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Pricing projects: The “easy” way, part 2

Last updated on January 23, 2023

Do you know how to price yourself? Most people pick an hourly rate and then work until they’ve put in the hours needed to net the wage that they need. In reality, they need to start by asking “How many hours do I want to work each week?” and “How much money do I want to take home after taxes?” and backtracking from there. This is more complicated than it really needs to be, and is affected by your spouse’s income. Contact an accountant or other tax professional to get a better sense of how your self-employed income affects your overall family tax burden.

Again, as I run through this exercise, I’m going to use nice, round numbers for the sake of visualization, and presume that your income is the only one in the equation.

How Many Hours Do You Want to Work?

Let’s say that you want to be in the office no more than 40 hours a week. In a best-case scenario, when everything is cruising along beautifully, you’ll spend a minimum of 25% of

your time on non-billable work. (Admittedly, though, there will be times where your non-billables can easily creep as high as 40% of your work week, although I try to balance them with the natural peaks and valleys of the work cycle.) These non-billable tasks include:

  • Proposals
  • Invoicing
  • Marketing
  • Blogging/social media
  • IT troubleshooting
  • Professional development (reading books and blogs, studying new techniques, market research, etc.)
  • Administrative miscellany

But for mathematical purposes, we’ll assume that you’re billing for 30 hours of your 40-hour week.

How Do You Calculate Hourly Pricing?

To me, the most sensible way to calculate hourly pricing is to start with your net “salary.” Let’s say that you want to net approximately $50,000/year. You’re most likely going to need to bill for twice that. You’re going to need to cover:

  • Expenses: Computers, software, web hosting, phone, internet, legal and accounting fees, office space, paper, toner, travel, education, marketing, etc. These are deducted off the top and cost more than you assume at first glance.
  • SEP-IRA: The 25% maximum annual contribution to your retirement. You want to contribute to this as much as possible. Not only does it put money towards your future, but it reduces your tax burden. I don’t know about you, but I’d rather give that money to my future self than to the government.
  • Federal, state and local taxes: This online calculator may help you determine roughly how much you will owe.

Now, let’s take a look at the days you’re actually working. We have 52 weeks in the year. There are approximately 10 federal holidays in the U.S., and you’ll want at least two weeks off. With that in mind, you’ll be working a maximum of 48 weeks a year.

$100,000/48 weeks = $2,083/week

$2,083/30 hours per week = $69.43/hour

So, with that in mind, you’ll want to charge no less than $70/hour for your services.

Want to work less? Ok. At 25 billable hours per week, you need to charge $83.32/hour. At 30 hours a week, but twice as much time off for vacation, you’ll need to charge $72.46/hour.

What if you charge less? If you charge an arbitrarily selected $50/hour, you’ll need to be in the office for 52 hours per week.

How have you been setting your prices? How do you best achieve your target income?

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