Calculate Your Hourly Rate
Now, you may be saying to yourself "I don't want to charge by the hour. I need to know what to charge to design a brochure or do a newsletter." But before you can calculate how much to charge for specific projects you need to know how much your time is worth. That's your hourly rate. In "Expand the Plan for Your Desktop Publishing Business" we made some preliminary calculations to arrive at an hourly rate. Now we'll fine-tune those numbers and introduce profit into the equation.
One basic formula is Salary + Overhead + Profit / Billable Hours = Hourly Rate. That rate may then need to be adjusted based on market conditions but to arrive at a starting point you need to figure out how much of a salary you want or need to make, what your expenses are, how much profit you'd like to generate, and how many billable hours you can put in.
- Salary. This is what you want to earn. What you want to be able to pay yourself. It might be based on what you earned in past jobs, what you might be earning doing this same type of work for an employer, and what you know it takes to maintain the lifestyle that you want.
- Overhead. This is what it costs to run your business. These are your office supplies, utilities, software, costs of advertising, educational costs, self-employment taxes — all your business expenses.
- Profit. Profit is over and beyond what you pay yourself. It's money left over after paying yourself and paying the bills that can then be used to reward yourself for being a good business person (your Christmas bonus) or it can be put back into the business to pay for a new, expanded marketing program. New businesses, if they make a profit, will often put it back into the company in the early years in order to help grow the business.
- Billable Hours. This will require some research. If you've done desktop publishing work previously you may already have a good idea how long it takes to do specific types of projects. What you'll need to also take into account is non-billable hours necessary to running a business such as bookkeeping tasks and marketing. The exercises in "Do You Have the Time to Do Freelance Design?" can help you develop a realistic idea of how many hours you can expect to spend doing billable work.
- Hourly Rate. (1+2+3)/4 = 5 This is your starting point.
Adjust Your Hourly Rate
After you know what you need to charge per hour in order to pay the bills, pay yourself what you want to make, and turn a profit without working more hours than you've planned, it's time to see if that's a realistic rate. You do this by doing some research. Find out what other designers are charging, especially those in your area and those doing the same type of work. You may also need to calculate flat fees or project pricing - based on your hourly rate - to see if that's in keeping with market conditions in your area and within the comfort zone of your potential clients.
If you find you need to adjust your hourly rate down then you're going to have to take a cut in salary, trim some expenses, lower your profit expectations, or increase your billable hours in order to make up for the cut.
Your Assignment: Using this lesson and the resources in the sidebar, calculate an hourly rate for your business based on your actual expenses, desired salary, and projected billable hours.
Next Page > Calculate Your Flat Fee or Project Estimate
Freelance Design > Start a Business > Pricing Your Desktop Publishing Services
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