’t want to set your rate as the floor, but it gives you a good base on which to build your pricing strategy.
What else do you need to consider?
If you’d like to get more sophisticated and factor in the impact of the costs of running your business and your other commitments, have a play with Flying Solo’s pricing calculator before you set your fees.
Have you gone through the process of calculating your minimum hourly rate? What did you learn?
Read the full ‘Pricing for wimps’ series:
- Getting started
- How to get the price you want
- Should I charge the same as my competitors?
- The four-letter words that backfire
- Should I give a quantity discount?
- Do I have to charge everyone the same?
- Your customers’ biggest fear
- How to price for speed
- Be the boss of your price
- Raising prices