Even if you’ve already set the hourly rate for your services, it’s important to be sure that this rate (across the hours that you have available to work ) is actually enough to make a profit. If you’ve been running your business for a number of years and you work long hours, both “on” and “in” your business – determining – and regularly tracking – your hourly rate is actually also a really interesting metric!
Typically, when you’re starting out in business, you’ll probably find that your hourly rate when (run through our hourly rate calculator) comes out quite low. Why? Because you’ll likely be working longer hours than when your business is established, you’ll still be growing a reputation for yourself and obtaining customers / clients, and you may have larger initial / one-off setup costs. It can be quite satisfying tracking this metric over time and (hopefully) watching your hourly rate go up. In an ideal world, as your business grows and evolves – especially if you are scaling up and hiring team members, you’ll need to work fewer hours to generate income meaning that when you do work, the rate attributable to that time is essentially higher if that makes sense!
How to Set your Hourly Rate
Setting an hourly rate involves considering several factors, especially for service-based businesses.
Here are the key guidelines to follow:
- Calculate your total income-producing hours per year
- Include time off for annual leave, public holidays, personal leave, professional development, business administration, and non-billable meetings.
- For example, with 40 working weeks (accounting for various leaves and non-billable activities), working 40 hours per week would give you a maximum of 1,600 income-producing hours per year.
- Consider a billing conversion rate, such as 65%, resulting in 1,040 billable hours per year.
- Determine your total business operating costs:
- Include expenses like leasing a business premises, licences, permits, insurance, banking fees, and professional services.
- Work out your hourly rate:
- Consider desired profit, capital investments, costs of goods or materials / sales, and industry-specific rates.
What to do if a client questions your rate/quote:
- Know your worth and stand your ground. Remember the study that you’ve done in order to achieve your knowledge and that often those clients that try and bargain you down, are the ones that cause the most problems longer-term.
- If you do decide to agree to a lower price, do your best to adjust your project scope accordingly, and make it clear that you won’t be able to continue to provide discounts in the future.
- Ensure that your revised fee will still be enough to generate a profit by reviewing your cost of sales.
Need help calculating and tracking your hourly rate?
Try our hourly rate calculator, and don’t hesitate to get in touch with our team should you need help.
