Rough exercise to calculate your hourly rate

If you’re thinking of going into business for yourself, but not sure what to charge as an hourly rate, you might find it useful to look at it from the other way around, namely:

How much do you need per hour to make your annual salary?

To find out, here’s a very quick and rough exercise:

  1. Choose the lowest annual wage you feel you’d be comfortable starting out with (e.g. £30k)
  2. Times it by 0.7 (i.e. being overly generous in the amount of taxes you’ll pay)
  3. Divide it by 48 (e.g. give yourself four weeks holiday a year)
  4. Divide it again by 5 (e.g. the five working days of the week)
  5. Divide it again by 6 (e.g. if you had a nice working day, but not getting paid for lunch!)
  6. You’ve now got your hourly rate – if you sell your time per hour, this is the minimum that you need to charge

So, in our above example, if you wanted to make a salary of £30k a year, you’d need to charge £14.58 p/h or more.

Of course, this is assuming you’re working 6 paid hours every day, for 5 days a week, for 48 weeks a year – which in your first year is probably unlikely!

So then you’ll need to play around with the figures until you find something that is a reasonable balance between hourly rate and amount of paid hours you realistically expect to be able to work.

The point is not to get it right, or set in stone, it’s just a quick exercise to help focus on the specifics of hourly rate.

Most importantly, it’ll help you start deciding on what your time is really worth; and this is the true value of working for yourself.

N.B. Even if you’re not charging per hour, or even in business for yourself, using your current salary this is a great exercise to get an idea of what your time is worth – and help you decide if it’s time to make some changes 🙂

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