The info graphic below will walk you through the steps to calculate your hourly rate. You can then include this figure in your costings when pricing your products.
Your hourly rate is a very personal figure. We all have our own ideas about what we would like to earn from our business and every business will have different levels of expenses.
No two businesses are the same!
Let’s take a look at each of those steps.
Step 1. This is where you need to be realistic, yes we would all like to earn millions if we could. Think about your business, is it a hobby, a part time or full time business? Do you just want a little extra spending money or does this business need to bring in enough to cover household bills and more?
(Don’t forget about tax and national insurance either. Income tax is payable on profits over £12,500. Class 2 national insurance is £158.60 and due on profits over £6,475 (voluntary under this) and class 4 national insurance is 9% on profits between £9,501 – £50,000 and 2% over £50k)
Step 2. Have a look at your current expenses and estimate if necessary.
Office Costs – Do you rent a workshop or office? – include all related costs for this. If you work from home you can use HMRC simplified rates for use of home https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
Travel & Motor Expenses – If you use you car – claim the mileage. If you have a van you can claim fuel, MOT, service and repairs, and other costs associated with the van. You can also claim for parking, train fares, subsistence, hotels (trade shows & exhibitions)
Office Supplies & Postage – Include all your stationery, printer inks & postage costs
Mobile phone – If you use your personal mobile – what percentage would you class as business use?
Marketing – This will include advertising (business cards, flyers, website) and networking
Equipment & Software – You can include any professional equipment, computers, furniture, one-off software purchases or software subscriptions
Subscriptions – Do you subscribe to any professional magazines or have any trade subscriptions?
Professional Fees – Legal and accountancy fees
Insurance – This will be your business insurance. Van insurance can be included above in motor expenses
Bank Fees – You can include fees from your bank as well as PayPal and other selling fees
Step 3. A simple calculation once you have your figures from step 1 & 2 – just add them together.
Step 4. I will do a little example here
- Total billable hours per year = 2,080 (40hrs pw x 52 wks pa)
- How many days per week do you want to work = 4
- How many hours will you work in a day = 6
- How many weeks holiday will you take in a year = 3 (1 week is 5 working days)
- Percentage of non-billable hours = 25%
Total hours per year = 1248 (6hrs x 4days x 52 wks)
Total holidays hours to deduct = 72 ( 6hrs x 12days) don’t forget you are only working 4 days pw
Total billable hours = 1176 x 0.75 (1248 – 72 x 75% billable hours)
= 882 hours per year
Step 5. Once you have all your figures, you just need to divide your adjusted desired earnings from step 3 by your billable hours in step 4. Don’t forget to round up.
Now take a look at this hourly rate.
Is it what you were expecting?
Is it higher or lower than what you currently charge?
Is it realistic?
This can be a little time consuming so take your time, there is no need to rush.