How Much Should I Charge Per Hour?

Paul DESIGN Leave a Comment

WHERE DO I START?

If you're a creative thinking about leaving a shop or you're just starting out, you need to have a plan. First and foremost, if you're a "freelancer" (I hate that term), you need to understand that what you really are is "self-employed". You're representing yourself as a business, not some sort of electronics mercenary.

Just like you would if you were a lawyer or an accountant, you need to have a business plan. I'm not going to get into creating business plans in this article. Once complete, you can periodically refer back to it to help you stay on track. You can even change it if it sucks. It's your plan, knock yourself out.

 

"Price is what you pay. Value is what you get."

-Warren Buffet

Big Mistakes

First mistake , The problem with creatives is that they're....well, creative. Many of us don't think like business people, and that's where a lot of us fail. I can't go more than two days of my life without someone asking.. "How much should I charge per hour"?

Think about it for a second...

Why does my rate have any bearing on what you're charging per hour or project?



The only person who can answer how much you should charge for your services is you. Nobody knows your costs, needs, desire or clients. So how could you expect them to answer such an important question? Nonetheless, people will tell them $30, $50, $70 per hour. How in the hell do they know? It's literally the fastest way to go out of business. No planning, just picking a random number and hoping it works out.

Second mistake, now that the person has an arbitrary number given to him by a random person (that he doesn't know is profitable) from a country or state unkown, he takes that number and multiplies it by the average work week. $60 per hour x 40 hours per week = $2400 per week or $124,800 per year. That sounds good to him, so he decides that should be his hourly rate.

Do you see the problem here? You're basing your salary on a work week that doesn't exist. What happens if you work 10 hours per week? Now you're below the poverty level in the US. This is how quickly real life sets in.

PRICING YOUR SERVICES

Now that you've started thinking in terms of a business and a business plan. Lets get down to setting your prices. The first step in setting your prices is knowing your costs.

  • Materials Costs:
      These are the costs of goods used in providing your services. You need to factor in costs of themes, plugins, online courses, etc.


  • Overhead Costs:
      These are the indirect costs of running your business. Overhead costs include things like assistants, bringing in a developer for "once in awhile" help, your monthly rent, taxes, insurance, advertising, office supplies, utilities, mileage, etc.


  • Pay Yourself:
      Now it's time to pay yourself. That's right, You actually have to pay yourself. Figure out an amount that you want to make per week, month, or year.


Now that you've figured out all of your costs and included your salary it's time to make a profit! That's why you're in business right? To make an actual profit.

CALCULATING PROFIT

Let's Do Math! Yeah 🙁

There's a simple formula for calculating gross margin percentage: gross margin = 100 * profit / revenue. That will give you your gross margin as a percentage.

Want to calculate profit? profit = revenue - costs, so an alternative margin formula is: margin = 100 * (revenue - costs) / revenue.

Now that you know how to calculate profit margin, here's the formula for revenue: revenue = 100 * profit / margin.

And finally, to calculate how much you can pay, given your margin and revenue (or profit), do: costs = revenue - margin * revenue / 100

If math isn't your strong suit, here's a handy calculator to help you out.

Margin Calculator

MY THOUGHTS

I've been on the planet for nearly a half century now. I'd like to think I know something about self employment. Other than a job at a grocery store when i was 16, I've been self employed my entire life.

If I could give a young creative or any aspiring entrepreneur some advice this would be it;

"Be Apple Not Microsoft"

What do I mean by that?... I mean deliver a good product or service and charge a premium for it. Don't try to be cheaper than the other guy, be better than the other guy.

"When you charge more for your services wonderful and mysterious things happen."

First of all, you do better work. Why? because your customer paid a premium to work with you. There's no need to take shortcuts.

Second, you're not stressed about money and deadlines.

Third, your customers are happier, because you're more attentive to their needs. Why? because they paid a premium to work with you, and you don't want to disappoint them.

In the end, you're doing better work and you're creating raving fans charging a premium that you can comfortably live on. What could be better than that?

Last but not least, if you're not getting any objections to your pricing, you're too cheap.

GET STARTED TODAY

You're now armed with everything you need to figure out how much you should charge per hour. Take your time, do the math and you'll come to price point that works for you, and make you profitable.

Good Luck!

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