Written by Emilie Brunet on August 24, 2023
Maybe you're charging $30/hour because you know that if you worked 40 hours per week, 50 weeks a year, you'd be making $60k a year.
The problem is that you're not considering two key things:
Let’s dive into how to properly calculate your hourly rate!
This might be the longest step but it’s very important. You need to take the time to figure out how much money you’re currently spending to run your freelance business.
If your instinct is to think, “Nothing. I’m a web developer. I’m just using my laptop.”
Well you just missed out on your first expense.
If you’ve been working as a freelancer for the last year, take the time to go through your credit card and bank account statements for these expenses:
If you haven’t been working yet for a year, look forward to the upcoming year and make an estimate on what you think these costs might be.
You can’t work 24 hours per day, 7 days per year, 52 weeks of the year. (Nor should you want to!)
One of the awesome things about freelance is being able to make a schedule that works for you and allows you to live a life outside of work.
But in order to do that you need to figure out how many hours per year you’re realistically going to be able to put towards your freelance business.
If you’re jumping in with two feet, and planning to make it your full-time job, that’s great, but are you going to work weekends? How many vacations are you going to take per year? What happens if you get sick?
Figure out your yearly working hours by noting:
A hard truth about working freelance: Just because you can work 40 hours a week, doesn’t mean you can bill 40 hours a week.
There will be hours and hours of work that you dedicate to your business that you won’t actually be able to charge your clients for.
You can’t charge your clients for the number of hours you spend on:
And yet, those hours will add up. So whatever your hourly billing rate is needs to take into account that you need to get paid for all the hours you spend working on your business.
Spend a couple weeks tracking how much time you spend working on the administrative side of your business vs how much time you spend actually on client work.
Then, to figure out the number of hours that you’ll bill for per year.
[Billable hours per week] x [Work Weeks per year] = Billable hours per year
If we were to ask, “what is your desired salary?” I’d be hard pressed to find anyone who doesn’t want to be making at least $100k per year. (Especially with inflation and the cost of housing nowadays, am I right? 😬)
But, in this case, think about finding a balance between:
This can fluctuate based on your life expenses and the cost of living for where you are.
Note: Your desired salary is before income tax.
With all this information we can now put it all together to calculate your billable rate. This is the formula:
([Your Desired Yearly Salary] + [Yearly Expenses]) / [Billable Hours] = Hourly Billing Rate
Let’s say that $60k a year would allow you to pay your bills comfortably, put some money aside for retirement and cover your monthly rent.
You add up all your business expenses for the year and it has you at about $1,200.
(Note: This is definitely on the very low end of the spectrum for yearly expenses, but when you’re just starting off and have limited clients, you can usually make do with less fancy equipment and software!)
And let’s imagine that you’ll work 47 weeks per year, this is considering that you’ll want about 5 weeks of vacation, holidays and sick days (25 days).
Maybe you spend an average of about 28 hours a week on billable work and another 12 hours per week on admin work for a total of 40 hours of working per week.
Plug it all in to the formula and we have the following:
($60,000 + $1,200) / [(28 hours) x (47 weeks)]
= $61,200 / 1,316 hours
= $46.50/hour
This is your billable rate before sales tax.
Once you have your hourly rate, you’ll want to do a few things:
I'm the People & Culture Manager at Journey Education. I have always had a passion for writing, organization and finding creative solutions. I aim to be personable, empathetic and compassionate and believe that kindness can go along way in both business and life.
Having worked and organized with anti-capitalist, feminist and queer organizations, I strongly believe that EVERYONE deserves, not just a living wage, but a thriving wage and that it should be the priority of every business to create an inclusive, caring and diverse work environment that doesn't just ensures the work happens, but allows people to be people while the work is happening!
My approach to everything I do reflects my training in trauma-informed practices, active listening and harm reduction as well as my interest in understand the way people work, behave and exist as their full human self. I want to create safer spaces for people to explore, create and excel in a supportive environment - whether that's in life or at work.
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