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Designers, how to charge your hourly rates

SUMMARY

1. Determine Salary
2. Calculate cost of your business
3. Determine your working hours
4. Hourly Rate = (Salary – Business cost) ÷ Working hours

When you’re starting out as an independent designer, I know it’s difficult to set a fee for your client.

What if I set it too high? That’ll scare the customer away. What if I set it too low? I’ll make a loss! But I need clients! Perhaps I’ll set it low for just this time. Wait a minute, how low is too low?

I have been in your shoes. When I started as an independent designer, I was under-charging my services. The obvious need for clients meant that I lowered my fees to make sure I clinched the deal.

However, I found out the journey working on that project was negatively impacting my business and health. I worried that I was spending too much time on the project. When I limited the time, I was not delivering my best results.

After facing the same problem with my first few clients, I knew I needed to be confident with my fees to produce results without worrying about time and cost.

Here’s how I calculated my fees:

 

1. Set your salary

I set mine at $70,000, which is about $5,000 more than my last annual salary. Why would you set a lower annual salary when you have the experience?

 

2. Calculate the costs of doing business

These are my costs of running a design business. Remember, include costs that are unique to your business. It is better to over budget and to find extra money in the bank at the end of the year!

Logistics and Tools
Workspace = $4,000 (WeWork)
Office Supplies = $620
Phone = $700 ($1,300 every 2 years)
Laptop = $1,800 ($3,600 every 2 years)
 
Software
Project Management = $300 (DaPulse)
Accounting = $600 (Xero)
Programmes = $720 (Adobe CC)
 
Bills
Web Hosting = $360 (WP Engine)
Phone bills = $600 ($50 per month)
Internet = $1,000 ($83 per month)
 
Miscellaneous
Accountant = $1,000
Healthcare = $4,800
Self-Employed Tax = $6,000

Total business cost per year = $22,500

 

3. Determine your hours

There are 1,820 working hours in a year, but you will not be spending all those hours working. Take into account holidays, leave and other business duties that are not billed:

Office Hours
In a day = 7 hours
In a year = 1,820 hours a year
 
Rest Hours
3 weeks leave = 105 hours
14 days public holidays = 70 hours
14 days sick leave = 70 hours
 
Billable hours
Working hours = 1,575 hours
20% time spent on administration work = 315 hours
Billable hours = 1,260 hours

 

4. Charge!

Now you have determined your annual salary, recorded the cost of running your business, know how many hours you can work, it’s time to set your hourly rate! I included a profit margin as an option because I use that money to invest in my business. It’s up to you if you want to mark up your price (although I highly suggest that you do!)

Base Hourly Rate
Desired annual salary + Cost of running a business / Billable hours
= [70,000 + 22,500] / 1260
= $73.40 per hour
 
Profit Margin Markup
25% of hourly rate = $18.35
 
Hourly Rate Fees
Base hourly rate + profit margin
= $73.40 + $18.35
= $91.75

And there you go! $92 per hour!

If you think this price is too high, you can increase your office hours a day, reduce the time spent on administration or lower profit margin!

Calculate yours in a different way? Let me know!

SUMMARY

1. Determine Salary
2. Calculate cost of your business
3. Determine your working hours
4. Hourly Rate = (Salary – Business cost) ÷ Working hours