If you intend to charge using an hourly rate, it helps to know how much you are worth. Only then can you quote accurately and build a successful business that you can enjoy.
Calculating your hourly rate We think we have 52 weeks per annum available to work (i.e. 40 hours p/week = 2080 hours a year), but we don’t really. If you allow for holidays, sickness, professional development days, etc. – we then have about 1840 hours. Allowing for administration tasks, marketing, meeting with clients, promotion, travelling time, tea breaks, etc. we end up with approximately 1380 “chargeable” hours. Then we must look at our annual overheads like rent, vehicle, telephone, insurance, electricity and freight. Let’s say your annual overheads total $20,000. To arrive at your hourly rate add what you would like to earn in a year, let’s say $45,000, add the overheads of $20,000 and then divide by your available hours. Your hourly rate is (using the above example) about $47.10 per hour. [Or alternatively, Flying Solo’s rate calculator can be handy for working out your hourly rate].
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ProfitDecide on your margin for profit (and GST, if applicable). A profit margin, however small, has to be anticipated otherwise all you are doing is covering costs and not allowing development time for creating new products/services or new directions in your business. If you are selling through an agent, account for the rate of commission the agent will add to your price.
Securing your priceOnce you’ve accounted for all these factors and ascertained your price, you then need to ask another couple of questions:
- Would you buy the item/service at that price?
- Does it compare well with your competition’s pricing?