Your Going & True Rates
by Brian S. Konradt of BSK Communications
Determining Your Going Rate
You should know how much you want to earn in one year and what you ought
to be charging per hour. This is called your "going rate." You
can figure out your hourly rate — or how much you want to earn per
hour — by using the familiar 60-30-10 rule.
Commercial freelance writers spend 60 percent working on projects and
assignments, 30 percent of their time marketing, and 10 percent doing
administrative work, like sending out invoices, doing bookkeeping
duties, etc. Suppose you'll be working eight hours a day, five days a
week. Since 60 percent of eight hours is four hours and forty-eight
minutes, you will be working about 25 billable hours a week.
To figure out your hourly rate, follow this example: 50 weeks (in one
year) x 25 billable hours per week=1,250 billable hours per year.
Let's say you want to earn $65,000 in a year. Divide $65,000 by 1,250
billable hours. You come up with $52 per hour.
This means, in order to earn $65,000 in one year, you'll probably charge
$52 per hour for your time. The average gross income of an established
commercial freelancer is between $50,000 and $85,000. If you want to
earn $50,000 in one year, you'll probably charge $40 an hour for your
time. I say "probably charge $40 an hour" because you can also
charge less per hour and put in more billable hours during the day. Or
you can charge $40 an hour, work less hours, and have a second source of
income, such as seminar-speaking, writing articles and books, or doing
other consulting-related work.
Another way to figure out your going rate is to decide how much you are
committed to earning this year. Let's say you want to earn $65,000 in
one year. You'll be working about 2,000 hours a year.
Step 1: Multiply 2,000 hours by 40% (non-billable) marketing and
administrative work combined. This equals 800.
Step 2: Subtract 2,000 - 800. This equals 1200. This means you'll
probably be working 1,200 billable hours a year.
Step 3: Divide $65,000 by 1,200 hours. The answer is 54. This
means you'll probably be charging $54 per hour to earn $65,000 in a
year. Notice how similar this answer is to the answer from the 60-30-10
rule. Both processes are similar.
Determining Your True Rate
As you plan out how to start and manage your business, you must figure
in your overhead; these are costs of social security, health care, paid
vacation days, paid sick days, and what it'll cost to run your business
on a daily basis. Your overhead also includes costs of marketing on a
continuous basis. All of these "hidden" costs are a
pain-in-the-neck and generally take out at least between 15-30 percent
of what you expect to earn in one year. It's almost impossible to figure
out your overhead the first year you're in business; to figure out an
accurate overhead, you'll need to rely on information from the previous
year. However, keeping a daily account book will help you assess your
costs on a continuous basis. Overhead, if you're not careful with your
expenses, can drain your business.
If you expect to earn $50,000 in one year, your profit then is ($50,000
- 30% overhead) $35,000. This means that your "true" hourly
rate is really ($40 an hour - 30%) $28.00.
In order to make $50,000 as your True rate in one year, you'll
"probably charge" $52.00 per hour for your time, instead of
$40 an hour.
The best way to figure out what it'll cost you to run your business and
what you might be paying for self-employment tax and health insurance is
to call up your local Small Business Association for a free
consultation. You can also visit your local accountant for professional
advice. Once you have this information, it's necessary to begin a
thorough, specific business plan and to record all expenses in a ledger
or a software program (I use QuickBooks), updating it at least once a
week. THE END