Working out your hourly rate

People often ask me how much they should be charging. What they’re thinking of is the market rate and where they sit on the sliding scale of value.

But it is also worth thinking about what you want/need to earn for yourself.

  1. How much do you want to take home after tax each month?
  2. Multiply by 12 to find your annual requirements.
  3. How much profit do you need before tax? For quick calculations like these I usually work on 30% for tax/NI for sole traders or corporation/dividend tax for limited company shareholders.
  4. What are your overheads? I use a lot of software to automate repetitive parts of my business so mine might be higher than a business which does everything manually. Add these costs to your profits to find out the turnover you need to generate.
  5. Now work out how many hours you want to work a week. When my kids were small I worked an average of 25 hours a week to build my accountancy business.
  6. How many weeks holiday do you want each year? How many weeks will you work?
  7. Multiply the average number of hours per week by the number of weeks you want to work to give you your annual working hours.
  8. How many days a week will you work on your business? The sort of time that you can’t charge to clients such as strategy, management, marketing, networking, CPD. I spend a lot of time generating content in the form of books, talks, courses and free webinars so only 2 days a week am I actually earning money from all that content. This means that I’m only charging 2/5 of my time.
  9. Now comes the big reveal: divide your required turnover from (4) by your working hours from (7) and then multiply by your chargeable fraction from (8). This will give you your minimum hourly rate.
  10. Now sense check whether you are worth this amount. Do you need to cut your costs, cut your personal income, or increase your hours? Can you pay for a little automation or manpower which will increase your costs but free up your chargeable time?
  11. Once you’ve set your minimum hourly rate and you are sure that it is realistic then you should be very strict with yourself about NOT undertaking any work that generates less than this rate.

You can, of course, set up your own spreadsheet but if you’d like a copy of mine then please contact us via our form with ‘HOURLY RATE’ in the title. It’s free and will save your precious time!