I'm so thrilled when I get to write one of those blogs I wish I had read when I started freelancing.
How much is your time worth?
Seems a simple enough question, but I cannot tell you how long it took me to calculate a rate I found fair for both my clients and me. This is because the answer is based on a number of business decisions, from maximising productivity to deciding which tasks to delegate or outsource.
Looking up how other people charge for their time won’t help you much either, because it’s a very individual calculation.
So in this tutorial, I’ll show you exactly how to calculate the value of an hour of your time.
DAY RATE CALCULATION
252 working days (entire year minus weekends)
- (h) days for national holidays, personal holiday and emergency sick day
= number of billable days (b)
Desired salary = £40k + 33%* = 53,200
Divided by b = net day rate
+ 35% Tax and National Insurance
= your gross day rate
*your pay rise for contingencies
Feel free to round up your gross day rate so that it is easier to communicate. It may save you having to continually explain why your hourly rate is £47.61.
The above calculation gives you a baseline. For some people, it may be pretty accurate as it is, but for others, it may need some refining.
So in that situation, you may need to make some adjustments. You could refer to your business plan or financial model and use some of the estimated profit figures for future years instead of the historical ones. Or you could increase your current net earnings by your expected annual growth rate. For example, if you made £50,000 this year but expect to grow at 10% a year, you could increase your earnings by 10% to £55,000.
I hope you found this calculation straightforward. If you have any questions just drop me a line or speak with your accountant.