The definitive guide to calculating your billable rate

Recently on the WordPress South Africa Slack channel, a member asked the following question:

“Can we talk pricing? How do you figure out how much to charge for WordPress Development? What factors influence your pricing?”

A bunch of other freelancers (including myself) piped in and gave our opinions, but it was Nathan Jeffery’s post that really nailed it. (The figures below are quoted for South African currency/costs, but you can adjust it to your specific situation).

“Whether you charge a fixed rate or hourly the important thing to do is figure out your costs and from there work out your billable rate.

For example:

Monthly costs

• Rent: 7,000.00
• Adsl/Fibre/3G: 2,000.00
• Electricity: 1,500.00
• Food: 3,000.00
• Hardware (50k depreciated over 3 years): ±1,400.00
• Accounts and Auditing (10k per year split over 12 months): ±900.00

This makes your target income 15,800.00. Add a buffer of 20% for rainy day and savings, giving you 18,960.00 per month as a target

Potential billable hours

Next we need to determine how many hours can actually be worked in a month (on average).

If we assume you’re willing to work 10 hours per day and 6 days per week, that gives us 60 hours a week (240 hours per month) to work with.

Let’s assume that 60% of your time will be spent doing promotions, looking for opportunities, quoting, doing admin etc. This means you’ve only got 96 hours available in the month to work on paid work which is 4.8 hours of productive time per day, which is pretty reasonable.

Calculate your hourly rate

Based on these values we can work out an initial hourly rate.

Target (18,960.00) divided by potential billable hours (96) = 197.50 per hour, let’s round this up to 200.00.

This means if you’re booked 100% of your billable time, you could survive by charging 200.00 per hour.

The reality of the matter is that it’s unlikely you will be booked 100% of the time, at least not in the beginning, so you need to factor that into your survival costing.

Let’s assume you’ll be working 50% of the time which means you’ll need to charge twice as much per hour, therefore 400.00.

When working out your fixed cost quotes, you can/should use at least 400.00 per hour as your base rate to calculate what you should be charging.

You should also factor in time you need to allocate towards things like:

• Having a holiday and paying for it (if that is your thing)
• Learning and continued self development (the more you can do and the quicker you can do it, the more you can charge per hour)
• Time off sick (it sucks but it is a reality so you need to budget for it)
• Reserve for tax etc, if you’re invoicing in your own name you’ll be taxed as an individual and probably need to register for provisional tax. You need to make sure you keep enough money aside to pay your taxes when it’s required, don’t want to get in trouble with the taxman

This model can obviously be tweaked but should give you some idea as to what you’ll need to consider.”

Nathan was also kind enough to share a Generic Freelancer Costing Template that can be used to calculate your billable rate.

I can honestly say that is the best guide I’ve ever seen for calculating your billable rate. Instead of focusing on what your competitors are charging and merely going lower, are you billing according to your costs vs available work hours?

You can read about Nathan on his website or follow him on Twitter.