How to Calculate

Your Hourly Rate

A handy download brought to you by your friends at Hoodzpah for Adobe Create.

Pricing. The horror! The terror! Ack! Setting your rates can seem daunting,
even scary. But with the right equations you can find the right rate for
your situation.Even if you don’t charge for your creative work by the
hour, knowing your hourly rate gives you a baseline from which you can
calculate flat rate quotes. This download is an excerpt from our book about
how to start and run a creative small business: Freelance, and Business, and
Stuff: A Guide for Creatives. For more insights into creating your budget,
communicating the value of your pricing, raising your rates, creating
winning proposals, and everything else that goes into running a happy,
healthy small business, grab a copy of the book here!

STEP 1

Calculate your Billable

Hours (BH) per year.
(BH per week) x (work weeks per year) = BH per year

“Billable hours” (BH) are hours worked that you can bill your clients for
(design time and project management time on their projects). Billable
hours don’t include the time you spend on your own business (marketing,
bookkeeping, updating your website, running your social media). To
calculate an hourly rate that is most competitive and fair to industry rates,
calculate your rate as if you are working full-time freelance, even if you
aren’t. Here’s how we like to estimate our billable hours:

52 weeks in a year
- 4 weeks off throughout the year (sick days, vacation, emergencies, etc).
This makes for 48 work weeks/year.

Most work weeks contain 40 hours. But oftentimes, only 50 - 70% of that
time is made up of Billable Hours (20 - 30 hours). Let’s take the average of
that, and say 25 hours in your work week are Billable Hours (BH).

Example: (25 BH per week) x (48 work weeks per year) = 1200 BH per year.
 STEP 2

Calculate Your Yearly Business

Income Goal.

Business Expenses
+ Business Taxes
+ Business Profit

= Your Business Income Goal

Again, let’s estimate this part as if you are full-time freelance. For
business expenses, include your personal salary, as well as the costs
involved with running your business. Things like your software
subscriptions, equipment, business insurance, website hosting, office/
desk rent, etc. You’ll also want to account for taxes. Save extra for those
(ask your accountant how much). And lastly, you want to make a profit
at the end of the year. At Hoodzpah, our goal early on was to try and save
up 2 months of operating expenses for our business, so we had a cash
cushion in case work ever got slow. So we made that our goal profit.

STEP 3

Crunch the numbers!

(Yearly Business Income Goal) ÷ (BH per year) = Baseline hourly rate

This formula is a way to find a baseline hourly rate. But it’s only a starting
point. You might consider a lower hourly rate for production work versus
creative work. Your creative rate is a great number to use when you
estimate your flat rate projects.

Example: $90,000 ÷ 1344 = $66.9 / hour

How do you know if your rate is right?
When do you raise/lower it?
We calculated your rate based on your unique cost of living and needs. But
that doesn’t mean it’s the rate you have to keep. You might feel you deserve
more, based on how much similar creatives charge. Or maybe this rate you
calculated feels too high if you’re very young in your career.

You can raise or lower your hourly rate depending on your experience, the
demand for your work, and your location (if you work with local clients).
Adjust it to what best suits your situation, but also consider what your
audience can support/afford. Test your rates regularly, especially if you’re
too busy with work (a great time to raise your rates, since the demand is
clearly there).

If you can’t land work at your desired rate, you might need to better
educate your potential clients on why you’re worth the investment.
Or maybe your target audience can’t afford your rate, and you should
reposition who your work appeals to.

A special note about hourly rates

Your hourly rate is a great way to calculate flat rate quotes. But remember,
an hourly rate doesn’t always account for the value of a project. So if a
project has more value than just the time involved in you creating it,
consider quoting the project as a flat rate, so you can add in the extra value
beyond your time and equipment.

Best of luck in your

self-employed adventures!

Cheers,

Jen Hood and Amy Hood

Co-founders of Hoodzpah
A branding studio out of Southern
California

Hoodzpahdesign.com

For more from Adobe Create Magazine,

visit create.adobe.com
Want to learn more about starting
and running your own successful
creative business?
We cover it all in our book Freelance, and Business, and Stuff: A Guide for
Creatives. It’s written by creatives, for creatives. If you’ve dreamed of doing
work you’re passionate about and controlling more of your creative destiny,
we feel you. We show you all the ins and outs of freelancing, and help you
avoid the common mistakes. Check out the book here*.

“So helpful, well written, and more “This book is hands down the most
than I got out of school.” helpful resource I’ve found as a
- Anna McNaughty creative! .”
- Addison K.

*If you’ve printed this out, go to www.hoodzpahdesign.com and search

“Freelance and business and stuff” to find it.