How Much Should I Charge?

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You've worked in a large corporation for several years and have more passion for your profession and customers than your coworkers, so you decide to go out on your own. How much are you going to charge? Suppose you are making $50,000 per year which is about $25 per hour. With dollar signs in your eyes you choose a rate of $50 per hour, twice what you were making. A perfect life, you set your own hours, make lots of money and don't have to put up with the complexities of corporate life. What could be better?

Have you really looked at all the expenses and problems of being completely independent? You have to pay for all the benefits that you had in the corporate world-or do without. I'm sure you've thought about the health insurance, retirement plan and perhaps a health club membership but have you considered access to a photocopier? Don't forget paid vacation and holidays. You can't forget vacations.

Your taxes will be higher not just because you will be in a higher tax bracket but you will need to pay taxes that you are not concerned with as a simple employee. In the United States this includes the corporate side of the social security tax. All of these expenses can be estimated and with a good calculator you can add them into your hourly rate.

Don't forget your basic overhead such as your phone, internet access and tools specific to your job. The money to pay for these things can only come from what you bill you clients. Actually it can only come from what they pay you. Sometimes a customer doesn't pay a bill and that also has to be factored into your costs.

Most starting entrepreneurs overlook the expense of non-billable time. You meet with a potential client, hand out brochures, show charts and graphs with a projector connected to your laptop computer. You hire someone to design and build a website for you. You go to a seminar on the latest trends in your industry. And if you ever do have a customer you need to spend time preparing and sending out bills. None of these necessary activities produce revenue. These are hard to estimate but they need to be built in your hourly rate.

Ok so now that you have determined your hourly rate, what is a billable hour? For example you are working at a client site and realize you need to go to the store to get a part. Do you charge the client for your time? Ask yourself 'Would I need to pay an employee for this time?' Of course! So you need to charge the customer for that time as well. If it is a cost to you it has to be a cost to the client.

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