How do I work out my hourly rate?

This is one of the first questions many freelancers ask AFTER setting up their freelance business. When I started up my online writing business, I was lucky to have a great mentor, a former boss of mine from a well-known, Blue Chip company.  One of the first questions he asked me was ‘how do you work out your hourly rate?’. So I told him.  I want to earn at least 20k per annum in my first few years. There are 52 weeks in the year, so I need to earn £384.62 per week.  Working around 8 hours per day for five days per week, that means I need to charge £10 per hour roughly, the extra being to make up for shortfalls, other business etc.

 

I heard him laughing down the phone.  You see, I have a business degree, but they teach you nothing about earning your own money through your own business. More, how to run someone else’s business and earn a high wage as an MD or something similar. Needless to say, my idea of an hourly rate was completely unrealistic.  Do you want to know how I work out my hourly rate?  He asked me.  Yes, I said.

1.       Add up overheads.  These are costs associated with running the business that you pay whether you have work or not.  The internet connection is a big one because I still have to pay my broadband bill, even if I have no work.

2.       Work out the minimum you need to live on No point working just to pay your business running costs!

3.       Work out how many hours, realistically, you can work.  8 hours a day is a nice thought, but who is going to pay me for 8 hours work when I’m a freelance writer?  Who is going to pay me to update my accounts, spend a few hours on an afternoon marketing for new customers or writing on forums to build my business?  No one. Certainly not anyone with any sense. So the rate needs to take into account that I won’t be doing an hourly paid 8 hours.

In the end, you know what I did to work out my hourly rate?  Nothing.  I don't have one. I decided to quote on a per piece basis and increase my prices as my testimonials and experience grew. It’s a much better way to do it in the freelance writing business. I have different prices for different ‘products’, just like in a supermarket or bakery. I don’t want to pay more for a loaf of bread that took the baker longer to make than usual because he had a hangover.  I want to pay the going rate for a loaf of bread.  If he wants to make a better profit margin on that loaf, he better learn to do it quicker, better and with more economy. And that is how I run my business – with a  simple pricing structure that’s fair to everyone. All of my clients know what they’re going to pay before I start, they don’t get wacked with an invoice for an unknown amount. It also means I can grow my business by outsourcing work on a per peice price basis.

So my rate consists of:

-          What is the market rate for this kind of ‘product’

-          How long does it take me to complete one of these (roughly, some will be longer, some will be less)?

I then have a minimum number of pieces I need to do each month and because I don’t put a price on my time, I can make as much or as little money as my marketing allows.