How to Set Your Hourly Rate

What You Need to Know

In order to determine your hourly rate, you need to know the following information:

          • How much you want your annual salary to be each year.

          • How much you pay your employees in salary each year.

          • How many hours you'll work per year.

          • How much overhead you have per year.

          • Your profit goals

1. Determine Total Salary Costs : Your Annual Salary + Employee Salaries

Determine a salary based on the average income for designers in your area.

No special reports needed. Just check .

If you have employees or anticipate hiring them, figure their salaries into this equation as well.

Add your salary and your total employee salaries.

This is your salary costs.

Multiply salary costs times 0.30 (30%) to cover for Taxes, FICA, and Insurance

Add this number to your salary costs.

This is your Total Salary

2. Determine Billable Hours Per Year

First, determine the number of Total work Hours per Year:

(40 hours per week times 52 weeks per year or 2080 hours.)

Subtract holidays, sick days and vacation days.

                                      A typical US corporation has:

                                     • 7-10 paid holidays per year (56 - 80 hours)

                                     • 2 weeks vacation (80 hours)

                                     • 1 week sick time (40 hours)

This is your Workable Hours per Year

Multiply your workable hours per year times 0.25 because approximately 25% of your work hours won't be billable to a client:

Rule of thumb: about 25% of your workable hours will be spent on activities you can't bill for. More established or efficient businesses may be low as 15% while new businesses might be as high as 50%

hours spent on administrative details.

This is your Billable Hours per Year

3. Your Base Rate

Divide your total salary by your billable hours

This is your Base Rate

4. Determine Your Overhead Rate

Divide overhead costs by your total salary to get your overhead percentage.

Add this percentage to your base rate to get your overhead rate.

This is the rate you need to charge to cover both salaries and overhead.

This is your Overhead percentage

Multiply your overhead percentage times your base rate, and add them together.

This is your Overhead Rate

5. Profits Percentage

Decide the percentage of profit you’d like to earn. In the United States, a business has only a few years to show no profit before they are considered a failed endeavor. So it's a good idea to put some extra money into your rate to show a profit. I don't recommend aiming for a lower profit than 10% - I like to aim for 20% profit.

Multiply your overhead rate times 20% and add that to your overhead rate

This is your Hourly Rate

Round up or down to get a number that sounds friendlier like $150 or $185 per hour.


Excerpts from the article by Jennifer Kyrnin
Image by Jabiru

1 comment:

  1. Very helpful. Many designers wonder if their hourly rate is sufficient. This covers the age old question of rates (and fees) without discussing actual dollar amounts. Thanks for posting!