Most freelancers and small business owners I talk to set their rate the same way: they look at what others charge and go a bit lower. Then they wonder why they're busy and broke.
Your rate isn't a guess. It's maths. Here's how to work it out before the new year.
Step 1: what do you want to earn?
Start with the salary you'd want if you were employed doing this work. Be realistic, but don't sell yourself short. Say $90,000.
Step 2: add the things an employer would pay for
When you work for yourself, nobody pays your KiwiSaver, your sick days or your laptop. Add your business costs for the year: software, insurance, accounting, equipment, phone, travel. Say $12,000.
Step 3: count the hours you can actually bill
This is where most people go wrong. There are 52 weeks in a year, but take off holidays, public holidays and sick days and you're closer to 44. Then remember not every hour is billable. Admin, quotes, marketing and chasing invoices take time. Most people bill 20 to 25 hours a week.
44 weeks x 22 hours = 968 billable hours.
Step 4: do the sum
($90,000 + $12,000) / 968 hours = about $105 an hour, before GST.
If that number makes you nervous, good. It means you've been undercharging. You don't have to jump there overnight, but it's the number to work towards.
What if clients push back?
Raise your rate for new clients first. Existing clients can move in January with notice.
Quote by the project, not the hour, when you can. Clients care about the result.
Lose the clients who only want cheap. They're usually the hardest work.
Work it out in 2 minutes
I built a free calculator that does this for you. Put in what you want to earn, your time off and your costs, and it gives you an hourly rate. Go to careermate.io/business-tools and tap Set my prices.
Want to talk it through? Book a free 20-minute chat with me, online or on the North Shore: careermate.io/freeintroduction. No pitch. You leave with one clear next step.
About me
I'm Chris Casey, a career and small business coach on Auckland's North Shore. I've hired, been hired, changed careers and started a business. I'm still working full time, leading marketing and technology teams across New Zealand and Australia.