How to figure out the value of your work as a freelancer
Working out your value and how much to charge is hard. When you’re starting out, you want as many new clients as you can so you might start low (and probably haven’t really factored in what to pay yourself) and then realise later you can’t keep it up. Probably because it’s really hard to live off 9p noodles for a long time (trust me we’ve all been there and tried), but also because the sheer volume of work you would need to do to survive isn’t achievable. But DON’T PANIC. This process of working out your value as a freelancer (and realising that maybe vegetables are an important part of any diet) is perfectly normal and there is a simple way to work out how much to charge using billable hours.
For the most part billable hours work by you directly charging the client for your time, there are industries and jobs where that might not work. For example, as a baker you might have set costs depending on how big a cake a client wants. Well, you can still use billable hours to make certain that you’re paying yourself a sustainable wage, as well as covering the costs of raw materials or ingredients. Remember that your salary has to be built into whatever you charge so make sure it’s something you can live off!
1. Work out your adjusted annual salary
Start with your target salary - yes we all want to be multi-millionaires but it’s worth being realistic here (e.g. £50,000).
Then calculate your business expenses and overheads. Think of this part as all your bills, both to do with your business (again with not wanting to eat 9p noodles forever). It will cover everything from if you pay for office space, and a work phone, to internet access and raw materials (e.g. £10,000).
Finally, work out your adjusted annual salary. Take your ideal salary and add on your cost of business (those costs that you have to cover to operate the business). This gives you an idea of how much you need to earn to run your business and pay yourself what you’d like.
So the adjusted salary here would be:
£50,000 + £10,000 = £60,000
2. Work out what your billable hours are per year
To start with you need to work out the total billable hours you want to work that year. There are about 260 working days in a year (taking off just weekends) in the UK. You then want to take off any holidays, bank holidays or sick days you think you’ll want to take for example 40 days. This leaves you with 220 workable days. Then work out how many hours you’d ideally want to work in a day (e.g. 8 hours a day). Which gives you 8 hours a day for 220 days (8x220) which gives you 1760 billable hours.
Now, adjust your billable hours for admin. We all know that not all of your time will be spent on actual billable client hours. Sometimes you have to make phone calls, catch up on admin, spend time on marketing and all sorts of other tasks. So this doesn’t eat into your downtime make sure to allow for 25% of your time to be spent on non-billable activities:
1760 hours x 0.75 = 1320 billable hours per year
3. Work out your overall hourly rate
Last but not least, calculate your hourly rate. You do this by dividing your adjusted annual salary with billable hours per year:
60,000 / 1320 = £45.45 (round up to make a nice number)
Billable rate = £45.50 per hour
Now you know how much to charge!
An important note for any of those crafty people, or those running a business that involves buying a lot of variable products for each job. Your billable hours can make the base of your costing model but don’t forget to add on top for any basic raw materials that you need for the job. For example, if you were baking a cake that would take you 4 hours to make and you needed to spend an extra £50 on ingredients (outside of the costs of the basic running of your business) then you could charge the client: 4 hours x £45.40 + £50 for extra ingredients = £232.
Hopefully now you can go back to living the freelance dream and earning a little more than just enough for a bowl of noodles. Or maybe earn enough for a really fancy bowl if that’s what you’re into.