How to work out your hourly rate

How do I work out my hourly rate?

Start from what you want to keep, add what you set aside and what the business costs, then divide by the hours you can really bill in a year.

Rate = (income you want to keep × (1 + set-aside %) + yearly business costs) ÷ billable hours in the year.

Hourly rate worked example

Example figures only. You want to keep $60,000. You choose to set aside 20% (your own choice, for taxes or anything else). Yearly business costs are $12,000.

$60,000 × 1.20 = $72,000. Add $12,000 and you need $84,000 of billing.

You work 48 weeks and bill 25 hours a week, so 1,200 billable hours. $84,000 ÷ 1,200 = $70.00 an hour.

Why do billable hours matter so much?

Change one number and see. If you could bill 40 hours a week, you would have 1,920 hours and the rate would be $84,000 ÷ 1,920 = $43.75. At 25 billable hours the same goals need $70.00. Use a number you will actually bill, not the length of your working week.

How do I get a day rate?

Multiply the hourly rate by the billable hours in a day. With 6 billable hours in a day, $70.00 × 6 = $420.00. The day rate is for billable hours only, so do not use the hours of a full workday if part of it is unbilled.

Try it with your own figures

Type your income, set-aside percentage, costs, weeks off and billable hours, and the calculator shows each step. The result is arithmetic on your numbers, not a market rate for your trade. Compare it with what your clients expect before you decide.