How To Realistically Set Your Fees – Part 1

Calculating Billable Hours Myth Vs. Reality We all recognize there are 52 weeks in a year and forty working hours in every week. Therefore, we are able to bill 2080 hours per yr, right. Wrong. Too often this is the lure that many new provider agencies fall into.

The first step in calculating your billable hours is to define a practical running year. If you were employed somewhere else, you would anticipate or want at the least two weeks vacation time, one week ill time, one week non-public time and paid vacations. So, where does that go away us – fifty two weeks minus four weeks leaves forty eight weeks minus about 10 paid holidays, or a complete of about 46 weeks according to yr.
OK, you are saying, which means I can nonetheless invoice for 46 weeks instances forty hours in line with week or 1840 hours consistent with 12 months. If I price $25 per hour that comes to $forty six,000.

Not horrific, that is greater than I changed into making on my previous activity. Wrong.
What you’ve got just set up is a realistic running 12 months, no longer the number of billable hours. You nevertheless want to account for advertising time, administrative time, bookkeeping time, device protection, persevering with schooling, etc. You also need to calculate in equivalent time for self-employment tax, local commercial enterprise taxes, and many others. In many locales, this could upload as much as an additional 20% or so in time or cash.

If we count on approximately one hour in line with day for marketing and one hour in line with day for administrative, and many others., (and this is a totally conservative estimate, then we want to subtract: 46 weeks times five days according to week equals 230 days at 2 hours according to day equals 460 hours, from 1840, for billable time left in a yr of 1380 hours. Now subtract about 20% for the above taxes or 276 hours and that leaves you with 1104 billable hours in a year. And this will nevertheless be excessive, however at this point, you could see to earn that $46,000 consistent with 12 months you may want to rate $46,000 divided 1104 hours or about $forty two in line with hour.

There are many factors which need to be examined in placing your expenses. We’ll examine those objects that want to be taken into account, which include business expenses, insurance, pensions and earnings margin, in upcoming articles.
Hopefully, this text has as a minimum pointed you inside the proper direction.

Next article we’re going to take a extra intensive study the role charges play in setting your costs.